What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing the hedge fund industry is an elite group of secretive firms focused on two things and two things: only maximizing returns and hedging against broad market declines in The 1990s and early 2000s hedge funds had their golden age. Funds like bridgewater, sac capital, appaloosa and others led by legendary investors, became household names for their abilities to bring unimaginable fortunes to their lucky investors. One of the biggest beneficiaries of this hedge fund golden age was man group, a hedge fund based in london, the financial capital of europe. It has perhaps the longest history of any hedge fund in the world tracing its roots back to the 1700s.

It has a gigantic 151 billion dollars of assets under management and is the largest publicly traded hedge fund in the world. This massive scale allows it to bring in billions of dollars in performance fees. Each year in recent years, is expanding its operations to include quantitative strategies. Momentum, strategies and private equity on top of its traditional discretionary, investing strategies.

Man group operates on four continents and has offices in london, boston, new york, tokyo and other cities globally. Unfortunately, a prestigious name does not always mean great investment performance despite its size, history and sophistication. The recent market sell-off of early 2022 has exposed man group's investing strategies in the first quarter of 2022. The ukraine invasion, along with skyrocketing inflation and sky-high valuations, triggered a tech-led sell-off.

The s p 500 declined by as much as 12.7 percent. The dow was down 9.8 and the nasdaq briefly entered into a technical bear market down 20.8 percent. During this time, man group's discretionary funds were unable to protect their investors from these declines. In fact, they actually exacerbated the market turmoil and lost their investors even more than the market averages add.

On top of that, their overall total management fees of approximately four percent of aum and their exclusive club of investors were worse off than the most unsophisticated stock portfolios. You could imagine in today's video or podcast, if you're listening to us on spotify or apple podcast, we'll explain why the man group, supposedly one of the most elite hedge funds in the world, performs so poorly in the most recent market. Sell-Off, if you want to stay up to date on stories like this on the road make sure to subscribe to our brand new podcast the wall street millennial podcast, you can listen to it on spotify or apple podcast, while running errands or driving to work right now. There are dozens of episodes you can listen to covering topics like billion dollar, financial frauds and scandals, epic trading blunders made by huge wall street firms and analysis on the economic phenomena of our times.

You can catch us on the podcast anytime, at your own convenience and best of all, it's absolutely free subscribe to the wall street millennial podcast. Today, man group was founded all the way back in the late 1700s by the englishman, james mann. It wasn't initially an investment group as stocks and investing wasn't really a thing back then, but that didn't stop james mann from making money by whatever means necessary. He identified a market opportunity in supplying the british navy with alcohol for its sailors daily ration of rum.

Being the leading supplier of alcohol proved to be an extremely lucrative business and the company flourished throughout the next two centuries. In the late 1900s, the company started focusing more on financial services and investment management in the year 2000. The financial services part of the business was split off from the rest of the company. Seven years later, it divested all of its non-investments businesses and became the hedge fund that we know today.

Man group has, for the last several decades, focused more than anything else on expanding the business in its current form, it was built largely through acquisitions of smaller hedge funds, because of this, the company is organized as several somewhat independent funds prospective investors can choose which funds To invest in based on the strategies of each one, one of its oldest funds, man ahl, is a diversified strategy that prioritizes absolute returns. In other words, it uses trading strategies like momentum trading, for the primary purpose of maximizing investment returns, while minimizing the effects of broad market sell-offs. Man, groups focus on maximizing returns and expanding their assets under management worked extraordinarily well during the bull market of the 2010s. From 2012 to 2022, its stock, which is traded on the london stock exchange increased 220 from 75 pounds per share to 240 pounds that eclipses the s p.

500. 199 return. During the same period. The fund's assets under management also nearly tripled from 57 billion dollars to 151 billion dollars.

Throughout this historic bull period of the 2010s, it looked like man group was on top of the hedge fund world. Unfortunately, the investing acumen of man group's discretionary investing portfolios was all built on a house of cards that could come crashing down at any minute, as with any hedge fund, they're incredibly secretive about what exact strategies they use to make their investing decisions. However, at its core man group describes itself as a quote: technology, empowered, active investment, firm, focused on delivering alpha and portfolio solutions for clients, unquote. In other words, they pick stocks that they think will go up.

It turns out that this resulted in them investing heavily in technology stocks. Technology has far outperformed the other sectors of the economy since the great recession in the past five years alone. For example, the tech heavy nasdaq 100 index returned 193 returns at its peak before the most recent sell-off, the s p 500. By contrast, only returned 99 or about half of the nasdaq, not wanting to get left behind man group weighted their portfolio almost entirely to tech stocks.

In their most recent sec filings, they reported their current portfolio holdings as of december 31st, 2021 right before the most recent sell-off began. Their portfolio was dominated by large cap tech stocks, in fact of their top 10 holdings by market value. Only 18 of the total market value was not in mega cap tech or semiconductors among their top holdings were three of the five fang stocks plus microsoft, their biggest single holding in the later month of 2021. There were increasing signs that rising inflation would force the fed to raise interest rates.

It was becoming more and more clear that jay powell's comments about transitory inflation were far from the truth. Investors around the world were preparing for the effects of the anticipated rate hikes, which is well known to disproportionately affect tech stocks and other long duration assets. Despite this man group did not do any significant hedging for their tech portfolio, which they called an absolute return fund. They seem to think that their stocks only go up if they had gone up almost every year for the last 15 years.

Why would they stop now, so they remained heavily overweight technology in the market, sell-off through mid-march their holdings tanked. The only major stock that didn't fall in value was johnson and johnson, their smallest holding within the top 10, which was up 1.6 overall. Their total portfolio was down an estimated 16 percent compared to about a 12.7 loss for the s p 500, and that's even before, taking into account management fees. This embarrassing underperformance during the time when it matters the most begs, an existential question for man group and similar hedge funds.

They describe their own objective as using technology-empowered active management to deliver alpha and portfolio solutions for their clients. That means that their goal is to produce uncorrelated returns and hedging such that their portfolio's performance is not dependent on the broader market, but based on the holdings of their stock portfolio, which they are required by law to make publicly available. They're, basically just piling into the mega cap tech stocks out of the 5 mega cap, fang stocks, facebook, amazon, apple, netflix and google. The only ones that aren't in their top 10 holdings are netflix and facebook, given netflix's recent subscriber count, debacle, leaving them out of the portfolio, was a good move, but they were heavily invested in facebook.

As recently as the fourth quarter of last year. That's not delivering alpha. That's just leveraging your exposure to the most high risk high reward parts of the market going back throughout history. We can see that this type of tech weighted portfolio is nothing new for man group at the end of the third quarter of 2019.

Before anyone knew anything about kovid, they were as highly leveraged technology stocks as ever. Microsoft and facebook made up their two largest holdings and tech in general, made up three of their top five, while they do hold large positions in some unexpected stocks, such as the nuclear power company exelon at number, four, their portfolio has been overwhelmingly tech dominant throughout the Last decade and that fact is reflected in their relative performance compared to the broader market during times of high volatility in general, when the market is up man. Group's investment results are also good, for example, in 2021, one of the best years for the stock market. In recent memory, man group outperformed the market and three out of its five funds.

Overall, the entire group logged 1.9 percent excess returns before these, but in 2020 the year of covid, only one of its strategies outperformed its benchmark. That year, the group overall underperformed by one percent man group operates its investment management business under five different categories, each with its own strategy. Some invest in stocks. In a long only strategy, some use systematic quantitative strategies to deliver truly uncorrelated returns, but because the entire group manages such a large aum, their hands are tied when it comes to deploying all their funds under management.

That's why their biggest holdings are all in large cap stocks rather than smaller companies. Their biggest holdings are primarily in mega cap tech stocks, with minimal diversification into blue chip companies like johnson johnson and target when you get to over 150 billion dollars of assets under management. It's almost impossible to generate excess returns without running a macro fund, which is extremely hard to do. That's why other hedge funds, like point 72 and citadel close themselves off to new investors when they get to a fraction of the size of man group? The problem is, if your investment results aren't good enough to justify increasing your performance fees as a percentage of aum or percentage of returns.

The only way to increase your management fees is to take more investor capital. That's the route that man group chose. They are now a bloated hedge fund that prioritizes maximizing their own fee revenue as opposed to investment performance as the biggest publicly traded hedge fund in the world. They first and foremost answer to their own investors on wall street rather than their clients, and that's not a good thing for their clients.

Some years they might make money some years. They might lose money and sometimes they might even beat the market. But more than anything else, an investment with man group is essentially just a fancy way of investing in fang, alright guys that wraps it up for this video. What do you think about the man group? Would you choose to invest in one of their funds? Let us know in the comments section below as always.

Thank you so much for watching and we'll see you in the next video wall street millennial, signing out.