Assets at Man Group, the largest publicly traded hedge fund, declined nearly 10% during the fourth quarter to finish the year on $58.4 billion (€46 billion).
The decline included $2.5 billion of net outflows, $1.5 billion of negative investment returns and $2.1 billion of losses relating to currency movements, which were driven largely by degearing guaranteed products.
The London-based company promised to reduce operating costs by $75 million in 2012, on top of previously announced cost cuts. Man Group did not say whether this will include layoffs. Some analysts believe the company should consider cutting pay and staff numbers, particularly at its GLG subsidiary, which it bought in 2010.
Man Group blamed volatility and reduced liquidity in the second half of 2011 for its negative performance but said its wide range of investment styles should allow it to profit when markets normalise.
However, there are difficult times ahead. Man Group and other hedge funds must bear the cost of compliance with the Alternative Investment Fund Managers (Aifm) directive in Europe, a cost estimated at $6 billion across the hedge fund industry by the Alternative Investment Management Association.
In addition there is the threat of a financial transaction tax in Europe which would be disastrous for hedge funds.
Man Group is better positioned to cope with these changes than smaller hedge funds because it can afford to invest more in regulatory compliance. Its size should also help it continue to attract the institutional money that has sustained the hedge fund industry since the 2008 crisis.
But the company must turn around recent bad performance if it is to survive and flourish.
©2012 funds europe