Man Group's deal to acquire Pine Grove is part of a selective acquisition strategy that may boost the firm's diversification and scale, according to Fitch Ratings.
Business diversification could mitigate the risk of outflows driven by market volatility and investors' allocation shifts, while economies of scale remain important for tackling margin pressure in a fragmented and competitive market.
Pine Grove, a US-based credit-focused fund of hedge funds manager, will add to Man Group's product offering and US presence, although, with around USD1bn of assets under management (AUM), it is small. The deal is consistent with the group's strategy to strengthen its multi-manager business, which was bolstered by the acquisition of FRM in 2012. It will provide investors with greater investment resources, attracting more assets.
Terms for the deal have not been disclosed but Fitch believes it is being financed with Man Group's surplus capital, which was USD550m at end-2013, adjusted for the final dividend and share repurchase.
Man Group also said last month that it was in talks to buy Numeric Investors, a larger, also US-based group with about USD14bn AUM focused on quantitative investment strategies. The talks may or may not lead to a transaction. Such a deal would have greater impact on the group's diversification because it would boost AUM by 25 per cent, reduce the group's reliance on revenues generated from its managed futures fund AHL and bolster its US assets. But it is unlikely to be a structural shift for the business and so would probably be neutral for Man Strategic Holdings' 'BBB' rating. The rating reflects the group's smaller absolute AUM and moderate product concentration compared with larger investment managers, Fitch says.
European asset managers are rationalising, innovating and diversifying in response to margin pressure and changing market conditions. Fitch believes small selective deals - typically financed internally - will remain an efficient way to quickly expand product lines and add distribution capacity in response to changing investor demand for many asset managers.