Man Group shares fell almost a third yesterday after the world's largest quoted hedge fund manager admitted that turbulent markets had savaged its assets under management and analysts forecast customer defections.

Man, one of the few listed hedge funds, told investors that its assets had fallen to $67.6 billion (£42.8 billion) as at September 30. Six weeks ago it was predicting that it would finish the month with its funds under management at $70.3 billion.

Peter Clarke, Man's chief executive, blamed the much sharper than expected drop on extreme moves in world markets, with the slide in the value of the dollar claiming $1.5 billion of the difference. “The other $1 billion-odd is investment performance. For the hedge fund industry as a whole, it was a very difficult month,” he said.

Investors took fright and Man shares lost 122p to 270p, a fall of 31 per cent. The hedge fund industry has taken an unprecedented battering in the wake of the market ructions since Lehman Brothers, the Wall Street investment bank, collapsed and AIG, the giant insurer, was bailed out by the US Government. Some funds have been forced to freeze redemptions to prevent a forced sell-off of assets.

Man, a bellwether of the hedge fund industry, suffered $6 billion in redemptions during the first nine months of the year, although Mr Clarke maintained that this was lower than its historical average and that investors would be allowed to quit if they chose.

However, investors were spooked by Man's decision to strip the investment risk out of one of its best-known funds, Man Global Strategies (MGS), which managed $8.6 billion in assets as at the end of October.

Over the next six weeks, Man will deleverage the MGS portfolio, which will cut its size to between $1 billion and $2 billion. MGS, which gives investors exposure to between 40 and 50 single-manager hedge funds, is down 20.3 per cent for the first nine months of the year.

Investors wanting to exit the fund will be offered an alternative of joining Man's $24.4 billion AHL managed futures funds instead. AHL, Man's second-biggest fund, is up 2.9 per cent for the year to the end of September.

Mr Clarke noted that MGS offered a guaranteed return for investors, although he admitted that some might want to cash out because the investment prospects were reduced. Man would consider regearing MGS once markets return to more normal behaviour, he said.

Because of the expected drop in fees from MGS, Man will take a $107 million hit to its accounts early. It traditionally books the cost of paying upfront commission to brokers that sell its funds over four or five years, but will now accelerate this.

Citigroup analysts said: “We read management's decision to accelerate amortisation of upfront MGS sales commissions as an admission that outflows from MGS are expected to accelerate.” They said that assets under management at MGS would be “mostly gone” by the end of the year.

Evolution described yesterday's results as shocking. Investec switched its recommendation on Man from “hold” to “sell”.

Powerful figures

$67.6bn funds under management
$6bn redemptions
$622m pretax profits
$10.2bn sales
$159m performance fees
19.2 cents interim dividend per share

Figures for six months to September 30

Source: Man Group

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