You’ve got to hand it to co-CEOs Noam Gottesman, Manny Roman and the rest of the folks who run GLG Partners. They sure picked a good time to sell their firm to Man Group.
Although hedge fund industry assets in general have come almost all the way back from their lowest levels in 2008, the future shapes up to be a long grind, which explains why there have been a rash of hedge fund mergers since the Man-GLG announcement earlier this year.
GLG’s second quarter earnings announcement on Monday — its last as a public company — underscores how competitive the hedge fund industry has become. Since GLG is one of the only publicly traded hedge fund firms, its results provide a rare insight into the goings-on at a major firm.
For example, net inflows were $1.5 billion. This is good since many firms are struggling to grow their assets this year. However, just $500 million came from alternatives, the more lucrative, profitable part of GLG’s operation. The rest came from its less profitable long-only business.
GLG management, however, believes the inflows demonstrate investor confidence in their firm and that it is benefiting from the cyclical upturn and the return of capital to hedge funds.
Total net assets under management as of June 30 were roughly $23 billion, down 3 percent from the prior quarter. Part of the decline was due to currency translation related to the decline of the Euro and British pound relative to the dollar.
However, it was also due to performance declines. In the second quarter, GLG’s alternative funds — hedge funds — were down 1.4 percent, finishing the first half up 3.8 percent after climbing 5.3 percent in the first quarter.
For its part, GLG says assets under management were up on a constant currency basis despite huge market dislocations. In fact, GLG says it has not suffered one redemption since the Man merger was announced.
Performance fees, however, were down 41 percent. The potentially lucrative performance fees are why people in general leave the long-only business and go into the hedge fund business.
Still, Roman asserts: “We think the business is doing quite well.”
Roman and the rest of the management team acknowledge that at the end of the day, a hedge fund firm will live and die on its performance. And they are proud that year-to-date through July, their funds’ total weighted return is 5.6 percent, better than many other large high profile funds, such as the OZ Master fund, Tudor BVI, Caxton Global Investment and Moore Global Investment.
What’s more, two funds in the strategy categories that investors seem to be gravitating to these days are trouncing the competition. Through July 31, its GLG Atlas Macro Fund was up 17.5 percent, while its GLG European Distressed fund was up 27.3 percent. “It is all about performance,” says Roman. “It always has been.”
Meanwhile, GLG is looking forward to being part of Man. Under the $1.6 billion deal, which is on track to close sometime in the fall, co-founders Gottesman and Pierre Lagrange will each earn at least $570 million. Even so, Gottesman and Roman, who have three-year lockups, will be playing significant roles in the newly merged firm. Gottesman, who last year moved to New York from London, thinks the firm has not scratched the surface yet in terms of attracting U.S. assets.
Frankly, I’m sad to see one of the only publicly traded companies to shed its transparency and partially return to the shadowy world of hedge funds. At least it will be part of another, larger public firm, Man, so we can monitor how well the merger works out.
