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Man Group shares soared more than 10 percent and led the European stock markets after the asset manager delivered welcome news to its long- suffering shareholders Friday by announcing a 6 percent leap in funds under management and the $25 million acquisition.
The takeover of Aalto, which has $1.7 billion in funds under management (FUM), will help the U.K. alternatives asset manager expand and diversify its product offering and broaden its customer reach inline with its long-term strategic plans. In addition to the $25 million upfront payment, the deal has a maximum earn-out potential of $207 million over 8 years.
Aalto will form a key part of the Man Global Private Markets (Man GPM) division, unveiled Friday, which will capitalize on Aalto's real estate equity and debt strategies platform and drive the U.K. asset manager further into the arms of institutional clients and away from its traditional retail core.
Man Group's surplus regulatory capital balance will drop to around $300 million once the acquisition and a share buyback of up to $100 million are factored in, from a balance of $479 million as of 30th June.
Friday's announcements are further evidence of Man Group's strong reputation for adroitly managing its balance sheet. In a climate where the opportunity cost of holding cash is dear, yet where Man Group needs to retain sufficient liquidity to pursue further acquisitions, this balance sheet management is critical to find the optimal balance for shareholders.
The Aalto purchase is inline with the trend for flows away from hedge funds and other strategies focused on liquid assets in public markets to a burgeoning and growing investor hankering for private debt, private equity,real estate and infrastructure assets.
According to data from Preqin, 35 percent of institutional investors expect to increase their exposure to real estate assets over the longer-term with 67 percent anticipating a larger allocation to private debt. This as only 17 percent expect to increase their allocation to hedge funds while 33 percent intend to lower it.
Ravin Mehta, sector analyst at JPMorgan Cazenove told CNBC on the phone, "This acquisition is relatively small and only a stepping stone towards Man Group's broader aspirations in the private markets space but it shows positive continuity in the strategic orientation of the firm's leadership following the handover of the CEO role from Manny Roman to Luke Ellis."
Other news from Man Group Friday was also received well by investors. The Group delivered performance inline to just ahead of expectations for its discretionary GLG and its quant equity Numeric units and beat market expectations for inflows, managing to secure an additional $1.3 billion during the quarter.
The bulk of analysts rate Man Group a buy. Concerns about the ability of its key division, AHL, to generate performance fees given it is currently on average 7.4 percent away from its high water mark – the level to which it needs to return in order to compensate for prior losses before it is able to charge clients a performance fee – are superseded by the widespread belief that the 37 percent battering to which its shares have been exposed this year, until today, is overdone.