Case Study Analysis: Financial Strategies of Man Group in Crisis

This case study analyzes the Man Group, a financial firm operating in the mutual fund industry, focusing on its hedge fund and fund of funds schemes. The study examines the challenges faced by Man Group, including decisions on business diversification and investment strategies during the 2007 economic crisis. The research evaluates Man Group's expansion strategies, assessing its expertise in hedge funds and the potential for diversification into areas like private equity. The analysis includes profitability, liquidity, and efficiency ratios, considering alternative future scenarios and resource constraints. The study recommends that Man Group diversify into blue crest mutual funds and private equity, providing insights for stakeholders and addressing limitations. The report also provides recommendations for the company's future actions.

CASE STUDY ANALYSIS

Executive summary
This report is prepared on mutual fund business in which in context of Man group various
cases were given. Along with these various alternative options in which firm can go is also
available. In the report, all these cases are analyzed and by considering various factors
recommendations are made in the report. For conducting a research data is collected from books,
journals and internet etc. On the basis of entire analysis it is recommended that Man group must
diversify its business in to blue crest mutual funds and private equity business.

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION....................................................................................................1
1.1 Overview..........................................................................................................................1
1.2 Background of study.........................................................................................................1
1.3 Research problem.............................................................................................................2
1.4 Research aims and objectives...........................................................................................2
1.5 Significance of study........................................................................................................2
1.6 Structure of report.............................................................................................................2
CHAPTER 2: CASE BRIEF............................................................................................................5
CHAPTER 3: PROBLEM STATEMENT AND ANALYSIS........................................................7
3.1 Statement of problem and analysis...................................................................................7
3.2 Research method..............................................................................................................8
3.3 Literature review..............................................................................................................8
3.5 Sources of data...............................................................................................................14
3.6 Ethical issues..................................................................................................................14
CHAPTER 4: ANALYSIS & FINDINGS.....................................................................................16
4.1 An assessment of the current position............................................................................16
4.2 Alternative future scenarios............................................................................................18
4.3 Resource constraint evaluation.......................................................................................20
CHAPTER 5: PROPOSED SOLUTION TO THE PROBLEM....................................................22
5.1 Integrated discussion of the analysis..............................................................................22
5.2 Recommendations and proposed plan of action.............................................................23
5.3 Critical assumptions of the analysis...............................................................................25
5.4 Implications for the stakeholders....................................................................................26
5.5 Limitations of study and scope of research....................................................................27
CHAPTER 6: APPLICATION TO ANOTHER CASE................................................................28
6.1 Comparator company situation.......................................................................................28
6.2 Testing the recommendations on the ABN Amro..........................................................28
CONCLSUION..............................................................................................................................29
REFERENCES..............................................................................................................................30

INDEX OF TABLES
Table 1: Profitability ratio analysis................................................................................................16
Table 2: Liquidity ratios...............................................................................................................16
Table 3: Efficiency ratios...............................................................................................................16

CHAPTER 1: INTRODUCTION
1.1 Overview
Man group is a firm that is operating in the finance industry. It has its own mutual fund
products and brokerage house. It has its separate brokerage and mutual fund business. In mutual
fund, the company is conducting operations by offering fund of fund and hedge funds schemes.
In the report, case of Man group is analyzed in detail. In the report it is find out that a firm faces
lots of challenges in its business. In order to grow business and increase return, firm acquires
stack in various firms. Due to acquisition of stack in different firms, it comes in position to use
different investment strategies in the mutual fund. These strategies are used when price
fluctuation taken place in a stock market. Man group since its inception is focusing on hedge
funds and due to this reason it becomes expert in managing huge size of hedge funds in its
business (Lounsbury, 2007). The main challenge behind Man group is to take a decision whether
to diversify its business or not. It has strong expertise in hedge funds but not in other funds. Due
to this reason, it is not able to do cross selling of its product in proper manner. This means that, it
is facing a huge problem in giving stiff competition to the competitors. On other hand, it is also
facing a problem in growing its business. Hence, research is addressing these issues.
1.2 Background of study
In 2007, global recession comes in existence and due to this reason people investment
capacity got reduced. This happened because at that time unemployment rate and inflation rate
got increased and GDP fell steadily. This created turmoil in the stock market or financial market.
Due to this reason investment financial instrument fell. Before 2007, there was lot of growth
opportunities in the financial market. But after that situation get changed and demand for
financial products fall sharply. This also affected Man group expansion strategy and it entangled
in to dilemma whether to expand a business or not. There was lot of alternatives that were
available to Man group. It can be diversified into closed ended schemes or private equity
schemes (Kacperczyk, Sialm, and Zheng, 2005). But poor economic conditions made it difficult
to decide whether it must expand its business or remain stuck to its traditional investment
products. Man group has lot of alternatives like it can commence its mutual fund schemes in debt
securities, private equity funds etc. At that time; due to economic fluctuations it is difficult to
select a criterion for supporting future growth strategies. Whole case study is analyzed and an
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attempt is made to identify that it would be better for Man group to expand its business in the
business environment or not.
1.3 Research problem
Man group wants to expand its business at a fast pace and in respect to this it acquires
stack in many firms from 2000 to 2007. After that, economic crisis comes in existence and it
becomes difficult to expand a business. Many options were available to the mentioned firm but it
was difficult to ensure that business expansion will be better for the firm (González, 2013).
Hence, main research problem is to identify whether firm must expand its business when
economy was in downturn.
1.4 Research aims and objectives
 To evaluate case of expansion during crisis for Man group.
 To analyze business opportunities available with Man group.
 To identify suitable course of action for Man group during 2007.
1.5 Significance of study
The study has lot of significance because in this research it is identified that in case of
economic downturn, any firm can expand its business or it can operate its business in those areas
in which it is currently operating. For understanding this, case of Man group is taken which is
operating in the financial market. The condition of financial crisis creates lots of problems in an
economy and in that situation it becomes very difficult to take business decisions. In that
situation, it is inevitable for the firm to follow appropriate policies and procedures so as to run
business smoothly in adverse conditions (González, 2013). In this research it is evaluated that
what steps Man group must take when economic crisis was prevalent in terms of business
expansion. Hence, this research will provide insights in relation to decision that can be taken in
context of business expansion especially when business conditions are uncertain. It can be said
that the research will prove very important to the financial institutions.
1.6 Structure of report
In order to prepare a research report in a systematic manner a structure is used that will
be followed to prepare a report. In this report introduction is given and then brief statement is
given in the report. After that, problem statement is given and facts are analyzed. Thereafter,
solution to the problem is also discussed in the report. Following is the structure of the report.
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Chapter 2: Case Brief
In the second chapter, case study is analyzed deeply and an attempt is made to make the
reader fully understand about the case on which report is prepared. Through this section of the
report, researcher is able to understand entire business situation that a firm faces while operating
a business in that situation. Along with this, various problems that a company face while
operating its business is also described in the detail.
Chapter 3: Problem Statement and Analysis
After describing entire case in detail, a researcher requires to determine a problem that a
firm is facing as per case study in the legitimate way. In this section of the report, researcher is
required to determine a technique which it can follow to analyze a data that is collected to
conduct a research (Lounsbury, 2007). So, it can be said that in this stage a researcher identify a
problem and use tools to analyze a data that is collected through a research.
Chapter 4: Analysis and Findings
In previous chapter only, techniques are identified that can be used to analyze the data.
But in this stage, these techniques are applied practically to conduct a research. On the basis deep
analysis and collection of related information, the researcher is able to prepare research findings.
Hence, researcher needs to perform this stage with due care.
Chapter 5: Proposed solution to problems
In this stage, a researcher identifies solution of the problem which firm is facing in its
business. In this stage, a researcher makes an attempt to identify a valid and reliable solution to
the research problem. It is the ethical liability of researcher to identify solutions that can be
applied in the real business problems (Kacperczyk, Sialm and Zheng, 2005). Hence, it can be
said that like evaluation and finding stage this stage is also very important for the researcher.
Chapter 6: Application to another case
Main objective of the research gets fulfilled when it is ensured that research solution is
reliable and can be applied in other business situations. This last part of research gives an idea of
the way in which solutions developed can be applied on any other business organization. Apart
from this, the researcher also proves that findings of his research are valuable to the
organizations. It is a part of the research through which researcher provides an information about
the way in which his research findings can be applied on the companies that are facing same
problems in the business.
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CHAPTER 2: CASE BRIEF
Man group is a firm that is operating in a finance industry and is selling mutual funds of
the specific category. It has its own asset under management firm which is responsible for
managing assets of portfolio that is created by investing investor’s capital on various companies’
shares. Mentioned firm is basically selling hedge funds when it was in its infant stage. After that,
it diversifies on other mutual funds schemes in response to the change in business environment.
Hedge funds are those funds in which derivative instruments like futures and options contracts
are used to hedge long positions of the investors (Jiang, Yao and Yu, 2007). With change in the
business conditions, stock market fluctuates and it is very difficult to give higher return in that
situation. Hence in that situation hedge funds are used to maximise investors return when market
is not performing well. Man group was consistently operating hedge funds and due to this
reason its command got stronger in managing huge fund. On this front, it gives a strong
competition to the rival firms.
The firm was facing lot of problems in managing such fund. Many times, short price
fluctuation happens and due to this reason derivative contracts in which firm makes an
investment start incurring loss. Such a loss is heavy in nature because lot size of specific security
is very large. In case of failure of investment strategy, aggregate losses on derivative contracts
become huge which directly reduce return on the invested amount. In order to sort out this
problem, Man group decides to prepare a new scheme which is commonly known as fund of
fund scheme. In this scheme, instead of making investment in the specific security the
organization makes an investment in the other mutual fund scheme. So investment gets
diversified and return get maximised. On other hand, need of making investment in derivatives
also gets eliminated (Avramov and Wermers, 2006). Hence, it can be said that a firm bring a
strategic change in its investment strategy. However, it does not bring complete change in its
strategy. In case of fund of fund scheme, it also makes investment in other company’s hedge
fund. Thus, it operates a two kind of schemes one was hedge fund and other was fund of fund
scheme.
Man group takes a very smart move in its mutual fund investment strategy. In this move,
Man group takes a help of Glenwood capital investments with which it has joint venture in 1995.
But in 2000, this company was completely acquired by Man group. Firm’s top management
knows that business environment is unpredictable and investment in fund of fund (hedge fund)
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and hedge fund no longer guarantees a positive return to the unit holders (Glode, 2011). Hence,
second time Man group took a strategic move in its investment strategy. Under new strategy, it
lay down stress on protection of capital of the investor that he invests in the company’s mutual
fund. Under this new scheme, it invests 60% percent of the invested corpus in debt securities like
zero coupon bond. This means that, if investor invests $100, then $ 60 will be invested in the
zero coupon bond which is a popular debt instrument and $20 will be invested in a future funds
that are managed by AHL. Remaining $20 will be allocated to the fund of fund of Glenwood
capital investments. On other hand, some of the amount will be invested from the firm’s side by
taking a loan. This was done in order to maximise return to the unit holders. Hence, it can be said
that by formulating this strategy firm ensure protection of the capital invested by the investors in
its mutual fund scheme (Massa and Rehman, 2008). On other hand, it also makes an attempt to
maximise unit holder’s returns. So, it can be said that this scheme was designed prudently.
Man group was facing a serious problem in sale of its investment product. Banks and
other financial institutions were its major competitors. These institutions have vast number of
clients and due to this reason they were in position to sell their varied products easily. But the
Man group case was different because it was only selling a mutual fund scheme. Due to this
reason, it became difficult for the firm to cross sell its product. Hence, this became serious
problem for the organisation (Kosowski, 2011). Firm wants to grow its business at a rapid rate
and in this regard lots of alternatives were available to it. These alternatives were closed ended
mutual fund schemes, debt schemes and private equity schemes of the firms that are mentioned
in the case study. Investment strategies of mutual funds and these products were not matched to
the firm’s traditional product line. On other hand, economic conditions were also not well (Ritter
and Zhang, 2007). Hence, it was very difficult to decide whether to launch new products or to
remain stick with the existing product line. Hence, this is the main topic of the problem statement
of the research.
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CHAPTER 3: PROBLEM STATEMENT AND ANALYSIS
3.1 Statement of problem and analysis
Man group is operating in a mutual fund industry and it is consistently growing its
business. In future also it wants to expand its business due to uncertain and unfavorable
economic environment it become difficult for the firm whether to expand business or to confined
to existent business (Daraio and Simar, 2006). So, in the research main problem statement is to
determine whether expansion will be good in unfavorable business environment or not. If current
scenario is analyzed then it can be seen that most of the business firms are focusing on growing
their business. But Man group is operating in an industry where negative change in an economic
environment directly affects investors’ sentiments. Firm is investing in derivative contracts as an
intermediary on behalf of clients. With change in economic environment and business conditions
chances of losing money on derivative contracts also increase. Due to this reason retail investors
are abstaining from making investment in the derivative contracts (Bauer, Koedijk and Otten,
2005). This trend is also observed in case of investment in shares. On other hand, in order to give
good return to the investors on mutual fund Man group shift from simple hedge fund to fund of
fund. So, main conclusion is that in order to continue earn profit on exciting product line firm
need to make many steps. Present research is focusing on this problem and an attempt is made to
identify solution of this problem. Currently, it has been seen that most of the brokerage firms are
facing a lot of problems in earning revenue (Dass, Massa and Patgiri, 2008). These firms are
earning revenue in form of brokerage which they charge on client for facilitation of his buy sell
trade. But due to high volatility in the financial market investor sentiments are not positive
towards investment in shares. This affects Man group revenue. On other hand along with shares
derivative is another product in which it made investment on the behalf of its clients. In
derivative contracts investment is made on lots. These lots are related to the specific company
share and one lot many cover 25 to 100 shares of a single company. Hence, heavy investment is
made in derivative contracts. Due to this reason profit is also very high in derivative contracts
(Berk and Tonks, 2007). But if applied strategy proves wrong due to sudden change in stock
market volatility then investor may also face heavy loss in the business. Hence, due to such kind
of risk investors are abstaining from making investment in derivatives and normal shares. Due to
this reason firm is facing a large problem in running its business smoothly. Derivatives are major
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focus on mutual fund and negative investment sentiments also affect investment from people
side on mutual funds. Downturn in economy further fuels the problem. Hence, firm is already
facing a problem in the business in which it is present for so many years. So, to what extent
diversification in to other financial product business will be profitable and less risky for the Man
group.
3.2 Research method
In order to conduct a research to kinds of data are collected one is primary and second is
secondary data. Primary data is a data that is collected for the first time by the researcher. This
means that specific data never published on any book, journal or magazine (Bogle, 2015). On
other hand, there is a secondary data and it refers to the facts and figures that are already
published on books, journals and magazines. It can be said that both type of data collection
methods are different from each other. Both methods have their own importance and limitations.
The main advantage of primary data is that a researcher collect a data for first time and he come
to know about the current trends in the market (Morey and O'Neal, 2006). On other hand,
secondary data also have a great importance because by collecting secondary data researcher gets
information about trends that were in previous year or months. On the basis of information
collected from the secondary data researcher can determine the direction in which he must
conduct a research. Means that appropriate primary data can be collected by using secondary
data (Yuan, Xiao and Zou, 2008). In research main problem is to determine whether to start
business in new segment or not. Hence, for the research it will be better to collect secondary
data. On this basis it will be determined that business in new business segment will be profitable
or not.
3.3 Literature review
As mentioned in the above discussion that Man group since its inception wants to expand
in its business. In 2007 it has two alternatives one was to get listed mutual fund which had
hedging feature on the recognized stock exchange. Second alternative was to integrate business
of Pemba and Ore hill with each other. According to Gastineau and Weber (2006), firms must
confine their business to traditional product line in which they are operating. This is because it is
very difficult to determine risk and return profile related to the product with which firm is not
familiar in proper manner. Morey and O'Neal (2006) aalso supports this fact and he state that
many times business firms planned to enter in to new business. But due to lack of experience
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they failed to achieve success in the new business domain. There are many real life practical
example in which it has been seen that whenever any giant firm try to enter in to new business
segment it face a lots of problems and failed to achieve targets that it set in its business
commencing stage. As per these intellectual people thoughts it can be said that if firm decide to
enter in to debt security mutual fund business then it might face loss. For this it is necessary to
understand mutual fund debt instruments products (Yuan, Xiao and Zou, 2008). According to
Gastineau and Weber (2006), mutual fund debt instrument schemes are those schemes in which
investment is made in government bonds and debentures issued by the companies. This also
includes junk bonds which are not rated by the regulatory authorities but investment in them can
give higher return to the firm. He also stated that investment in these securities is very risky
especially when economy is not performing well. Means that in case of fall in economic growth
rate money supply increases or decreases in an economy (Agarwal, Boyson and Naik, 2009).
With change in interest rates values of the bond also get changed. If interest rates are increased
then bond present value decreases and if interest rate declined then presents value of the bond
increases. With change in economic conditions globally and domestic level central banks needs
to change interest rates. The main confusion that analysts face is that in which direction central
bank will change interest rates (Hoepner, Rammal and Rezec, 2011). They only can make
estimation but cannot predict accurately each and every thing.
This is the main point where Man group would face a problem it expand or diversify in to
this business. It has long experience of mutual fund that is traded in derivatives. It also has
infrastructure and resources that are used to make effective investment decisions. But in case of
mutual funds investing in debt instruments there is no experience, infrastructure and resources
(Lounsbury, 2007). Hence, it is not in position to predict changes in the interest rates and
estimate likely movements in the bond price. On, other hand, when economy growth rate is
falling frequently interest rates get changed. Due to this reason it is impossible for new entrant to
predict change in interest rates. Hence, if it expands in this business then it may heavily face loss
due to wrong decision making regarding investment in debt securities.
The second alternative that was available to Man group was to launch mutual fund with
closed ended feature related to hedge fund. According to Kacperczyk, Sialm, and Zheng (2005),
hedge fund is a unique investment scheme in mutual fund category. It is a scheme in which
investment is made on the derivative contracts which are listed on the recognized stock
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