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* Unidentified employee arrested in insider dealing probe
* Over actions as private individual not employee, says Man
* Clients pulled out $2.7 billion of money in Q4
* GLG performance fees help 2012 profit top forecast
* Shares up 2 percent
By Laurence Fletcher
LONDON, Feb 28 (Reuters) - The arrest of an employee in an investigation into insider dealing and yet more cash withdrawals by clients overshadowed hedge fund firm Man Group's first results under new chief executive Manny Roman on Thursday.
Reporting an 8 percent drop in assets under management since September to $55 billion, Man said an unidentified employee in its GLG division was arrested by Britain's financial markets watchdog and police on Wednesday.
The Financial Services Authority (FSA) said on Wednesday it had arrested three fund management employees in London on suspicion of insider dealing and market abuse. It did not name the individuals or their employers.
Man said the investigation concerned the employee's actions as a private individual, and not as an employee, and that neither Man nor GLG was the subject of investigation. It added the employee had been suspended and it was cooperating fully with the FSA.
Regulators across the world are cracking down on market abuse. Last month the FSA and police swooped on two men and three women, including a trader at asset manager Schroders , for suspected insider dealing. They were later released on bail.
In the United States, investigators are probing allegations of insider trading at billionaire Steven Cohen's SAC Capital.
The scandal comes at an awkward time for Man, which is trying to revive its fortunes, win back clients and turn around the performance of its flagship fund after changing CEO.
The firm said clients pulled out $2.7 billion of money in the final quarter of 2012, better than RBC's forecast of $3.1 billion. Withdrawals continued into 2013, although assets were also hit by a tumble in the yen, the firm added.
However, performance fees from the GLG business helped to push adjusted profit before tax for 2012 to $278 million, beating analyst forecasts. A strong fund performance produced $75 million of gross performance fees from GLG.
At 0930 GMT Man's shares, which have fallen over the past fortnight, were up 2.1 percent at 105.2 pence.
"Business conditions remain very tough, particularly with regard to (client) flows," Roman said on a call to journalists.
Man, whose share price is down by around two-thirds since the start of 2011, was hit by outflows at flagship computer-driven fund AHL, which has now shrunk to $14.4 billion.
Roman said research and development spending on AHL would be increased, funded by cost cuts across Man.
Man has had net customer outflows in every quarter in the last four years, apart from two quarters in the first half of 2011.
"Any investors who were expecting some sort of 'new strategy' from the new CEO are likely to be disappointed," said Citi analysts in a note.
Man also wrote down the goodwill on its 2010 acquisition of GLG by a further $746 million, after $91 million last year, roughly in line with expectations.
Earlier this month Man appointed a new head of its struggling flagship hedge fund as part of Roman's drive to improve performance.