UK's Man Group Buys Swiss RMF Hedge Fund Manager

by Jason Gorringe, Investors Offshore, London

24 May 2002

Hedge fund operator Man Group announced on Thursday that it would acquire Switzerland's RMF for $833m in cash and shares, and said it would become the biggest hedge fund manager in the world with almost $20bn in managed assets. Man is paying $510m in cash and the balance in newly issued shares for RMF.Yesterday the group raised $260m in a placing of new shares, which was successfully completed within an hour in London and was three times covered at a price of 900p.

Man also yesterday reported a 21% increase in pre-tax profits to £193m, at the top end of City expectations. After initially falling sharply, the shares rallied to 944p, down 4p.

RMF, named after the initials of its founder, Rainier-Marc Frey, specialises in managing hedge funds for institutional investors, particularly Swiss insurance companies.

Mr Frey, who is 38, will receive $321m, mostly in cash and many of RMF's other 180 employees will also share in the payout. Stanley Fink, Man Chief Executive, said he understood why RMF had wanted the bulk of the consideration in cash: 'It's natural they want to take a few chips off the table,' he said.

Man chairman Harvey McGrath said the deal was transformational for Man, broadening its product range, improving access to asset management capacity and diversifying the client base.

Analysts broadly welcomed the deal, saying it would smooth volatility in Man's earnings because of RMF's low reliance on performance fees, but questioned the price being paid, which at nearly 10% of RMF's $9.5bn of managed assets was high for a fund-of-funds operator. Performance fees represented almost half of Man's pre-tax profits last year

Mr Fink said the deal would enhance earnings from 2004, even without expected revenue synergies, pointing out that only a modest shift by institutions to increase their exposure to hedge funds could add several billions of dollars in assets from RMF's existing clients.

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