By Simon Jessop and Shu Zhang
LONDON/BEIJING (Reuters) - Shares in British hedge fund manager Man Group Plc (L:EMG) fell more than 6 percent in early trade on Tuesday following a report the head of its China unit had been taken into custody as part of a probe into the country's recent market volatility.
That, along with a broader market sell-off and losses in the firm's flagship funds last week, contributed to the share price fall, said David McCann, an analyst at Numis Securities.
Bloomberg said on Monday that Man's China chairwoman, Li Yifei, was helping authorities investigating the recent sharp swings in the country's stock market, noting this did not mean she faced charges or had done anything wrong.
A spokeswoman for Man Group, which says on its website that it manages $78.8 billion of assets, declined to comment on the report or share price move.
The company's largest investor, Odey Asset Management, also declined to comment.
Chinese authorities have been probing possible market manipulation following wild gyrations in the country's stock markets (CSI300) (SSEC), which have plunged around 40 percent since mid-June on concerns of a slowing economy and a surprise devaluation of the yuan currency
Reuters has not been able to independently confirm the Bloomberg report and there was confusion in China on Tuesday as to what exactly Li's situation was.
Li's husband, Wang Chaoyong, told Reuters his wife was having meetings at a convention center in a hotel in a suburb of Beijing.
"She said she is fine, discussing many professional issues," Wang said. "Regulators often ask some institutions to have meetings. This is normal."
A source familiar with Man Group said the firm had no trading operations in mainland China and only had a $50 million Qualified Domestic Limited Partner license that allowed it to raise capital onshore to invest in offshore assets.
As Chinese regulators investigate reasons behind a steep fall in the country's shares, they have jangled nerves in the financial industry and also raised questions over the ruling Communist Party's commitment to free-market reforms.
Earlier this month, China's markets regulator froze a trading account linked to Citadel Securities, a unit of the U.S. group that also owns hedge fund Citadel LLC.
"I guess a company like Man has to be in China. After all, their original business was built on being where others were not," said Christopher Cruden, chief executive of Insch Capital Management.
"But as always, the problem is not just that everyone rushes for the exit at the same time. It's that the door simultaneously gets smaller."
At 1125 GMT, Man shares were down 4.5 percent at 154 pence in a mid-cap index (FTMC) down 1.2 percent.
Li became Man's China chairwoman in 2011, having previously worked as the head of MTV China.