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MF Global's Disappointing IPO May Reflect Subprime Worries

Man Group failed to raise its target share price through the IPO of its former brokerage arm, MF Global: The spinoff's shares opened flat Thursday at $29.37, slipping to $28.18 in late morning trade -- a loss of some 6%.

Man Group said Thursday that it priced the IPO of its MF Global brokerage business at $30 per share, raising $2.9 billion -- but missing by a large margin the $36 to $39 indicative range set earlier by the U.K.-listed hedge fund.

The failure may indicate a glut of supply in the alternatives space, and reflect risk aversion from investors on the back of the subprime mortgage meltdown, industry insiders said.

One market commentator said: "Global markets are looking very insecure on the back of the subprime collapse."

He noted, though, that this should be "a good time for hedge funds; this is exactly what hedge funds are meant to benefit from." Other market watchers also view the subprime failure as an opportunity for hedge funds to exploit an inefficiency in the market.

Man's difficulty in raising capital echoes the broad experience of other recent hedge fund-related IPOs. U.S. fund Third Point delayed its London listing to gather in more funds from U.S. investors, and Nicola Horlick's alternatives fund fell way short of its fund-raising target. Back in March, Brevan Howard undershot its 1 billion euro target by 230 million euros when listing BH Macro.

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Philippe Bonnefoy from Swiss hedge fund Cedar Partners said too much supply may well be a reason for the poor MF Global raising.

He added, "With the subprime issue in the States and slight risk aversion in the markets in regards to hedge funds -- which then creeps into the area of brokerages -- it is slightly a nervous time to be entering [the] market."

"Also, the Blackstone [private equity IPO] reception was barely muted and is trading below its IPO price, which is not a good sign," he said. "We may well be at the top of the cycle for brokers, banks and revenue flows." The pricing of MF Global, he added, is probably indicative of "a topping of the market."

"There could still be a bit of erosion, but the real story is concerns about subprime having a bigger impact on the market and potentially on hedge funds. Investors are cautious about anything to do with banks, brokers and hedge funds," he said.

Absolute Capital Management Holdings Chairman Sean Ewing is more positive.

He told Thomson Investment Management News, "Fund raising across industry has been very strong; inflows into hedge funds are strong. Year-on-year, in the main groups, inflows have been about 30 percent."

But even he concedes investors have been spooked: Ewing said people are looking more closely at "asset allocation and proven track records, and probably the subprime thing has blown a little bit of concern through some people."

In March of this year, ACM said it was looking at opportunities to list a permanent capital vehicle on the London Stock Exchange to open up its strategies to retail investors and smaller institutions. It has yet to announce any firm plans.

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