10-Q: Man-AHL Diversified I Reports Q2 Loss, NAV Declines

Man-AHL Diversified I L.P. reported a significant net loss and decreased net asset value for the six months ended June 30, 2025, driven by negative trading performance.

Summary

• Net assets decreased by $17,146,310 for the six months ended June 30, 2025, primarily due to $6,408,223 in redemptions and a net loss from operations of $10,738,087.
• For the three months ended June 30, 2025, net assets decreased by $5,906,701, comprising $2,028,810 in redemptions and a net loss of $3,877,891.
• The Partnership's total return for the six months ended June 30, 2025, was negative 14.52% for Class A Series 1 and Class B Series 1, and negative 13.98% for Class A Series 2, a stark contrast to positive returns in the prior year period.
• The underlying Man-AHL Diversified Trading Company L.P. also reported a net loss of $20,778,945 for the six months ended June 30, 2025, compared to a net gain of $29,009,662 in the same period of 2024.
• Monthly performance in Q2 2025 was mixed, with April and May showing negative returns, while June posted positive performance driven by gains in stocks, FX, credit, and commodities.

Sentiment

Score: 2

Explanation: The filing indicates significant financial underperformance with substantial net losses and a considerable decrease in partners' capital and NAV across all unit classes. While June showed some positive performance, the overall trend for the six-month period is strongly negative, coupled with ongoing redemptions and numerous identified risks inherent to its speculative trading strategy.

Positives

• June 2025 performance was positive, with gains in stocks (long Korean Kospi, MSCI EM, US indices), FX (short dollar exposure, Latin American-dollar crosses, Euro), credit (high yield exposure in US and Europe), and agricultural/metals trading (short sugar/corn, long platinum/silver).
• Fixed income trading in April 2025 finished in the black, with gains from long positions in short-term rates.
• The Partnership's net long positioning in Credit was profitable in May 2025.
• Equities and credit trading showed small gains in February 2025.
• Commodities trading finished in positive territory in March 2025, driven by metals (gold, silver) and US natural gas.

Negatives

• Net income/(loss) for the six months ended June 30, 2025, was a loss of $10,738,087, a significant deterioration from a gain of $11,736,562 in the prior year.
• Total partners' capital decreased from $76,261,491 at December 31, 2024, to $59,115,181 at June 30, 2025.
• Net Asset Value (NAV) per unit for all classes decreased significantly from December 31, 2024, to June 30, 2025.
• April 2025 saw negative returns with losses in FX (South African rand, Brazilian real), credit (long credit positions), commodities (metals, US natural gas, soybeans), and stocks (Switzerland's SMI, Hang Seng).
• May 2025 performance was negative due to losses in FX, commodities (Energies, coffee, precious metals), and bonds (long SONIA, Euribor, Korean index positions).
• March 2025 ended with negative returns from equities (Sweden's OM, India's Nifty), credit, and FX trading (short positions against US dollar, Indian rupee, Swiss franc).
• The underlying Trading Company's total return for the six months ended June 30, 2025, was negative 12.37%, compared to positive 16.69% in the prior year.

Risks

• Risk of loss, including the potential to lose the entire investment, due to speculative trading activities.
• Market volatility and unpredictability influenced by interest rates, governmental policies, economic events, and market participant emotions.
• High leverage in futures, forward contracts, and swaps, leading to substantial losses from small price movements.
• Market illiquidity, making it difficult to execute or liquidate positions at desired prices, especially during daily price fluctuation limits or trading suspensions.
• Speculative position limits that may restrict futures trading and require liquidation at unfavorable times.
• Cash flow issues that could force premature closing of positions, potentially leading to substantial losses.
• Reliance on trend-following and technical analysis strategies, which are vulnerable to non-trending or "whip-saw" markets, leading to losses and increased brokerage commissions.
• Model and Data Risk, including errors, omissions, imperfections, and malfunctions (System Events) in proprietary mathematical models and third-party data, potentially causing unanticipated trades, execution failures, and hedging inefficiencies.
• Trade Systems and Execution of Orders risk, where reliance on computer programs and algorithms can lead to malfunctions, execution delays, or failures, resulting in losses.
• Trade Error Risk, acknowledging that occasional trading errors will occur due to the complexity and volume of transactions.
• Increased risks from trading in OTC markets due to less governmental regulation, lack of clearinghouse guarantees, credit failure risk, and liquidity problems.
• Enhanced regulation of OTC derivatives markets (EMIR, Dodd-Frank) leading to mandatory clearing, higher costs, and reduced flexibility for tailored transactions.
• Risks associated with Exchanges for Physicals/Swaps/Risk (EFP/EFS/EFR) transactions, including compliance and counterparty credit risk.
• Higher volatility and unlimited risk for sellers of options on futures contracts.
• Risks associated with trading on non-U.S. exchanges and markets, such as currency exchange rate fluctuations, exchange controls, less regulatory oversight, and different settlement procedures.
• Institutional Risks, where financial difficulties of custodians (banks, brokers) could impair the Partnership's capital position.
• Counterparty Risk, specifically the inability of counterparties to perform on transactions.
• Conflicts of Interest due to the affiliation between the General Partner and the Trading Advisor, potentially affecting management decisions and fee structures.
• Impact of MiFID II, imposing new regulatory obligations that may constrain investment strategy and increase compliance costs.
• Adverse effects from Health Crises and Other Catastrophic Events, leading to disrupted markets, business interruptions, reduced Net Asset Value, and liquidity issues.
• Negative impacts from Tariffs and Trade Wars, creating economic volatility and potentially affecting financial performance.

Future Outlook

The General Partner anticipates that G-7 interest rates, both long-term and short-term, will remain the primary market exposure of the Partnership for the foreseeable future.

Management Comments

• 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 Trading Advisor seeks to reduce the incidence and impact of System Events, to the extent feasible, through a combination of internal testing, simulation, real-time monitoring and the use of independent safeguards in the overall portfolio management process, often in the software code itself.
• The Trading Advisor believes that the testing and monitoring performed on Models and the controls adopted to ensure processes are undertaken with care, will enable the Trading Advisor to identify and address those System Events that a prudent person managing a quantitative, systematic and computerized investment program would identify and address by correcting the underlying issue(s) giving rise to the System Events, but there is no guarantee of the success of such processes.

Industry Context

The filing reflects the challenges faced by quantitative, trend-following strategies in volatile or non-trending markets. The AHL Diversified Program aims for capital growth independent of stock and bond markets, but its performance is highly susceptible to market trends across various sectors. The significant shift from gains to losses in 2025 suggests that the market conditions were less favorable for its trend-following models compared to 2024. Increased regulatory burdens (Dodd-Frank, EMIR) are also noted as impacting OTC derivatives markets, potentially increasing costs for such funds.

Comparison to Industry Standards

• The AHL Diversified Program's objective is to deliver substantial capital growth for commensurate levels of volatility over the medium term, independent of the movement of the stock and bond markets. The negative total returns of -14.52% to -13.98% for the six months ended June 30, 2025, indicate a significant underperformance relative to this objective, especially when compared to the positive returns of 14.10% to 14.82% in the prior year.
• While no specific industry benchmarks or comparable companies are provided in the filing, the substantial negative returns in a period where major equity indices like the S&P 500 (mentioned as hitting all-time highs in June) showed strength, suggests that the fund's "independent of stock and bond markets" objective was not met favorably in the first half of 2025.
• The fund's performance is highly dependent on "pronounced price trends," and the reported losses across various sectors (FX, credit, commodities, bonds) in April and May 2025 suggest that such trends were either absent or reversed quickly, leading to "whip-saw" market conditions that are detrimental to trend-following strategies.

Related Party Transactions

• Man Investments (USA) Corp. (General Partner) is a subsidiary of Man Group plc.
• AHL Partners LLP (Advisor) is an affiliate of the General Partner and a subsidiary of Man Group plc.
• Man Investments Inc. (MII), an affiliate, serves as the placement agent and receives servicing fees.
• Management fees and servicing fees are paid to affiliated entities.

Stakeholder Impact

• Shareholders (Limited Partners): Directly impacted by significant losses, decreased Net Asset Value, and ongoing redemptions, leading to a reduction in their investment value.
• Management/General Partner: Responsible for overseeing operations and managing the Partnership, facing challenges due to underperformance and potential conflicts of interest with affiliated entities.
• Trading Advisor (AHL Partners LLP): Its quantitative trading program is underperforming, potentially affecting its reputation and future fee generation, although incentive fees were not earned in the reported periods due to lack of Net New Appreciation.
• Brokers/Counterparties: Involved in the Partnership's trading activities, subject to credit risk, though mitigated by clearing organizations for exchange-traded contracts.

Next Steps

• The Partnership will continue its speculative trading activities through the Man-AHL Diversified Trading Company L.P.
• Limited partners may redeem units as of the end of any month with 10 days prior written notice.
• The Partnership is scheduled to be dissolved on December 31, 2037, or upon the occurrence of certain events.

Key Dates

Recommendation

The filing reveals a substantial deterioration in financial performance, with a significant net loss of over $10 million for the six months ended June 30, 2025, compared to a profit in the prior year. Partners' capital has decreased by over $17 million, and Net Asset Value per unit has fallen across all classes. The total return for limited partners is deeply negative, ranging from -13.98% to -14.52%. Furthermore, the fund experienced significant redemptions totaling over $6.4 million. While June showed some positive trading, the overall trend for the first half of the year is strongly negative, indicating that the fund's speculative, trend-following strategy is currently struggling in market conditions. The extensive list of inherent risks, including model and data risk, high leverage, and illiquidity, further compounds the negative outlook. For a seasoned investor, these results, coupled with the inherent risks and ongoing capital outflows, would signal a strong recommendation to exit the investment.

Keywords

Hedge Fund, Commodity Pool, Managed Futures, Quantitative Trading, Trend Following, SEC Filing, 10-Q, Financial Performance, Net Asset Value, Derivatives, Futures Contracts, Forward Contracts, Swap Agreements, Market Risk, Investment Loss, Redemptions, Man Group plc, AHL Diversified Program