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Man Group’s Ellis says some hedge funds are too greedy
(Bloomberg) – In the endless trade between hedge funds and their investors, some managers are simply taking too much. Said who? Surprisingly, a hedge fund manager – one of the biggest, in fact. “It’s really important that most of the alpha comes back to customers,” said Luke Ellis, who oversees roughly $ 124 billion as CEO of Man Group Plc, in a Bloomberg “Front Row” interview. “The customer is the one who takes all the risk, and the customer should get the majority of the rewards.” His problem is not with the typical hedge fund. Indeed, Man has funds that still charge the classic “two and 20” – 2% of assets and 20% of investment profits in a given year. It also offers products that cost significantly less, which is why the company’s average fees in 2020 were 0.75%, or 75 cents on every $ 100 under management. t target high enough volatility or, worse, lose money for clients. He won’t name them, of course, but some of the companies whose funds fit this description have included Bridgewater Associates, York Capital Management and BlackRock Inc. The question is not whether a hedge fund should be paid to outperform, how much is it . Ellis said clients should keep two-thirds to three-quarters of every dollar in excess return, or alpha. By his benchmark, a $ 10 billion fund with a two and 20 fee structure should generate a gross return of around $ 1.5 billion, or 15%, to keep the economy fair for all parties. . Last year, the average hedge fund returned 9.5%. “Very Competitive” “The more alpha you generate, the happier customers are to pay,” Ellis said. “The hardest part is generating alpha. It’s a very competitive business and everyone would love to do it, so you have to put some resources into it. Our point of view is the number one resource you need to dedicate to technology. Man Group is not like most hedge fund managers. Instead of one or two main investment vehicles, it has dozens of them. The most advanced are using data science and algorithmic models to beat the market, competing with quantitative giants like Renaissance Technologies and Two Sigma Investments. Some are less sophisticated, with fixed costs as low as half a percentage point.Moreover, Man is based in London, not New York or Chicago, and is one of the few companies in the industry with shares traded on a stock exchange. The ethos of the place, as Ellis describes it, hardly compares to the relentless reputation of private companies such as Ken Griffin’s Citadel or Izzy Englander’s Millennium. – where they can feel they belong, where they know they are doing something that is not intended to make a billionaire a little more billionaire, ”he said. “We’re having a great time. We care about each other.” Ellis, nonetheless, must compete with these billionaires for talent while enduring the scrutiny that comes with being a public company. tens of millions of dollars in a good year. At Man, the average compensation per employee is around $ 310.00, less than at Goldman Sachs Group Inc. Ellis received $ 3.15 million plus a long bonus term in 2020. “Can I attract, retain, empower smart and interesting people who can handle the money and do creativity for clients?” he said. “We are doing a really good job in that regard.” At Man, two areas of interest are natural language processing, in which computers read and digest large amounts of text, and tailoring quantitative business processes to markets beyond stocks and bonds. The company was actively trading U.S. electricity during the February power outages in Texas, Ellis said.Another priority for Ellis is to expand its small footprint in private markets, where it manages $ 2.4 billion in investment. ‘assets, although this may require an acquisition. Private equity, credit and real estate valuations, he said, are “incredibly high” at the moment. “Unreasonable costs” The goal is to give investors an easy choice: market performance in an index or someone else’s exchange traded product, or Man’s alpha. As long as his technologists keep designing new models and developing new ideas that generate excessive returns, Ellis does not worry about the demand for Man funds. But he doesn’t see much hope for companies that can’t: “There are too many active managers in the world,” he said. “The fee load you could get five, 10 years ago to run a fairly ordinary fund that outperformed one in four years – you could still charge 50 to 100 basis points of fees – that’s a fee load. unreasonable. and I think these business models will not survive. (Updates with details on private market activities in fourth paragraph under the caption Retaining Talent. An earlier version of the article has been corrected to show that the company is present in private markets.) more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP
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