Headline: UPDATE: Man Group Boosts Funds With Hedge Fund Buy
Date/Time: 21/05/12 09:27:19-BST ?
Codes: EMG.LN
-- Man Group to pay up to $82.8 million in cash for FRM

-- FRM manages about $8 billion in funds

-- Deal to generate $45 million annual cost savings

(Adds executive and market comment in paragraphs 5 to 8.)


LONDON --U.K. listed hedge fund operator Man Group PLC, (EMG.LN) which has been battling investor discontent and the poor performance of a flagship fund, said Monday it will acquire Financial Risk Management Holdings, a hedge fund research and investment specialist with funds under management of approximately $8 billion.

The acquisition, for which there is no initial up-front payment, will boost the combined funds under management for Man's multi-manager business and FRM to $19 billion, Man said in a press release.

In total, Man's existing funds under management are around $59 billion.

The contingent amount being paid by Man Group over three years could reach a maximum of $82.8 million in cash, net of total net assets acquired and a 47.5% share of performance fees attributable to FRM's existing funds under management over three years, subject to a cap.

Shares in Man Group rose sharply Monday as analysts broadly cheered the deal, with Bank of America Merrill Lynch saying that it brought Man Group better terms for access to funds, and Shore Capital noting that it could bring significant cost savings.

At 0815 GMT, shares were trading up 7.6% in London at 81 pence, making it one of the top performing European financial stocks.

Man Chief Executive Peter Clarke told reporters that through the acquisition "we are diversifying the group's earnings base," making it less reliant on AHL, its currently underperforming flagship computer-based fund.

Several analysts said Monday that although the deal was attractive, the key focus of investor sentiment would continue to be AHL, which makes up around one-third of the group's assets and contributes over 70% of its earnings.

Man Group said the acquisition would generate cost savings of $45 million a year from operational synergies in the combined group, generating double-digit accretion to Man's adjusted management fee earnings per share in 2013. The internal rate of return from the acquisition is expected to be well in excess of Man's cost of capital.

Shares in Man Group have fallen around 60% over the past year. Man in early May reported a 15% fall in assets under management and more poor performance from the AHL funds. Man said at the time that improved sentiment seen at the beginning of the year had started to reverse from March.

The majority of Man Group's assets are in retail offshore and onshore products and it has $12.2 billion worth of institutional business. Its main attraction is access to a lucrative $1 trillion in the Asia-Pacific and Japanese markets, where it has 27% of its assets.