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Investing.com -- Man Group (LON:EMG) has been downgraded to "neutral" from a "buy" rating by BofA Securities, following a cut to its projected performance fees, in a note dated Monday.
Shares of the UK-based company were down 1.5% at 07:58 ET (12:58 GMT).
Despite reporting strong full-year 2024 results, analysts have revised their 2025 earnings expectations downward due to weaker returns in the firm’s trend-following AHL funds. This downgrade comes alongside a price objective reduction to 235 pence from 255 pence.
The core concern driving this reassessment is the impact of declining performance fees, which have historically accounted for a significant portion of Man Group’s profitability.
According to BofA Securities, trend-following strategies within AHL have posted negative returns of 3-5% year-to-date.
As a result, the company’s 2025 performance fee revenue is expected to drop to $128 million, marking its worst year for such fees since 2018.
This forecast assumes some recovery over the rest of the year but highlights the challenges posed by ongoing macroeconomic uncertainty, including tariff fluctuations, interest rate movements, and geopolitical instability.
Man Group’s overall earnings for 2025 have been significantly revised downward. BofA Securities has slashed its 2025 core profit before tax forecast by 38%, bringing it 38% below the latest company consensus.
While the company’s management fee PBT remains stable due to cost efficiencies, performance fee PBT is projected to decline by a staggering 86%.
Although Man Group continues to benefit from its diversified investment approach and strong asset-raising capabilities, these strengths are not enough to offset the earnings pressure created by declining trend-following strategies.
While Man Group’s stock is currently trading below its historical valuation levels, BofA Securities sees little potential for near-term re-rating due to the lack of strong catalysts.
“We assume normalized performance fees in 2026 where EPS falls 3%,” said analysts at BofA Securities. The announced $100 million share buyback was already factored into existing projections, providing no additional boost to valuation.
BofA Securities projects net inflows of $4.7 billion in 2025, reversing the $3.3 billion in outflows seen in 2024.
The company’s exposure to discretionary long-only credit and systematic investment strategies remains a positive factor.
Within alternative investments, direct lending (through Varagon) and multi-strategy funds are areas of potential growth. Recent client wins in insurance and the North American market also present upside opportunities.
Despite these longer-term strengths, the immediate outlook remains clouded by volatility and uncertainty.
Nearly 38% of Man Group’s fee-eligible assets under management were more than 5% below their high-water mark at the end of 2024, compared to just 10% at the halfway point of the year. This underscores the challenge of recouping losses in performance-based fees, even if market conditions improve.