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By Ben Stupples
Man Group Plc, the world’s largest publicly traded hedge fund firm, won’t have to pay U.S. federal taxes for a “number of years” due to $210 million in accumulated losses, according to its annual report.
The losses recorded by the London-based hedge fund’s U.S. subsidiaries can be used to offset future taxable profits in the country, Man Group said in the 2016 report, filed March 1. The company is also eligible for tax deductions related to U.S. acquisitions that can be spread out over several years to pare its tax bill even further.
Man Group has $485 million in tax-deductible payments, which largely relate to the $195 million purchase in 2008 of a 50 percent stake in Delaware-based hedge fund Ore Hill, and the 2014 acquisition of an 81.7 percent stake in Boston-based rival Numeric for an initial $219 million.
These payments will be amortized—an accounting function that permits companies to spread the cost of acquired intangible assets—for tax purposes in the U.S. over the next 15 years, Man Group said. “We therefore expect not to pay federal tax in the U.S. for a number of years,” the group said in the March 1 report.
With $80.9 billion under management, Man Group earns the majority of its profits in the U.K. However, the company also has “significant profits” derived from U.S. subsidiaries, it said in its 2016 annual report. In the past three years alone, on top of the 2014 acquisition of Numeric, the company has purchased U.S.-based hedge funds Silvermine Capital Management and Pine Grove.
Man Group’s announcement on its U.S. taxes comes amid upheaval over the future of the country’s federal tax system since the election in November of Donald Trump as President.
While his administration has yet to release a detailed tax plan, Trump pledged during his election campaign to slash the country’s federal corporation tax rate from 35 percent to just 15 percent.
During the campaign, The New York Times published documents that revealed Trump made a $916 million loss on his 1995 income taxes, largely derived from three failed Atlantic City casinos. Similar to Man Group, these losses may have resulted in Trump legally avoiding federal income taxes for several years.
Two spokesmen for Man Group weren’t available for comment, and didn’t respond to a March 1 email requesting comment on President Trump’s tax policy.
As part of its full-year results, Man Group revealed a 49 percent drop in adjusted pretax profits to $205 million, with net performance fees also falling to $27 million from $206 million a year earlier.
But the firm’s funds under management rose by 3 percent to $80.9 billion after attracting investors to its computer-driven hedge funds. That rise still missed analysts’ expectations, though, and the company’s shares fell as much as 10 percent following the results before recovering their decline.
In a statement with Man Group’s 2016 results, CEO Luke Ellis said the year had been “challenging” for the investment management industry but stressed the firm is well-positioned for the future.
He also stressed the need to build “deep and meaningful” relationships with Man Group’s clients, technology investment, and care with both costs and allocation of capital within the company.
To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com
To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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