In the good old days, when Peter Clarke was finance director of Man Group, his job was to count the winnings as the AHL computer programme churned out excellent investment returns and enormous management fees. Back then, annual cash bonuses of £5m or £7m were the norm in the boardroom and executives could expect even bigger windfalls when their share options matured. AHL was a sensation, averaging an 18% annual return.
Clarke succeeded Stanley Fink as chief executive in March 2007 and, at first, seemed to have a golden inheritance. The year 2007 was a triumph (AHL up 19%) and 2008 was better (up 33%) as AHL's momentum-following programme capitalised on the bust in bank stocks, the collapse in commodity prices and the surge in government bonds.
These were gifts for trend-following computer systems. Man's shares, which had been 82p at the turn of the century, peaked at 600p in mid-2008. The boast that hedge funds – and computer-run momentum funds in particular – protect investors whatever the financial weather looked robust.
Markets can, however, make fools of those who believe their own publicity. Man Group was hopelessly unprepared for the day AHL stopped performing, which is what happened in 2009 (down 20%). The company has blamed all manner of ills for the computer's failure to find clear and profitable trends – quantitative easing; the eurozone crisis; politicians interfering in markets. But the notion that normal service would return quickly has proved empty. AHL today remains 14% below its high point (which is when juicy performance-related fees kick in).
Investors, asked to pay hefty basic management fees, have voted with their feet, noting that rival trend-followers such as Winton and Bluecrest have performed better in recent years. At its peak, AHL had an astonishing $27bn under management; in June this year it had $16.7bn.
There is little Clarke could have done to stop the rot. That's the job for the PhD boffins who programme the computer (who, incidentally, seem to have been too clever by half with some of their tweaks). But the board's search for salvation through diversification has not paid off.
Man overpaid for GLG – a traditional fund manager in the sense that human beings, rather than computers, make the investment decisions – in a $1.6bn deal in 2010. And the jury is out on whether expansion into fund-of-funds will work. Clarke's exit in February is, therefore, no surprise. He is probably weary; and shareholders, suffering a sub-100p share price, are tired of familiar excuses.
Manny Roman, who was chief executive of GLG and has been Man's chief operating officer since the deal, is the new boss. He, in common with his ex-GLG partners, is loaded up with Man shares so may be motivated to attack costs with greater force. But AHL's rut is the bigger problem, and a change of chief executive does little on that score.
What it does is buy time for a rethink on strategy and inject a sense of urgency. One can understand why rival hedge fund managers –, such as Odey, which has taken a 3% stake, are betting that the decline of Man cannot get much worse.
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