Withered hedge funds set for severe autumn pruning

Times Online – Who would be in hedge funds right now? Man Group, which has long traded on its name as the world’s largest hedge fund manager, yesterday found the tag something of a liability.

The shares lost 35½p to 398p before a trading update next Monday, making a 46 per cent fall in six weeks, with analysts saying that it is heavily exposed to the whole hedge fund industry through its fund of funds portfolio. Barclays’ index of hedge fund performance shows a 5.6 per cent fall in the year so far to the end of August. Hedgies relied on high borrowing to generate high returns. Most are now being forced to sell positions to cut debt.

Meanwhile, there are growing question marks over Man’s flagship AHL managed futures fund, as its performance has slipped in the past quarter and the short-selling ban may have an impact on its strategy. Man itself is still available to be shorted.

Investec, which cut its target price from 650p to 460p, said: “The hedge fund industry looks set for further negative press, possibly impacting on short-term fund flows at Man, as well as its near-term share price performance.” Kaupthing cut its earnings forecast but held its 630p target pointing out that the AHL fund was still up 3 to 4 per cent in the year so far.

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