Hedge fund firm Man Group PLC announced plans to spin off its brokerage business, Man Financial, in a U.S. initial public offering.

The proposed spinoff will take place as an IPO on the New York Stock Exchange in the third quarter.

It is expected that the net proceeds from the offering will be returned to shareholders later in the year.

Man Financial will be renamed “MF Global” at the IPO. Kevin Davis, currently managing director of Man Financial, will become CEO of MF Global, Chris Smith will be chief operating officer and deputy CEO, and Amy Butte will be CFO. The non-executive chairman will be Alison Carnwath.

The firm says its board has conducted a thorough review in conjunction with its financial advisors and believes that both the brokerage and asset management businesses will be best placed to maximize future returns and growth opportunities through focused independent strategies and appropriate individual capital structures. The board also believes that significant value will be created for Man Group shareholders.

Peter Clarke, group chief executive of Man Group, commented, “The separation of brokerage from our asset management business reflects the strong growth and leading market positions we have achieved in both businesses. Separation will allow each business to focus even more effectively on their separate growth strategies and take advantage of the significant business development opportunities in each of their industries. We believe that an IPO of MF Global will create significant value for Man Group shareholders and that Man Group’s focus on its leading position in the fast growing alternative investment industry will generate further long-term value for shareholders.

“Both businesses enjoyed strong progress in the second half of the financial year. Our asset management business has seen continued asset raising in the second half and further significant growth in management fee income. This success reflects the wide geographical reach of our distribution, the continued attractiveness of our product range and the broad spread of investment management content. Net income growth in the brokerage business will be up significantly reflecting active markets, a growing international presence and a broadening product offering,” Clarke added.

Fitch Ratings affirmed Man Group’s ratings following the announcement. It says that the affirmation is based on discussions with Man, which indicated only a moderate change to many of Man’s leverage and coverage ratios following the separation of Man Financial and return of proceeds.

Man Financial has historically accounted for around 15% of Man’s pre-tax income, but consumes over half of the group’s economic capital, Fitch notes. Man Investments, the alternative asset management business that will be the sole activity of Man after the separation of Man Financial, generates excess regulatory and economic capital, despite post tax net performance fees being used to finance share buybacks, it adds.

Fitch also understands that Man does not intend to reduce the size of its bank facilities (a core part of its available liquidity), even though Man Financial is to be separated. Man will continue to be regulated by the UK Financial Services Authority and will continue to be required to comply with regulatory capital requirements. Fitch believes this to be a key credit strength that differentiates Man from many other alternative asset managers. Should Man’s profile post separation of Man Financial deviate materially from what has been communicated to Fitch, Man’s ratings could change.

Following the separation of Man Financial and the return of net IPO proceeds, Man’s ratings will reflect its strong franchise in alternative investment management (funds under management are reported to have been in excess of U.S.$61 billion at end-March 2007) and record of strong profitability and sound risk management.