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Market Slights Public Hedge Fund Companies' Shares

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NEW YORK (–Stock traders have not warmed up to hedge fund managers. The few hedge fund businesses that are publicly traded tend to be significantly undervalued in relation to profitability or assets under management.

These companies have been instituting measures to reduce the discount to which their shares are subject. Altin AG, a Swiss-based hedge fund of funds that trades on both the London and Zurich stock exchanges, has a proposal in place to purchase its shares at 95% of net asset value should the discount to this value exceed 10%.

Altin’s board of directors recently resolved to put this measure into effect depending on the daily average discount during the three months preceding the firm’s 2003 annual shareholders meeting. This meeting is scheduled for June 25.

Moreover, the Altin board proposes to make the measure permanent, barring a new decision. Should the discount be greater than 20%, the company will investigate tax efficient ways to return cash amounting to 50% of the company’s net assets.

The fund has been developing ways to improve the liquidity of its shares and narrow the discount since 2001. “The board is glad to report that these measures are beginning to show their results, as the discount to NAV has narrowed to 13.5% as of December 2002, down from a high for the year of 17.9%,” according to a statement from Altin.

There is growing interest in the stock from U.K.- and U.S.-based investors, the firm says. Altin had US$228 million in assets under management as of the end of 2002. Estimated NAV was US$45.9 at that time while the share price was US$39.45.

Man Group, the world’s largest freestanding hedge fund business with more than US$23 billion in assets and part of the U.K. benchmark FTSE 100 index, has seen its share price drift down in 2002. Price to earnings is languishing, although compared to most FTSE 100 companies Man shares have done well.

With price to earnings wavering around 12 or below, Man has been preparing to purchase its shares. A resolution authorizing the company to buy back up to 10% of issued share capital was passed at the 2002 annual shareholders meeting.

A possible reason for the undervaluation is the publics focus on uneven hedge fund performance, in particular a loss by Man’s Glenwood arm. But like Altin, Man was a relatively strong performer overall, with earnings per share up 36% as of Sept. 30. Lehman Brothers analysts expect the stock to outperform the financial industry over the next 12 months, with a price target of 1, 350 pence. Shares were trading at 840 pence as of Monday.

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