Man Group To Spin Off Brokerage From Asset Management

by Carla Johnson, Investors Offshore.com

06 April 2007

The Board of Man Group, the world's largest listed hedge fund company, has confirmed plans to separate its Brokerage business, Man Financial, from its asset management business, subject to shareholder approval.

The Man Group Board said that it has conducted a "thorough review" in conjunction with its financial advisers and believes that both the Brokerage and Asset Management businesses will be best placed to maximise future returns and growth opportunities through focused independent strategies and appropriate individual capital structures. The Board also believes that significant value will be created for Man Group shareholders from a separation.

Man Financial, the Brokerage business, will be renamed “MF Global” with effect from the separation. Kevin Davis, currently managing director of Man Financial, will become CEO of MF Global, Chris Smith will be COO and Deputy CEO, and Amy Butte will be CFO. The non-executive Chairman will be Alison Carnwath.

The proposed separation will be effected by an initial public offering on the New York Stock Exchange of a majority interest in MF Global and is intended to take place in the third calendar quarter of 2007, subject to market conditions remaining favourable. It is expected that the net proceeds from the offering will be returned to shareholders later in the year, and it is further expected that this will be in the form of a B share arrangement combined with a share consolidation, subject to shareholder approval. It is anticipated that both Man Group and MF Global’s overall credit rating will be as good as the existing Group ratings.

Man Group said it will update the market as further decisions on the planned separation are made.

Peter Clarke, Group Chief Executive of Man Group, commented:

“The separation of Brokerage from our Asset Management business reflects the strong growth and leading market positions we have achieved in both businesses. Separation will allow each business to focus even more effectively on their separate growth strategies and take advantage of the significant business development opportunities in each of their industries. We believe that an IPO of MF Global will create significant value for Man Group shareholders and that Man Group’s focus on its leading position in the fast growing alternative investment industry will generate further long-term value for shareholders.

"Both businesses enjoyed strong progress in the second half of the financial year. Our Asset Management business has seen continued asset raising in the second half and further significant growth in management fee income. This success reflects the wide geographical reach of our distribution, the continued attractiveness of our product range and the broad spread of investment management content. Net income growth in the Brokerage business will be up significantly reflecting active markets, a growing international presence and a broadening product offering.”

Man Group also announced profit before tax for the year ending 31 March 2007 will be in line with consensus market expectations. Net management fee income will be up by 30% on the prior year, driven by the high level of sales. Net performance fee income will be down around 15% from last year, reflecting a smaller contribution from AHL offset by a significant increase in performance fees from Man Global Strategies and RMF. Brokerage net income will be up 45% reflecting both strong organic growth in active markets and the successful integration and build-out of the acquired Refco assets.

Sales for the year are estimated to be $15.9 billion, split 54% private investor product and 46% institutional product. Sales for the three months to 31 March 2007 are estimated to be $2.8 billion. The three months sales comprise previous global launches which accounted for $0.5 billion; joint ventures for $0.3 billion; other private investor sales which mainly relate to open-ended funds for $0.4 billion; and institutional sales for $1.6 billion. Reflecting the level of sales, funds under management have risen and are currently estimated to be over $61 billion up from $49.9 billion at 31 March 2006 (over $60 billion at 31 December 2006). The split of funds under management is private investor $36 billion (31 March 2006: $30.4 billion) and institutional $25 billion (31 March 2006: $19.5 billion).

Redemptions for the year were $6.6 billion, of which private investor were $3.2 billion, which, as a percentage of funds under management, remain at the low end of long-term experience. Included in this figure are redemptions for the three months to 31 March 2007 totalling $1.9 billion, of which private investor were $1.1 billion. Also in the quarter were maturities of around $0.3 billion and negative performance of around $0.5 billion offset by positive FX of around $0.2 billion.

Man Group will announce its preliminary results for the financial year on 31 May 2007.

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