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Can Man Group's [EMG] share price exit its downward spiral?

Kuwait’s Public Institution for Social Security filed a lawsuit against Man Group [EMG.L] – the third-largest hedge fund in the world – and its subsidiaries in November 2018 for allegedly entering into secret contracts with a former PIFSS executive between 1996 and 2013. The Kuwait pension fund is suing in a UK court for $156m.

“The subject matter of these allegations dates back over 20 years and, based on the evidence we have seen to date, Man Group will dispute any claim and intends to vigorously and robustly defend any proceedings,” the firm said in response to the allegations.

“The subject matter of these allegations dates back over 20 years and, based on the evidence we have seen to date, Man Group will dispute any claim and intends to vigorously and robustly defend any proceedings” - Man Group's response to the Kuwait PIFSS's allegations

The Middle Eastern social-security institution said the lawsuit was initiated due to newly implemented measures to combat corruption.

Following the announcement on 9 January 2019, Man Group’s shares were down 3.3%.

As a whole, Man Group’s stock is down more than 32% since this time last year, despite reporting a record-breaking $114bn in its assets under management for the third quarter 2018, up 0.4% from the previous quarter, due to investment gains and net inflows. Analysts had estimated 0.5%.Powered by CMC Markets, as at 17 January 2019

 

Hedge funds are coming out of their worst year in seven years, with several firms in the FTSE 100 seeing losses of more than 20% during 2018. The FTSE All-Share is down more than 10% since this time last year.

As a result of asset-management stocks’ poor performances, investors and traders are uncertain of the industry as lower fees, increased regulation and rising market volatility saturate the market.

 

What's next?

The firm reported relatively positive financials for the third quarter, including a 0.3% gain in funds under management and $0.4bn in net inflows, and is expected to release its Q4 2018 results on 1 March 2019.

 

Market cap£2.18bn
PE Ratio (TTM)8.80
EPS (TTM)16.20

Man Group stock vitals, Yahoo finance, as at 17 January 2019

 

On Man Group’s financial performance, Shore Capital’s analyst Paul McGinnis said it “operates a superior business model” in the industry. The group’s strategies “have the ability to capture additional revenue during periods of strong investment performance”, he added.

Known for its computer-driven equity, Man Group’s business strategy is to use advances in machine learning, artificial intelligence and other computing technologies to gain an edge over its competitors in trading and execution.  

“We want to use that in our alpha generation, in our trade execution, in our portfolio construction, in the way we interact with clients, in the way our back-office processes work, in the way our risk management processes work,” said Luke Ellis, Man Group’s CEO.

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