GLG Partners (GLG)

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Jith Eswarappa

Andrew Lewis

GLG Partners, Inc. (NYSE:GLG) is a large alternative asset management firm based in London. It has approximately $24.6 billion in Assets under management (AUM). GLG Partners takes a multi-strategy approach, managing 40 funds with a broad mix of strategies including equity, Global Macro, Emerging Markets, convertible and credit strategies. GLG comprises a mix of 40 alternative strategy funds and long-only funds, making it somewhat unusual among hedge fund managers, who rarely invest purely in long positions, instead using short-selling and other strategies to hedge their returns and reduce their correlation to the broader market. As with all hedge funds, GLG Partners Inc. charges management and performance fees that comprise the majority of its revenues. Its management fees for external investors range from .75% in its long-only funds to 2.5% for its alternative strategy funds, and its performance fees range from 5% for some of its [fund of hedge funds]] to 30% for some of its alternative strategy funds.^[1] The performance fees are subject to a high-water mark that prevents GLG from charging the fees unless the fund is above its previous greatest value.

As with other hedge funds, GLG’s goal is to produce high absolute returns with low volatility and correlation the equity and fixed-income markets. While it does not release volatility figures, GLG has achieved compound net annual return of 17.1% in its alternative strategy funds and 15% in its long-only funds since their first fund's inception in 1997.^[2] However, it has faced investor redemptions lately, owing to the departure of star manager Greg Coffey, who managed approximately $7 billion of GLG’s assets. Even though GLG has hired replacements to helm the funds that Coffey ran, GLG has admitted that it could lose as much as $5 billion of those funds under Coffey’s management, as he is leaving to set up his own hedge fund. This illustrates the risk of “Key Man Syndrome” faced by many hedge funds.^[3] Moreover, with returns of 50% last year, Coffey generated 60% of GLG’s performance fees last year, which make up the lion’s share of its revenues.

Overview

GLG Partners was formed in September 1995 as a division of Lehman Brothers International and began offering funds two years later, in early 1997, giving it an 11-year track record that is attractive to clients. It split off from Lehman in 2000, and went public as a corporation, not a partnership, in early November 2007. As a result of its international origin, very few of its clients are from the United States, and they represent less than 5% of its AUM. Given that the United States is the source of 57% of the hedge fund industry's AUM, this makes GLG very underrepresented in the United States.^[4] GLG’s Principals and other management and employees collectively own 65% of the voting equity in the country, and many are heavily invested in the various GLG funds as well.^[5] GLG Partners consists of a wide array of funds that can be broken down into a few classes.

GLG Funds Breakdown

GLG Partners consists of a wide array of funds that can be broken down into a few classes:

• Single-manager alternative strategy funds: These are GLG’s core offering, with 21 funds managing $18.8 billion, or 65% of its Assets under management (AUM). These funds use a wide array of strategies across various asset classes, such as equity and multi-asset long-short, various arbitrage strategies, convertible bond funds, and long-short credit funds. These funds can also use leverage, short positions, and derivatives strategies.^[6]

• ‘’Long-only funds’’': These funds pursue non-hedged equity market strategies and focus on particular regions and sectors. The 13 long-only funds manage $4.8 billion, or 16% of total AUM.^[7]

• Funds of GLG funds: These three funds, representing 8% of GLG’s assets under management, invest in other GLG funds, giving limited partners access to several of GLG’s strategies.^[8]

• Multi-manager funds: These five funds represent only 2% of GLG’s assets under management, and are fairly standard funds of hedge funds.^[9]

• Managed accounts: GLG uses these accounts to cater to large institutional customers who want a customized approach to investing in the various GLG funds. It has 17 such clients who comprise 8% of total assets.^[10]

Business & Financial Metrics^[11]

In 2009, GLG incurred a net loss of $319.0 million on revenues of $300.9 million. This represents a 49.5% decrease in net loss and a 39.2% decrease in total revenues from 2008, when the compoany lost $631.0 million on $495.0 million in revenues.

Trends and Forces

As the hedge fund industry becomes more institutionalized, capital flows to the larger funds to the detriment of smaller, newer funds.

The hedge fund universe has grown very rapidly, and now numbers nearly 10000 managers, making it harder for funds to produce non-correlated returns. Moreover, institutional investors, such as pension funds, seek out managers with experienced track records and large funds.^[12] In addition to having a large number of funds that allow for diversification within the firm, GLG also offers managed accounts targeted at institutional investors. Furthermore, many of their funds have historically low correlations with the broader market, with the exception of their long-only funds, which are designed to provide full, unhedged exposure to the market. The correlation of GLG's funds to the relevant index, such as the S&P 500 or the MSCI World Index range from .08 for their equity long-short funds to .86 for their equity long-only funds.^[13]

Competition

The hedge fund industry manages around $2.6 trillion^[14] in assets across nearly 10,000 funds, making it an increasingly crowded and competitive field. Within the field, managers fall into very distinct categories on the basis of investment styles and strategies, such as short-bias funds, that focus on short-selling stocks, or global macro funds, which make bets on price movements in the equity, currency, Interest Rates, and commodities markets. Moreover, the majority of the funds are privately held partnerships that provide very little information to the public, making revenue and net income comparisons difficult. Moreover, the investing styles also make comparisons difficult, as some hedge funds are far more volatile than others, or use much more leverage to produce their returns. Of the three publicly traded alternative asset managers, Fortress manages private equity funds, hedge funds, and two real estate management vehicles, making it far less of a pure hedge fund, but still exposing it to markets that have been battered by the credit crisis, such as PE and real estate. Och-Ziff and GLG Partners are somewhat similar in that both are large multi-strategy funds, but GLG has a much larger number of funds than Och-Ziff, which operates all its strategies across four funds.

References

1. ↑ GLG Partners Form 10-K FY 2007 pg.56
2. ↑ GLG Partners Form 10-K FY 2007 pg. 9
3. ↑ Times Online: GLG hedge fund braced for $5bn exodus May 7, 2008
4. ↑ GLG Partners Form 10-K FY 2007 pg. 10
5. ↑ GLG Partners Form 10-K FY 2007 pg. 9
6. ↑ GLG Partners Form 10-K FY 2007 pg. 10
7. ↑ GLG Partners Form 10-K FY 2007 pg. 11
8. ↑ GLG Partners Form 10-K FY 2007 pg. 11
9. ↑ GLG Partners Form 10-K FY 2007 pg. 11
10. ↑ GLG Partners Form 10-K FY 2007 pg. 11
11. ↑ GLG 2009 10-K pg. 55  
12. ↑ WSJ: Losing-their-edge funds July 2, 2008
13. ↑ GLG Partners Form 10-K FY 2007 pg. 6
14. ↑ DealScape: Hedge Funds Top 2.6T Under Management April 17, 2008