Lowered Stock Price Target for Man Group due to concerns over performance fees
Rewritten Article:
Man Group's share price outlook takes a hit due to Peel Hunt's downward revision, sparked by performance fee fears in 2025. The investment powerhouse may witness a severe fall in returns, causing a stir in the financial world.
In a recent financial disclosure, Britain's leading hedge fund reported a staggering loss of $5.6 billion in the initial fortnight of April, primarily due to market volatility. This unexpected loss has left analysts pondering, as alternative asset managers, known for their resilience in crisis, have taken a severe beating.
"Turbulent markets are toxic ground for trend-following strategies," assert Peel Hunt analysts, Stephen Payne and Stuart Duncan.
Given the current situation, Peel Hunt has slashed the group's performance fee predictions for the current year by an alarming 59%. With most of Man Group's performance fee-eligible funds underwater, a steep decline was inevitable.
The trouble seems to be confined to four of Man Group's strategies: AHL Alpha, AHL Dimension, AHL Evolution, and AHL Diversified. These strategies have seen a steep fall over the past three months and the past year.
The performance concerns have led to a dramatic 34% reduction in forecasted pre-tax profit for the year, with Peel Hunt now predicting a sum of £274 million.
While 2026's pre-tax profit forecast experienced a 17% downgrade, 2027 saw a relatively mild 9% adjustment. As a result, Man Group's price target plunged from 229p to 197p, compared to its current price of 165p.
Despite the stock's recent slide by over 20% over the last month, Peel Hunt upgraded Man Group's rating from an "Add" to a "Buy."
"Shares have modestly declined, reaching an affordably low price-to-earnings ratio of eight times," commented the analysts. "Considering market cap as a proportion of assets under management, Man Group currently trades at 1.4%, far less than its historical average of more than two per cent."
Enrichment Insights:- AHL Strategy Flaws: The $5.6 billion loss was mainly due to Man Group's AHL Alpha, Dimension, Evolution, and Diversified funds, which experienced significant drops during volatile markets affected by trade wars and tariffs.- Performance Fee Conundrum: BofA Securities projects a 38% Earnings Per Share (EPS) decline for 2025 due to weaker performance fees tied to AHL’s poor returns.- Redemptions Risk: Although Q1 2025 saw net inflows of $3.6 billion, assets had shrunk to $167 billion by mid-April due to post-tariff market turmoil. Analysts anticipate further redemptions, potentially impacting net flows.- Macroeconomic Obstacles: Trump's tariffs caused market volatility, directly affecting trend-following strategies like AHL. Moreover, the S&P 500's de-rating, which reflects tariff-related profit risks, could have spillover effects on alternative asset managers.- Alternative Assets Focus: Performance fees remain a concern, as they are crucial for alternative strategies, despite management fees remaining stable due to cost controls. BofA predicts a 2026 EPS normalization, contingent on AHL’s recovery and subdued trade tensions.- Analyst Actions: JPMorgan downgraded Man Group to a "neutral" stance due to AHL-specific risks and net flow concerns. BofA reduced its price target to £2.35, reflecting lower 2025–2026 EPS estimates. Man Group's $100 million buyback program offers limited relief against the current headwinds.
- The performance issues at Man Group, particularly with the AHL Alpha, Dimension, Evolution, and Diversified funds, are attributed to the volatile markets impacted by trade wars and tariffs.
- BofA Securities anticipates a 38% decline in Earnings Per Share (EPS) for 2025, primarily due to weaker performance fees tied to Man Group's AHL strategies, which have struggled due to market volatility.
- The turmoil in the markets has led to concerns about further redemptions, potentially affecting net flows for Man Group, as assets under management shrunk to $167 billion by mid-April.
- Despite the challenges faced by Man Group, Peel Hunt upgraded its rating from an "Add" to a "Buy," noting that the shares have modestly declined and currently trade at a low price-to-earnings ratio, offering opportunities for investing in the finance sector.
