REG - Man Group plc - Annual Financial Report
Man Group plc
In compliance with Listing Rule 9.6.1 the following documents have been submitted to the National Storage Mechanism and will be available for inspection at http://www.morningstar.co.uk/uk/nsm
1. Annual Report for the year ended 31 December 2019 (the "Annual Report")
2. Notice of 2020 Annual General Meeting (the "AGM Notice")
3. Form of Proxy for the Company's 2020 Annual General Meeting
In compliance with DTR 6.3.5 the following information is extracted from the Annual Report and should be read in conjunction with the Group's final results announcement of 28 February 2020. The information reproduced below and in the final results announcement together constitute the material required by DTR 6.3.5 to be communicated in full, unedited text through a regulatory information service. Page numbers and cross references in the extracted information below refer to page numbers and cross-references in the Annual Report. The Annual Report and the final results announcement can be viewed and downloaded at our website www.man.com together with the AGM Notice.
Principal risks
The trend of the risk in 2019 is shown as; /\ (increased), <> (unchanged) or \/ (decreased).
Risks
Mitigants
Status
Trend
Business risks
Investment performance
Fund underperformance on an absolute basis, relative
to a benchmark or relative to peer groups could reduce
FUM and may result in lower subscriptions and higher
redemptions. This risk is exacerbated at times of volatile markets. This may also result in dissatisfied clients, negative press and reputational damage.
Lower FUM results in lower management fees and
underperformance results in lower performance fees,
if any.
Man Group's investment businesses each have
clearly defined investment processes designed to
target and deliver on the investment mandate of each
product. We focus on hiring and retaining highly skilled
professionals who are incentivised to perform within the parameters of their mandate.
Man Group's diversified range of products and strategies
limits the risk to the business from underperformance
of any particular strategy.
2019 has seen good absolute performance, particularly
for Man AHL and the equity long-only products. However, relative performance to peers has been weaker for the large valuation focused strategies such as Japan CoreAlpha, Emerging Market Debt and those within Man Numeric.
Although FUM increased largely due to the rallying equity market, there were modest outflows following weaker short-term relative performance.
The discussion of Man Group's performance is on pages
18-21.
^
Key person risk
A key person to the business leaves or is unable
to perform their role.
Retention risk increases in years of poor performance.
Business and investment processes are designed
with a view to minimise the impact of losing any key
individuals. Diversification of strategies reduces the
overall risk to Man Group.
Succession plans and deferred compensation schemes are in place to support the retention of senior
investment professionals and key management.
Man Group has continued to be able to attract and
retain an array of talented individuals across the Group, however voluntary staff turnover has been increasing.
The departure of the Group President and the transition
to the new Board Chairman has proceeded smoothly.
We continue to operate a succession planning process to manage this risk.
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Credit Risks
Counterparty
A counterparty with which the funds or Man Group have
financial transactions, directly or indirectly, becomes
distressed or defaults.
Shareholders and investors in Man Group funds and
products are exposed to credit risk of prime brokers,
custodians, sub-custodians, clearing houses, depository
banks and guarantee providers.
Man Group diversifies its deposits across a number
of strong financial counterparties, each of which is
approved and regularly reviewed for creditworthiness
by the Counterparty Monitoring Committee (CMC).
The CMC also oversees contingency planning ahead
of significant market or political events.
The Group Risk function monitors credit metrics,
such as CDS spreads and ratings, of the approved
counterparties on a daily basis.
Increased regulatory scrutiny, stress testing and capital requirements for investment banks and central clearing houses supports the overall stability of Man Group's core counterparties.
2019 saw credit spreads tighten for most names and
there were no periods of heightened concern for any
material names.
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Liquidity Risks
Corporate and fund
Volatile markets can place additional, often short-term,
demands on the balance sheet. Man Group is exposed
to having insufficient liquidity resources to meet its
obligations.
Adverse market moves and high volatility may sharply
increase the demands on the liquid resources in Man
Group's funds. Market stress and increased redemptions
could result in the deterioration of fund liquidity and in the severest cases this could lead to the gating of funds.
Man Group has access to a revolving credit facility (RCF),
and maintains a liquidity surplus. Liquidity forecasting,
including downside cases, facilitates planning and
informs decision making.
The investment risk teams conduct regular liquidity
tests on Man Group's funds as well as peer fund reviews.
We endeavour to manage resources in such a way
as to meet all demands for fund redemptions according
to contractual terms.
The RCF has been renewed at $500 million for 5-7 years
across 14 Tier 1 banks, providing the Group with a robust liquidity backstop.
The asset liquidity distribution across funds has remained broadly unchanged. In response to liquidity issues faced
by other asset managers, detailed case reviews have
been carried out. This has led to enhancements in our
liquidity analysis toolkit and reporting.
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Market Risks
Investment book
Man Group uses capital to seed new funds to build
our fund offering and expand product distribution. Man Group is therefore exposed to a decline in value of the seeding book.
A disciplined framework ensures that each request for
seed capital is assessed on its risk and return on capital.
Approvals are granted by a Seed Investment Committee
(SIC), which is comprised of senior management, Risk
and Treasury. Investments are subject to risk limits, an
exit strategy and are hedged to a benchmark where
appropriate. The positions and hedges are monitored
regularly by Group Risk and reviewed by the SIC.
The seeding book reduced in size over 2019, along with
its downside risks. Overall seeding book returns for 2019 were positive, with the hedges performing as expected.
Some liquidity has been released by sourcing repo
financing for CLO risk retention positions and swap
financing for hedged long-only fund positions. Man Group retains the market risk to these positions.
<>
Pension
Man Group underwrites the risks related to the UK
defined benefit pension plan which closed to new
members in 1999 and future accrual in 2011. The plan
is well funded, but is exposed to changes in net asset
versus liability values.
The UK pension plan has a low net exposure to UK interest rates. The return seeking assets are low volatility and have a low correlation to equity markets. Longevity is the largest remaining risk, but is uncorrelated to Man Group's other risks.
The scheme has a surplus on an accounting basis and a small deficit on an actuarial basis. The actuarial deficit has reduced over 2019 with improved performance of the underlying assets.
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Operational risks
Internal process failure
Risk of losses resulting from inadequate or failed processes within Man Group.
The Group's risk management framework and
internal control systems are based on a three lines
of defence model.
Internal Audit evaluates the effectiveness of the Group's
risk management, control and governance processes.
The Group remains focused on enhancing its systems
and control processes where required and ensuring
internal process failures are kept to a minimum.
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External process failure
Man Group continues to outsource a number of functions that were previously performed internally as well as managing outsourcing arrangements on behalf of its
funds. The risk is that the outsourced service providers
do not perform as required, resulting in knock-on implications for our business as a whole.
Man Group's operations team has implemented a robust
methodology (including ongoing third-party due diligence
and KPI monitoring) to confirm that outsourced service
providers are delivering as required.
The Group continues to concentrate its outsourcing
into a smaller number of carefully selected and proven outsource providers with which it has established working relationships allowing for greater process consolidation and rationalisation.
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Information and cybercrime security
The risk of loss resulting from cybercrime, malicious
disruption to our networks or from the theft, misplacing,
interception, corruption or deletion of information.
Man Group has a mature information security
management programme which governs current
and future strategy.
The Group has deployed cyber controls and countermeasures
which are continuously reviewed, maintained
and adjusted in line with our assessments and those
of trusted advisors. These security mechanisms are
deployed in a layered defence involving preventative,
detective, reactive and recovery controls. If one control
fails, other controls are in place to detect, prevent or
counter an attack. To keep pace with emerging risks,
some of the technology solutions are utilising
machine learning, artificial intelligence (AI) and
behavioural analysis.
The Group has a cyber-risk training programme and
has commissioned independent threat and security
assessments, including simulated staged attacks on our network to test our detection and response capability.
The threat from cybercrime groups continues to grow,
with many of these groups executing sophisticated attack campaigns with expertise only seen in previous years
from nation states or state-sponsored hacking groups.
Throughout 2019 social engineering-based attacks
remained the primary delivery technique - criminal
elements attempt to gain access to sensitive corporate or private data with an ultimate goal of stealing and then selling the data to the highest bidder. Alternatively, they may deny the data owner access to their data altogether and then demand a ransom for its safe return.
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Information technology
Risk of losses incurred by IT software and hardware
failures resulting in system downtime, severely degraded
performance or limited system functionality.
The Group recognises the fundamental role of
technology in delivering its objectives and IT functions
work closely with other business units to ensure work
is correctly prioritised and financed. The prioritisation
process considers the lifecycle of both hardware and
software to ensure both are adequately supported and
sized. The Group's operational processes include mature
risk, incident and problem management procedures to
minimise the likelihood and impact of technology failures.
During 2019 the Group continued to improve its
technology capability with the completion of a new
Finance and HR platform and ongoing enhancements
across the trading and operations systems.
New hardware investments were made to support the
Group's Quant Research platform, as well as a major
refresh of our end user computing systems.
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Legal and regulatory
The global nature of Man Group's business, the
expansion of its investment businesses and the acquisition of new investment businesses, with corporate
and fund entities located in multiple jurisdictions and a
diverse investor base makes it subject to a wide range
of laws and regulations. Failure to comply with these
laws and regulations may put Man Group at risk of fines,
lawsuits or reputational damage.
Changes in laws and regulations can materially impact Man Group or the sectors or the market within which it operates.
Man Group operates a global legal and compliance
framework which underpins all aspects of its business
and is resourced by experienced teams. These teams are physically located in Man Group's key jurisdictions,
helping them to understand the context and impact
of any requirements.
Emphasis is placed on proactively analysing new legal
and regulatory developments to assess likely impacts
and mitigate risks.
Man Group continues to liaise directly and indirectly
with competent authorities e.g. FCA, SEC, FINMA, CBI.
Man Group continues to experience new regulatory
requirements. In 2019 this included the Senior
Managers and Certification Regime ('SMCR')
which was successfully implemented.
Work is already underway on a number of regulatory
initiatives including IBOR transition and the new
prudential regime for EU investment firms.
<>
Brexit
The Group faces legal, tax and regulatory uncertainty
which could impact the ability of funds to access markets
or cause investors to redeem.
Fund performance may be adversely impacted by market
volatility or reduced liquidity.
Operational events may result from an elevated volume
of legal or operational tasks.
Man Group has upgraded the regulatory permissions
of its Irish entity and has opened an office in Dublin
to serve European clients.
The fund risk toolkit includes market and liquidity scenarios focused on downside Brexit risks.
The UK Government has committed to fully exiting the
European Union at the end of 2020, following a transition period. The exact nature of the final agreement may impact market infrastructure and regulations.
The Group is monitoring developments closely and will take the necessary steps to ensure that the impact on
the business, investors and employees is minimised.
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Reputational Risks
Negative Publicity
The risk that an incident or negative publicity undermines
our reputation as a leading investment manager.
Reputational damage could result in significant
redemptions from our funds, and could lead to issues
with external financing, credit ratings and relations
with core counterparties and outsourcing providers.
Our reputation is dependent on both our operational
and fund performance. Our governance and control
structure mitigates operational concerns, and our
attention to people and investment processes are
designed to comply with accepted standards of
investment management practice.
Man Group continues to enjoy a good reputation and this risk is assessed as stable.
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Emerging Risks
External Risks
Primarily external in nature and complementary to the
principal risks which are focused on current internal
risk. The emerging risk categories include natural
disasters, pandemics, disruption to financial markets
and business infrastructure, political risk and changes
in the competitive landscape.
The Board and Group Risk monitor emerging risks,
trends and changes in the likelihood of impact.
This assessment informs the universe of principal
risks faced by the firm.
The emerging risks have been reviewed by the Board in 2019. No changes were made to the Group's headline
principal risks.
The coronavirus (COVID-19) outbreak has transitioned
from an emerging risk to a business continuity
principal risk.
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Related party transactions
Related parties comprise key management personnel, associates and fund entities which Man is deemed to control. All transactions with related parties were carried out on an arm's length basis.
Refer to Note 17 for details of income earned from associates. Management fees earned from fund entities in which Man holds a controlling interest are detailed in Note 13. Contingent consideration payable to Aalto management is outlined in Note 26.
The Executive Committee, together with the non-executive directors, are considered to be the Group's key management, being those directors, partners and employees having authority and responsibility for planning, directing and controlling the activities at Man.
Key management compensation $m
Year ended
31 December 2019
Year ended
31 December 2018
Salaries and other short-term employee benefits1
29
30
Share-based payments
13
12
Fund product based payment charge
9
8
Pension costs (defined contribution)
1
1
Total
52
51
Note:
1 Includes salary, benefits and cash bonus.
Man made a charitable donation of £2,500 to Greenhouse Sports Ltd during the year (2018: £25,500) and nil (2018: £7,200) was paid to VWA Search Ltd, a recruitment firm, which are considered related parties.
Directors' responsibility statement
Each of the directors, whose names and functions are on pages 58-59 confirm that, to the best of each person's knowledge and belief:
- The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
- The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face;
- The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's and Group's performance, business model and strategy; and
- There is no relevant audit information of which the Group's auditor is unaware, and that they have taken all steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that Man Group's auditor is aware of that information.
Enquiries
Alex Dee
Head of Investor Relations
+44 (0)20 7144 1370
Georgiana Brunner
Communications Director
+44 (0)20 7144 1000
END.
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