The alternative investment universe, and
Man Group's place in it
The investment management industry can
be broadly subdivided into two sectors:
the traditional side, which has been at the
forefront of investment planning through
much of the second half of the twentieth
century; and what is generally known as the
alternative sector, which encompasses nontraditional
areas such as hedge funds, private
equity and real estate.
While the first of these sectors is currently
by far the larger of the two, the phenomenal
growth of the alternative investment universe
over the last twenty years means that it
plays an increasingly important part in the
investment plans of institutional and private
investors. There are a number of strong
reasons for this, and they help explain why
the explosive growth trend should continue.
Mostly, it boils down to the simple fact that
traditional forms of investing have a number
of limitations that can result in periods of
poor investment performance. They tend
to be based on what is termed a "buy and
hold" approach - an asset (such as shares in a
company) is bought in the hope that its price
will rise over time. This works fine when
the market as a whole is rising, but markets
behave in phases, rising and falling - and so
there are times, sometimes for many years,
when it is extremely difficult to earn a decent
return from this sort of approach. We are
living in just such a period now, one which
began back in the summer of 2007.
These limitations have not been lost on the
investment industry, and over the years a
number of alternative ways of investing have
been developed, the principal aim being to
be able to generate acceptable investment
profits whatever is happening on the world's
markets. Pension funds are good examples
of institutions which need as much certainty
as they can get that they will be able to keep
their obligations to their clients.
Alternative investments aim to help solve
these issues. They are alternative in two main
ways: in the sense of the techniques they
use, and in the range of assets in which they
can invest or trade. The most high profile of
the sectors within alternative investments
is hedge funds, a term which covers a wide
variety of investment methodologies. Often,
for instance, they will engage in techniques
such as short selling - a method which
allows profits to be made in falling markets
- and employ leverage, which is essentially
borrowing money to increase the investment
exposure. The emphasis is very much on
profits being generated by the skills of the
underlying manager, rather than just the
direction of the markets themselves.
This range is reflected in the managers
that comprise Man Group. Starting its
investment management business in 1983
with a partnership in managed futures, a
technique which typically involves trading
in a very broad range of assets such as
stocks, commodities and currencies, Man
has steadily broadened the scope of its
activities. Managed futures, in the form of
AHL, recognised as an industry leader in the
field of quantitative management, remains
a bedrock of the Group, and the range also
now includes funds-of-funds managers and
credit specialists. Most recently, Man has yet
again expanded its interests, this time into the
related alternative area of private equity.
This latter move is innovative on a number
of levels. The new venture, Man ECO,
specialises in private equity investment
opportunities linked to mankind's response
to current environmental concerns such as
climate change, energy security and energy
related technological innovation. This has
already resulted in some groundbreaking
ventures, including the financing of a methane
recovery plant in China, and a recentlyannounced
partnership with a state-owned oil
company in Abu Dhabi, which will work in
the area of capturing associated gases from
crude oil production and converting it into
electricity.
This entrepreneurial spirit to its business
activities is a hallmark of Man's longevity
and success. In the hedge fund world, Man's
growth rate has outstripped that of the
industry itself, even though this has been
dramatic. It is estimated that as recently as
1990, the total amount of money managed
by hedge funds companies was in the region
of USD 40 billion - and this has now grown
to probably around USD 2 trillion. Over this
period, Man's investment side has grown
from a start-up to managing assets well in
excess of USD 70 billion, ranking it globally
in the very top handful of firms of its type.
There are signs that the alternative industry
and its more established, more traditional
counterpart are moving closer together. As
investors and regulatory authorities around
the world become increasingly comfortable
with new techniques, this industry looks
poised for explosive growth in the coming
years. Man Group, which for many years
has enjoyed its position as a market leader,
is committed to finding ever new ways of
providing good returns for its investors - and
intends to keep its position at the top.
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