10-Q: Man-AHL Diversified I Reports Q1 Loss Amid Market Volatility

Man-AHL Diversified I L.P. reported a significant net loss of $6.86 million and negative returns for the first quarter of 2025, a sharp reversal from the prior year's gains.

Summary

• Man-AHL Diversified I L.P. (the Partnership) recorded a net loss of $6,860,196 for the three months ended March 31, 2025, a substantial decline from a net gain of $10,645,658 in the same period of 2024.
• Total partners' capital decreased to $65,021,882 as of March 31, 2025, from $76,261,491 at December 31, 2024.
• The Partnership experienced negative total returns across all unit classes for Q1 2025: Class A Series 1 at (9.15)%, Class A Series 2 at (8.87)%, and Class B Series 1 at (9.15)%. This contrasts with positive returns of approximately 12.88% to 13.23% in Q1 2024.
• Net assets decreased by $11,239,609 during the quarter, primarily due to the net loss from operations and redemptions totaling $4,379,413, with no new subscriptions.
• The underlying master fund, Man-AHL Diversified Trading Company L.P., also reported a net loss of $13,536,580 for Q1 2025, compared to a net gain of $24,448,232 in Q1 2024, and a total return of (8.00)% versus 14.11% year-over-year.
• Trading performance in Q1 2025 was mixed, with gains in some commodity sectors (e.g., gold, silver, live cattle, US natural gas) often offset by losses in equities (e.g., S&P 500, Nasdaq 100, Sweden's OM, India's Nifty), FX (e.g., Japanese yen, Indian rupee, Swiss franc), and fixed income (e.g., U.S. Treasuries, SONIA, Euribor).

Sentiment

Score: 3

Explanation: The sentiment is negative due to significant net losses, negative total returns across all unit classes, and a substantial decrease in partners' capital compared to the prior year. While some individual trading positions were profitable, the overall performance was poor, indicating a challenging market environment for the fund's strategy.

Positives

• Gold and silver positions were top performers in March, with gold experiencing its largest quarterly rise since 1986.
• Long positions in live and feeder cattle generated gains for agricultural trading, as prices reached new highs.
• Long US natural gas positions were profitable in February and March, providing some offsetting gains in the energy sector.
• European equities, particularly the FTSE Italia All-Share Index, showed resilience and generated positive returns in January and February.
• Gains were made in European investment-grade and high-yield credit indices in January and from European high yield in February.

Negatives

• The Partnership incurred a significant net loss of $6,860,196 for the three months ended March 31, 2025, a stark reversal from a $10,645,658 net gain in the prior year period.
• Total returns for all unit classes were negative, ranging from (8.87)% to (9.15)%, indicating a substantial decline in performance compared to Q1 2024.
• Net assets decreased by over $11.2 million in Q1 2025, driven by operating losses and partner redemptions.
• Equity positions, including longs in the S&P 500 and Nasdaq 100, posted losses in February, and overall equity positions contributed to losses in March.
• FX trading generated losses in January (long US dollar stumbled against Brazilian real and Japanese yen), February (Japanese yen rose against USD), and March (short positions against USD like Indian rupee and Swiss franc experienced losses).
• Fixed income trading generated losses in January (SONIA, Euribor, most positions) and February (short U.S. Treasuries across maturity spectrum), with overall flat performance in March.
• Commodity trading experienced losses across all three sub-sectors in February, including a fall in cocoa prices and losses from long positions in platinum and silver.
• Net realized trading gains on closed contracts/agreements and foreign currency transactions for the Trading Company plummeted from $10,853,096 in Q1 2024 to $266,246 in Q1 2025.
• The Trading Company saw a massive shift in unrealized trading appreciation/depreciation on open contracts/agreements, moving from a gain of $12,212,937 in Q1 2024 to a depreciation of $(15,497,227) in Q1 2025.

Risks

• Investing in the Partnership is speculative and involves substantial risks, with the possibility of losing the entire investment.
• Markets are volatile and difficult to predict, influenced by interest rates, governmental policies, weather, supply/demand, political/economic events, and government intervention.
• Trading is highly leveraged, meaning small price movements can result in immediate and substantial losses, potentially exceeding the amount invested.
• Markets may be illiquid, making it difficult to execute or liquidate positions at desired prices, especially during daily price fluctuation limits or trading suspensions.
• Speculative position limits imposed by regulatory bodies or exchanges could restrict futures trading and force liquidation at unfavorable times.
• Cash flow risk exists due to daily mark-to-market margin requirements, potentially forcing premature closing of positions during adverse market moves.
• The trend-following trading strategy is vulnerable to periods dominated by fundamental factors, prolonged static markets, or 'whip-saw' markets, leading to substantial trading losses and increased expenses.
• Model and Data Risk: Reliance on proprietary mathematical quantitative models and third-party data can lead to errors, omissions, imperfections, and malfunctions (System Events), resulting in unanticipated trades, execution failures, or increased risks.
• Trade Systems and Execution of Orders: Reliance on complex computer programs and systems carries risks of malfunctions, trading volume surges, or system failures, which may disrupt execution strategies and lead to losses.
• Trade Error Risk: Occasional trade errors are inherent in complex, high-volume trading, and while some losses may be borne by the Trading Advisor, investors should assume they will occur.
• Trading in OTC Markets exposes the Partnership to less governmental regulation, no clearinghouse guarantee, and higher counterparty credit risk compared to organized exchanges.
• Enhanced Regulation of OTC Derivatives Markets (e.g., EMIR, Dodd-Frank Act) may increase costs, lead to less favorable pricing, and make highly tailored transactions more difficult.
• Exchanges for Physicals/Swaps/Risk (EFP/EFS/EFR) transactions carry compliance risks and counterparty credit risk due to potential delays in clearinghouse acceptance.
• Options on Futures Contracts may be more volatile and highly leveraged, with sellers facing potentially unlimited risk.
• Trading on Non-U.S. Exchanges and Markets exposes the Partnership to currency exchange rate fluctuations, exchange controls, less regulatory oversight, political influences, and different clearance/settlement procedures.
• Institutional Risks: Financial difficulties of custodians (banks and brokers) could impair the operating capabilities or capital position of the Partnership.
• Counterparty Risk: The inability of counterparties to perform, particularly for uncleared swap and currency forward transactions, could lead to substantial losses.
• Affiliated Parties Conflicts of Interest: The General Partner and Trading Advisor are affiliates, creating potential conflicts in managing the Partnership, reviewing performance, and setting fees.
• MiFID II: New EU regulatory obligations may impact and constrain the investment strategy, leading to increased compliance obligations and expenses.
• Effects of Health Crises and Other Catastrophic Events: Such events can disrupt markets, adversely affect operations, reduce Net Asset Value, decrease liquidity, and potentially suspend NAV calculation or redemptions.

Future Outlook

The General Partner believes that certain market conditions, such as those with pronounced price trends, offer a greater likelihood of profitability for the Partnership. However, past performance is not necessarily indicative of future results, and the inherent uncertainty of speculative trading means actual losses could exceed expectations. The AHL Diversified Program will continue to trade globally across various market sectors, including currencies, bonds, energies, stock indices, interest rates, metals, and agriculture, with a potential limited investment in stocks in the future.

Management Comments

• The AHL Diversified Program is a price trend-following trading system, entirely quantitative in nature, and implements trading positions on the basis of statistical analyses of past price histories.
• The objective of the AHL Diversified Program is to deliver capital growth for commensurate levels of volatility over the medium term, independent of the movement of the stock and bond markets.
• Past performance is not necessarily indicative of its future results.
• The General Partner does believe, however, that there are certain market conditions, for example, markets with pronounced price trends, in which the Partnership has a greater likelihood of being profitable than in other market environments.
• The Partnership's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership's open positions and the liquidity of the markets in which it trades.
• The magnitude of the Partnership's open positions creates a risk of ruin not typically found in most other investment vehicles.
• AHL's risk management framework is designed to identify, monitor and mitigate the portfolio, operational and outsourcing risks relevant to its operations.
• The General Partner, with the participation of the General Partner's Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of the Partnership's disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2025, and concluded they were effective.

Industry Context

The filing highlights the challenges faced by quantitative, trend-following strategies in the first quarter of 2025. The significant losses across various asset classes (equities, FX, fixed income) suggest a market environment that lacked sustained, clear trends or was characterized by 'whip-saw' movements, which are detrimental to such strategies. While some commodities like gold and live cattle showed strong trends, these were insufficient to offset broader market difficulties. The fund's performance underscores the sensitivity of trend-following models to market conditions, particularly the absence of strong directional momentum.

Comparison to Industry Standards

• The AHL Diversified Program is a systematic, statistically based investment strategy designed to identify and capitalize on trends and other inefficiencies, aiming for capital growth independent of stock and bond markets.
• The strategy is entirely quantitative, driven by mathematical models based on historical relationships, and underpinned by rigorous risk control, ongoing research, and diversification.
• The program trades approximately 250 markets globally, including stock indices, bonds, currencies, short-term interest rates, energies, credits, metals, agricultural, and volatility, emphasizing sector and market diversification.
• No specific comparable companies or projects are mentioned in the filing, as the fund's objective is to deliver returns independent of traditional stock and bond markets, making direct comparisons challenging without external data.

Related Party Transactions

• Man Investments (USA) Corp. (the General Partner) is a subsidiary of Man Group plc.
• AHL Partners LLP (the Advisor/Trading Advisor) is an affiliate of the General Partner and a subsidiary of Man Group plc, acting as trading advisor to the Partnership and Trading Company.
• Man Investments Inc. (MII), an affiliate of the Advisor and General Partner, serves as the placement agent for all classes of units and receives monthly servicing fees.
• The General Partner earns a monthly general partner fee, included in management fees, from Class A Series 1 and Class B Series 1 units.
• The Advisor earns a monthly management fee and a monthly incentive fee (though no incentive fees were earned in Q1 2025 or Q1 2024).

Stakeholder Impact

• Shareholders (Limited Partners) experienced a significant decrease in their capital and negative returns on their investments during the quarter.
• The negative performance may lead to increased redemption requests in subsequent periods, further reducing the Partnership's capital.
• Management and servicing fees were still paid or accrued despite the net loss, impacting the overall profitability for partners.

Next Steps

• The Partnership will continue to engage in speculative trading of futures and forward contracts and related instruments through its investment in Man-AHL Diversified Trading Company L.P. pursuant to the AHL Diversified Program.
• The General Partner will continue to oversee operations and management, and the Trading Advisor will continue to direct trading activities based on its quantitative, trend-following system.

Key Dates

Recommendation

The fund experienced a substantial net loss and negative total returns across all unit classes in Q1 2025, a sharp reversal from the positive performance in the prior year. This indicates a challenging period for its quantitative, trend-following strategy. The significant decrease in partners' capital, coupled with zero subscriptions and notable redemptions, suggests declining investor confidence. Given the speculative nature, high leverage, and inherent risks associated with its trading activities, and the poor recent performance, a seasoned investor would likely recommend selling to mitigate further potential losses.

Keywords

Commodity Pool, Managed Futures, Trend Following, Quantitative Trading, SEC 10-Q, Feeder Fund, Master Fund, Futures Contracts, Forward Contracts, Swap Agreements, Net Asset Value, Trading Losses, Market Risk, Derivatives, AHL Diversified Program