Man Group Seeks To Build A Colossus With GLG Partners

As a former M&A banker, Man Group CEO Peter Clarke knows the importance of integrating operations thoroughly after a merger.

As a former M&A banker, Man Group CEO Peter Clarke knows the importance of integrating operations thoroughly after a merger. So following Man’s blockbuster purchase of GLG Partners last year — which created the world’s largest hedge fund manager, with more than $69 billion in assets — Clarke was determined to bridge the yawning gap between GLG’s brash entrepreneurial culture, which gives free rein to its star portfolio managers and lets staff dress casually at its office in London’s swank Mayfair district, and the buttoned-down corporate atmosphere at Man, whose core business relies on finely honed computer systems rather than individual personalities and whose City of London office brims with suits.

“One of the biggest cultural questions we faced as a result of the merger with GLG was whether or not jeans should be allowed in our offices,” Clarke says in a recent interview in Man’s boardroom, sporting a well-cut dark gray suit and a crisp white shirt with no tie. So he put the matter to a vote in the management committee, “and now people are allowed to wear jeans in Man’s Sugar Quay building as well as in GLG’s Curzon Street office,” he says. The change has yet to filter down to the shop floor, though. Formal business attire still predominates at Man’s headquarters, while many of GLG’s staff — including principal Pierre Lagrange, whose scruffy goatee and shoulder-length hair make him look more like a rock star than a fund manager — appear to regard jeans as part of their uniform.

The sartorial contrast may seem trivial, but it’s symbolic of deeper differences in style and business practices at the two outfits. Over two decades beginning in the mid-1980s, Man transformed itself from a commodities trading firm into the world’s largest hedge fund manager by acquiring managed-futures traders and fund-of-funds operations and then selling their products aggressively through a high-powered marketing network, mostly to retail clients in Europe and Asia. Its main unit, $23.6 billion-in-assets AHL, is a virtual black box, relying on quantitative formulas refined by armies of Ph.D.s to follow — and profit from — price trends in everything from currencies and commodities to stocks and bonds. In an industry defined by larger-than-life personalities such as Steven Cohen, John Paulson and George Soros, Man is an anomaly. Cognoscenti in the City and on Wall Street would be hard-pressed to identify a single one of its fund managers. The names that come to mind — Clarke and his predecessor Stanley Fink — are both lawyers by training.

GLG, on the other hand, is a hedge fund manager’s hedge fund. Founded by a trio of former Goldman Sachs Group private client bankers, the firm fostered a star culture by attracting elite proprietary traders from leading investment banks and giving them the freedom to follow their own strategies. The formula was both wildly successful — institutional investors enamored of GLG’s trading gurus have swelled the firm’s assets to more than $30 billion — and inherently unstable: The departure of one star trader, Greg Coffey, three years ago triggered outflows of several billion dollars.

Rather than try to meld these differences, Clarke hopes to exploit them. A lack of internal investment management expertise was inhibiting Man’s growth potential, he contends. “It was increasingly apparent that clients, especially those in Asia, wanted direct exposure to a discretionary single manager,” he says. Clarke plans to feed that appetite by marketing GLG’s suite of funds through Man’s distribution network. He is also teaming Man’s quants with GLG managers to come up with an array of new products designed to appeal to institutional investors. He believes that combining the very different business models of Man and GLG will jump-start growth — that, in effect, one plus one will equal more than two.

Actually, Clarke has a far bigger number in mind. He is confident that the newly fortified Man Group can become not only the world’s first $100 billion hedge fund but the first to surpass $200 billion. Not that he comes out and says it directly, but it’s implicit in his outlook. “I anticipate the hedge fund industry in five to ten years will be three to five times the size it is now, and I expect Man to grow commensurately,” he tells Institutional Investor.

Is the investment world ready for a $200 billion Man? Industry executives and analysts have their doubts. Many funds have found it hard to maintain good returns as their size has grown large relative to the markets in which they invest. When James Simons launched Renaissance Technologies’ Institutional Equities Fund in 2005, for example, he boasted that the strategy could theoretically manage $100 billion and still beat the market handily. Actual performance has lagged, though, and the fund currently has slightly more than $4.6 billion in assets.

“It’s very difficult to look that far ahead, but those are very optimistic figures,” one prominent London hedge fund manager says of Clarke’s forecast. “It’s not the sort of thing I would say if I planned to be around in five or ten years’ time.” That view is shared by Alexandre Pigault, head of research at hedge fund consulting firm Allenbridge Group.“It’s very difficult to forecast where the industry will be in five to ten years’ time, but three to five times growth is very optimistic,” he says.

Some are less skeptical. Clarke’s projection is “a little aggressive but not far-fetched,” says Mark Yusko, CEO of Morgan Creek Capital Management, a Chapel Hill, North Carolina–based investment manager and adviser. “While $100 billion sounds like a huge amount of money, relative to the size of global financial markets at $50 trillion-plus it is not that significant. There are plenty of great firms that can generate alpha, and we do believe that a firm of that size could achieve solid returns.”

When asked about the potential impact of size on returns, Clarke insists he isn’t fixated on the sheer volume of assets alone. “Our focus is on providing superior risk-adjusted returns, and if we continue to do that, we should be capable of growing commensurately with the market. We’re not chasing volume for its own sake. We are very concerned to protect existing investors’ return expectations through careful use of leverage and recognizing capacity constraints in some underlying strategies.”

Lagrange offers a somewhat tempered assessment of the new company’s growth potential. He contends that GLG faces few expansion constraints because it is a collection of 40 relatively small funds that are closed when they reach capacity. The firm recently closed its Alpha Select strategy, which is managed by John White and invests in U.K. equities, when it reached $550 million. Lagrange believes GLG’s managers could boost assets by two thirds, to at least $50 billion, in the next few years under Man’s parentage. “There is a massive opportunity here to create the best of breed,” he says.

Clarke and Lagrange have yet to prove they can deliver on that vision. The enlarged Man Group attracted just $100 million of new money into alternatives in the fourth quarter of 2010 — the first quarter after the merger — while losing a $1 billion long-only mandate from an undisclosed sovereign wealth fund shifting out of European equities.

The lack of overlap between the two firms means they haven’t had any client defections so far, although some customers are keeping a close eye on the group. “We chose Man on its own strengths, and we’ve been very impressed with the service levels so far,” says Emily Porter-Lynch, manager for absolute-return strategies at the U.K.’s Universities Superannuation Scheme, which awarded Man a $1 billion managed-account mandate in early 2010. But, she adds, “mergers can bring about management changes, so we’re monitoring events closely, as we don’t want the service to be affected.”

Clarke also runs the risk that his new partners could soon depart, taking much of the value of the acquisition with them. GLG’s senior managers have quit large institutions twice in search of greater autonomy: They left Goldman in 1995 to set up their hedge fund business under the parentage of Lehman Brothers Holdings, broke away from Lehman in 2004 and in 2007 floated the firm on the New York Stock Exchange.

GLG’s three principals — Lagrange, who manages $2 billion as head of European strategies; New York–based Noam Gottesman, who heads up the U.S. business and manages a $700 million global opportunities strategy; and Emmanuel Roman, the London-based co-CEO who now serves as COO of the enlarged Man Group — owned close to half of GLG and received a total of $700 million in Man shares in the $1.6 billion takeover; they can’t sell the shares for three years. The three insist they are fully committed to making the deal work. “Even when the lockups expire, I expect to still be here,” says Lagrange. “I love what I do. I have just compiled a 10 percent net return in the European long-short fund over the last ten years, and my goal is to improve on that over the next ten years.” Gottesman says he’s enjoying the increased freedom to focus on managing money, which was one of the main attractions of the deal for GLG’s fund managers. “I’m very happy doing what I’m doing, driving performance and being less involved in day-to-day management,” he says.

Clarke seems confident in the chemistry he has with his new partners. “I believe the three principals are enjoying themselves and that they will stay longer than three years, but they are not enslaved or indentured,” he says.

Lagrange and Roman sit on Man’s nine-strong management committee, which meets every six weeks, ensuring that they have a voice in strategic decisions. The body also includes Clarke; Tim Wong, CEO of AHL; sales and distribution chief Christoph Moeller; Luke Ellis, head of Man’s Multi-Manager business; Stephen Ross, global head of product structuring; finance director Kevin Hayes; and human resources chief Michael Robinson. One of the committee’s first acts was to establish the Man Systematic Strategies group — led by Sandy Rattray, who had headed systematic strategies at GLG, and including AHL staff — to develop new quantitative products complementary to those of AHL. The committee has also approved the launch of the first real Man-GLG hybrid product, a fund that combines exposure to AHL’s managed-futures strategy with exposure to Gottesman’s global opportunity portfolio.

Will all of this work? Several forces in the industry provide grounds for optimism. For one thing, scale appears to be increasingly powerful in the hedge fund business. Roughly 80 percent of new inflows in 2010 went to firms managing $5 billion or more, according to Chicago-based Hedge Fund Research. With capital inflows rebounding strongly and compliance costs growing, that trend toward bigger funds looks likely to continue. Hedge fund assets have effectively recovered from the more than 30 percent collapse that took place during the worst of the financial crisis, hitting $1.92 trillion at the end of 2010, just below the precrisis peak of $1.93 trillion, according to HFR. A recent survey of 2,300 institutional investors by Preqin, a London-based alternative investments data provider, found that private pension plans increased their average allocation to hedge funds from 5 percent in 2007 to 9 percent in 2010, while public pension plans raised their allocation from 4 percent to 7 percent.

Not surprisingly, merger activity among funds is on the rise. The number of transactions involving alternative asset managers nearly doubled last year, to 102 globally, according to consulting firm Freeman & Co. Some of them, like Man-GLG, were substantial. TPG-Axon Capital Management, an $8 billion New York fund founded by Dinakar Singh, acquired London-based Montrica Investment Management, a $1 billion–plus firm established by Singh’s former Goldman Sachs colleagues Andrew Metcalfe and Svein Hogset, and Fredrik Juntti.

Any change in control at a hedge fund entails risk, of course. In September 2007, Florian Homm, founder of Absolute Capital Management, quit the then–$3.2 billion hedge fund firm in a dispute over compensation. Some deals, however, work out surprisingly well. When JPMorgan Chase & Co. acquired Highbridge Capital Management in 2004, many industry executives bet that the hedge fund’s two founders, Glenn Dubin and Henry Swieca, would decamp as soon as their five-year lockup period expired. Swieca did indeed leave in 2009, but Dubin remains as CEO of the fund. With JPMorgan’s help in diversifying the business and bringing in more institutional money, he has increased Highbridge’s assets to $27 billion from $7 billion at the time of the deal.
Clarke will be only too happy if Man can grow at a similar pace following the GLG deal.

MAN’S OFFICES IN SUGAR QUAY, a few paces up the Thames from the Tower of London, contain two bottles of 18th-century rum, a reminder of the group’s origins. Founder James Man started a sugar brokerage in 1783, branched into other commodities and won an exclusive contract to supply Britain’s Royal Navy with rum. The core trading business of the company, renamed ED&F Man in the 1800s after James’s grandsons, would remain little changed, except for scale, for nearly two centuries.

In 1983, Man, which had recently expanded in commodity futures, bought a 50 percent stake in Mint Investment Management Co., a New York–based commodities trading adviser founded two years earlier by Lawrence Hite, an exponent of game theory in trading futures, and computer scientist Michael Delman. Mint had generated returns of more than 20 percent annually in its first two years, and after Man’s investment similarly strong performance grew the business to nearly $1 billion in assets by the end of the decade.

That growth gave senior executives at Man a taste for more CTA action. In 1989 the firm bought a 60 percent stake in AHL, a London-based managed-futures trader founded two years earlier by Michael Adam, David Harding and Martin Lueck. Fink, the future CEO who was then Man’s head of M&A, recalls having “a tough battle to persuade the board” to invest in AHL, even though the purchase price was less than £10 million ($16 million). “It was very low-key in the early days,” says Wong, who joined AHL as a University of Oxford engineering graduate in 1991, when it was managing $300 million. Man took full control of AHL in 1994, the year the company floated on the London Stock Exchange, and the fund grew rapidly to become Man’s core business. “The Asian crisis proved the worth of CTAs,” says Wong. “But while some CTAs ran into trouble when they grew to $2 billion or so of assets, AHL always planned ahead, redesigning models and adapting systems, so it was able to create capacity.” AHL’s growth also benefited from a prescient move by Colin Barrow, the executive in charge of Man’s managed-futures business, to base his sales operation in the village of Pfäffikon, 20 minutes south of Zurich, and offer up-front fees of as much as 5 percent to entice Swiss private banks and independent financial advisers to distribute AHL products to wealthy clients. “Switzerland’s low-tax environment and status as a center of private banking made it an obvious choice,” says Barrow.

Under then-CEO Harvey McGrath and then-CFO Fink, Man branched out beyond managed futures in 1996 by setting up a joint venture with Chicago-based fund-of-funds Glenwood Capital Management. Two years later it acquired the Swiss fund-of-funds manager RMF Investment Group. The beefed-up alternatives business became a powerhouse under Fink, who moved up to CEO in 2000. From 2002 to 2007, Man’s underlying earnings per share, excluding performance fees, grew at a compound annual rate of 34 percent and assets under management swelled to $61.7 billion. In 2007, Fink moved to make Man a pure asset manager by initiating the sale of its brokerage subsidiary, which changed its name to MF Global Holdings and is now run by former Goldman chairman and New Jersey governor Jon Corzine. He also held exploratory merger talks with GLG’s principals, seeing their single-manager portfolios as a good diversification move for Man. The discussions broke off, however, when Fink developed a brain tumor and resigned suddenly that year. (He recovered and came back to the industry in late 2008 as CEO of a small commodities and macro hedge fund, International Standard Asset Management, founded by a former GLG trader, Roy Sher.)

Man’s fortunes took a nosedive during and after the financial crisis. AHL’s trend-following style profited from volatile markets in 2008; its strategies were up by 33 percent, on average, for the year. AHL performed badly in 2009, however, as the Federal Reserve Board’s quantitative easing policy calmed volatility. Its strategies were down 17 percent for the year, a stark contrast to the 25.2 percent rise in the Standard & Poor’s 500 index. Although AHL rebounded 14.8 percent in 2010, it was still 3.7 percent below its high-water mark, on average, depriving Man of performance fees. Those fees had plummeted to $97 million in the year ended March 31, 2010, from $358 million a year earlier.

Man’s fund-of-funds business suffered even bigger losses. RMF lost $360 million in the collapse of Bernard Madoff’s Ponzi scheme and was down 15.5 percent for the year ended March 31, 2009. Man’s Glenwood unit fell 16.4 percent that year, and Man Multi-Strategy dropped 36.7 percent. Total assets in the fund-of-funds business dropped by $17 billion in the 12 months ended March 31, 2009, to $26 billion. Investor outflows triggered a further $12 billion decline in the following year. Man’s once high-flying stock plunged nearly 75 percent in little more than seven months, to a low of 152.6 pence in early-March 2009, and pretax profits fell 27 percent in the 12 months to March 31, 2010. Clarke, who had succeeded Fink as CEO in April 2007, urgently began looking for an acquisition or strategic partnership to stop the bleeding and turn around the business. His search led almost inevitably to GLG at the end of 2009. Advisers didn’t have to bring the two sides together because Man knew GLG’s principals well from the exploratory talks Fink had conducted in 2007. Man’s fund-of-funds unit had also been an investor in some of GLG’s funds.

GLG had reasons of its own to consider a deal. The firm had been one of the fastest-growing European hedge funds since Gottesman, Lagrange and Jonathan Green left Goldman in 1995 to launch the business. Lagrange, a Belgian, focused on Europe; Gottesman, a U.S.-Israeli dual citizen, concentrated on the U.S. market; and Green, a Briton who had started his career as a broker at James Capel & Co., looked after the U.K. market. (Green left in 2003 and now lives in semiretirement in Monaco, managing his own investments.)
The triumvirate built a distinctive roster of multistrategy funds by recruiting a number of elite traders from the prop desks of top investment banks. One of those recruits, Philippe Jabre, a Frenchman of Lebanese origin who traded convertible bonds at a subsidiary of Banque Nationale de Paris, joined GLG in 1997 and ran a market-neutral fund that gained an average of 20.9 percent a year, after fees, from 1998 through 2005. With a suite of funds generating strong returns, GLG grew its assets from less than $4 billion in 2002 to nearly $25 billion — a third of it long-only — in 2007. It raised about 50 percent of its funds from institutional investors.

The firm’s first stumble came in 2005, when the U.K.’s Financial Services Authority began investigating Jabre for allegedly using nonpublic information about a 2003 convertible bond issue by Sumitomo Mitsui Financial Group to short the company’s shares before the offering. Jabre quit GLG in February 2006 and now runs his own $4 billion hedge fund firm, Jabre Capital Partners, in Geneva. His departure left a sizable hole at GLG, considering that at his peak he managed 30 percent of the firm’s assets and produced 40 percent of its profits. Shortly afterward, the FSA fined Jabre and GLG $1.4 million each over the SMFG bond issue. Later that year the Autorité des marchés financiers, the French market regulator, fined GLG $2 billion for similar abuses relating to a bond issue by the telecommunications equipment maker Alcatel. Jabre and GLG both denied any wrongdoing.

To strengthen the firm’s management and tighten internal controls, GLG recruited Roman in 2005 to become co-CEO alongside Gottesman. “There was a need for someone senior who wasn’t managing money” is how the Frenchman diplomatically puts it. Roman, a close friend of Gottesman, had spent 18 years at Goldman Sachs, most recently as global co-head of equities and prime brokerage. Roman helped get performance back on track, and in 2007, GLG listed on the New York Stock Exchange through the reverse takeover of a special-purpose acquisition vehicle, at $11 a share, valuing the business at $3.4 billion. Lagrange, Gottesman and Roman collectively pocketed a cool $1.38 billion, nearly half of it in cash and the rest in shares.

The good times didn’t last long, though. In 2008, Coffey, GLG’s star emerging-markets fund manager, announced he was leaving to set up his own fund. (He would eventually join Moore Capital Management.) Coffey, a former Bank Austria and Deutsche Bank prop trader, had produced returns of 50 percent and 60 percent in 2006 and 2007, respectively, and was managing $7 billion of GLG’s $24 billion in assets shortly before his announcement. His departure, and the market turmoil of 2008, sent GLG reeling. The stock price had collapsed to $2 by December 2008. Assets under management dropped to $17.3 billion in November of that year, threatening to put GLG in breach of a covenant on a $570 million loan from Citigroup. To gain some breathing space, GLG bought the $8 billion-in-assets U.K. arm of Société Générale Asset Management in December 2008. But the scare prompted Gottesman, Lagrange and Roman to pursue a strategic deal. They began talking with Man’s Clarke in late 2009.

“We knew Man as a client, and we’d had talks in 2007 that went very well,” explains Roman. “So it wasn’t surprising that we started talks again in 2009 once market conditions began to stabilize. We weren’t under any pressure to do the deal — we could have stayed independent. But strategically, it makes sense.” Lagrange says the deal enables him and his partners to focus their energies on the things they do best. “We are good at investment management, but we are perhaps not the best people at running a business, and we haven’t focused enough on distribution,” he says. “It would have taken us ten years to develop our distribution capabilities properly, and that would have taken up a great deal of capital.”

The two sides took several months to negotiate terms before reaching agreement in May 2010. In addition to the payments and three-year lockup for GLG’s principals, Man paid $4.50 a share to public shareholders, who owned about a third of GLG. Although it was the clear target in the deal, GLG came into the merger on a strong footing. Most of its funds were recovering quickly from the crisis — fully 80 percent of the firm’s hedge fund assets were at their high-water mark by September 2010 — and GLG would attract $2 billion of net inflows in the first nine months of last year.

The purchase established Clarke’s credentials as a fitting successor to Fink, who had used acquisitions to build Man’s hedge fund business. Deal making comes naturally to Clarke. The CEO began his career at law firm Slaughter and May and then worked as an M&A banker at Morgan, Grenfell & Co. and Citicorp. In 1993 he received an approach from Andrew Sutton, a former Citi colleague then working in Man’s corporate finance department, and decided he wanted to try his hand at being a principal rather than simply an adviser. He helped then–finance director Fink weigh strategic options for the group and recommended an IPO rather than a strategic sale; Man went public in 1994. He also took part in the decisions to expand into funds of funds in the late ’90s and to divest the commodities brokerage business in 2007. For Clarke, the GLG purchase fits neatly into Man’s long-term strategy by filling out its portfolio of hedge fund offerings with single-manager strategies. “Each step has been logical and incremental,” he says.

Now all Clarke needs to do is prove that his alternatives supermarket can grow, and do so profitably. The merger, completed in October, didn’t get off to the most auspicious start, given the negligible inflows in the fourth quarter of 2010, but it is still very early days.
Retaining Clarke’s new stable of star managers at GLG will obviously be crucial for the long-term success of the merger. Although the two firms have come together, both Clarke and Lagrange are emphatic that the deal has never been about merging investment management.

“We would be mad to try to create a common culture in investment management,” says Clarke. “We want GLG to carry on performing well, so we don’t want to change anything there.” It would certainly be difficult to integrate the discretionary managers at GLG with the 130 or so quantitative staff employed by AHL. Lagrange seems confident that the two firms can maintain their separate identities and strengths. “Man doesn’t want to change our culture — it’s the culture they wanted to buy,” he says. “It would have taken them a long time to develop it organically.”

GLG’s managers say they relish the latitude they have to run their portfolios under the terms of the deal. “It’s not the sort of merger where investment managers are fearing for their jobs,” says Karim Abdel-Motaal, co-manager of GLG’s $2.5 billion emerging-markets fund. “What’s happening is simply that Man is adding business process and discipline to a very entrepreneurial organization.”

Although it would certainly help to retain GLG’s principals for more than three years, it might not be necessary. But Clarke considers it vital to keep as many of the firm’s 20 senior portfolio managers as possible, and he notes that so far all of them have stayed on board.
Beyond keeping his new partners happy, Clarke must find ways to come up with successful new products to generate growth. The new Man Systematic Strategies group, led by Rattray and Stefan Scholz, who serves as the unit’s COO and head of research, launched two products in January. The Man GLG Europe Plus Source ETF is a long-only fund that will use algorithms in a bid to profit from the recommendations of about 60 brokerages. The idea is similar to Marshall Wace’s Trade Optimized Portfolio System strategy, except that Man’s ETF is a purely passive product designed simply to beat European equity index returns while taking on low levels of risk. The ETF will not trade on brokerages’ sell recommendations, as TOPS does. Executives believe the strategy can gather several hundred million dollars in assets. The strategies group has also launched an institutional product called TailProtect, which, as the name implies, is designed to safeguard investors’ capital during times of market stress. TailProtect is based on an actively managed vehicle devised by Man Multi-Manager for internal use, and already runs $175 million.

In February, Man introduced a new strategy called Man IP 220 GLG Ltd1, the first product to combine exposure to AHL’s flagship diversified strategy with exposure to Gottesman’s global opportunities strategy. The offering comes with a 100 percent capital guarantee at maturity in 12 years and six months, which Société Générale will provide using capital-protected bonds. Man aims to achieve double-digit returns and generate several hundred million dollars of sales by using independent financial advisers and private banks to reach private clients in the Asia-Pacific region.

The merger’s success will also depend on the ability of Man’s vaunted marketing and distribution team to generate extra sales. Moeller, the Switzerland-based head of sales, has already begun reorganizing his 300-strong team in a bid to reach more institutions than AHL traditionally has. He is concentrating his 80-person London sales force at GLG’s Curzon Street offices in an attempt to take advantage of the firm’s greater institutional penetration and range of products, including its long-only funds. “We will also be hiring a few people in the U.S., and we’ll be moving some staff out to the Middle East and to Asia,” he says. Currently, the combined group derives only 10 percent of its funds from U.S.-based investors.

Moeller won’t disclose his sales targets, but Philip Middleton, an analyst at Bank of America Merrill Lynch, estimates that an additional $3 billion a year in sales of GLG funds and new products would justify the acquisition for Man.

Even as he bids for growth, Clarke can’t afford to neglect existing products, beginning with AHL’s. The managed-futures unit is Man’s flagship, and its Man AHL Diversified fund has produced annualized returns of 16.7 percent from its inception in March 1996 through September 2010. But AHL’s decline in 2009 and its vulnerability to the Fed-induced drop in market volatility remain worries. As CEO Wong puts it, “The trend follower’s nightmare is stable prices.” Most of the fund’s losses in 2009 came on bonds and currencies, markets where quantitative easing and market intervention by governments around the world helped to stabilize prices in narrow ranges.

AHL has since developed a number of computerized trading models designed to respond better in the current macro environment, Wong says. The fund did post a healthy rebound of nearly 15 percent last year. Wong also insists that AHL is perfectly capable of growing strongly even at its year-end 2010 size of $22.6 billion — a matter of no small importance given Clarke’s $200 billion group goal — because of the sheer scale of the 150 or so global futures markets in which it invests. “We’re designed to operate as an aggregate of small players, so we can be as efficient as smaller players,” he says.

Clarke also needs to find a way to revive Man’s hard-hit fund-of-funds business, whose total assets had dwindled to $14.7 billion at the end of 2010 from $55 billion in June 2008. Fallout from the Madoff scandal has hurt the fund-of-funds business generally. The combined assets of funds of funds managing $1 billion or more shrank by 46 percent between June 2008 and June 2010, to $595 billion, according to a recent survey by InvestHedge. Performance also tends to be lackluster. Man’s best-performing fund-of-funds product delivered average annual returns of 5.9 percent in the five years through December.

In 2009, Man merged its three fund-of-funds operations into a single unit, Man Multi-Manager, in response to investor demands for greater transparency and better corporate governance following the Madoff affair. Luke Ellis, who took charge of the 80-person Multi-Manager unit last year, says the whole fund-of-funds industry needs shaking up: “There was a time when the industry could survive on simply providing access to hedge funds because investors couldn’t find them. That is now a dead business model, and it’s been further damaged by Madoff, which was a horrid mess for everyone.”

Ellis believes managed accounts, in which clients retain more control of their funds, address the growing demand for more transparency and safeguard against fraud and illiquidity. Already, Man Multi-Manager runs about two thirds of its assets in this form. “To me, the managed account is the backbone of the future of the business,” says Ellis.

With such big strategic matters on his plate, Clarke may look back fondly on the time when the question before him was whether to allow jeans.

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