Citing pressures associated with declining assets under management and pressures facing the hedge fund industry, Fitch Ratings has downgraded Man Group plc’s long-term issuer default rating.

The rating agency says that the downgrade “reflects the pressure on management fees arising from falling funds under management and various implications for Man arising from the significant performance, reputation and financing challenges facing the hedge fund industry.” Additionally, it notes that the firm is increasingly reliant on its flagship in-house managed futures fund manager, AHL, for revenues.

The firm predicts that Man is likely to experience falling assets at least in the first part of 2009, despite its solid sales track record. And, it notes that Man is exposed to reputation risk. “The hedge fund industry as a whole is facing negative sentiment following a year of largely poor performance in 2008 and high-profile scandals. These not only have an adverse impact on net FUM flows for the industry, but also increase the risk of litigation or voluntary compensation being paid to investors,” it says.

Helping to offset these risks and to underpin Man’s credit profile in such difficult markets are Man’s consistently low leverage, its disciplined risk management, its sound liquidity management, its ability to structure products which reflect market conditions, its geographic reach and diverse investor base and the likelihood that additional cash will be released from loans Man makes to funds and investments Man makes in funds as its Man Global Strategies platform continues to wind down, Fitch says.

IE