REG - Man Group plc - RESULTS FOR THE FINANCIAL YEAR ENDED 31 DEC 2015 <Origin Href="QuoteRef">EMG.L</Origin> - Part 2
24/02/2016 07:10
- Part 2: For the preceding part double click ID:nRSX9345Pa
IN H EUR.
12)
Represented
by Man GLG
Cred-Eq
Alternative
Class IN
EUR.
13)
Represented
by Man GLG
Value
Opportunity
Class B USD
Unrestricted
.
14)
Represented
by GLG
Global
Convertible
Fund - Class
A - USD.
15)
Represented
by Man GLG
Global
Convertible
UCITS Fund -
Class IM
USD.
16)
Represented
by GLG
Market
Neutral Fund
- Class Z
Unrestricted
- USD.
17)
Represented
by Man GLG
European
Distressed
Fund - Class
A - USD.
18)
Represented
by the gross
return of
Man GLG
Multi
-Strategy
Fund - Class
A - USD
Shares until
31 December
2012. From 1
January 2013
the
performance
of Man Multi
-Strategy
Fund - Class
G - USD
Shares is
displayed.
19)
Represented
by Man GLG
Global
Opportunity
Fund - Class
Z - USD.
20)
Represented
by Man GLG
Japan
CoreAlpha
Equity Fund
- Class C to
Class I JPY
(28/01/2010)
.
21)
Represented
by Man GLG
Global
Equity Fund
- Class I T
USD to Class
I USD
(13/05/2011)
.
22)
Represented
by Man GLG
Strategic
Bond Fund
Class A.
23)
Represented
by Man GLG
Undervalued
Assets Fund
- C
Accumulation
Shares.
24)
Represented
by Man GLG
European
Equity Class
I EUR.
25)
Represented
by Man GLG
UK Select
Fund Class
A.
26)
Represented
by Man GLG
Continental
European
Growth Fund
Class A
Accumulation
Shares
27)
Represented
by FRM
Diversified
II USD A.
28)
Represented
by MSCI
World Net
Total Return
Index hedged
to USD.
29)
Represented
by Citigroup
World
Government
Bond Index
hedged to
USD (total
return).
30)
Represented
by Citigroup
High Grade
Corp Bond
TR.
31) HFRI and
HFRX index
performance
over the
past 4
months is
subject to
change.
32) The
historic
Barclay BTOP
50 Index
data is
subject to
change.
Please note
that the
dates in
brackets
represent
the date of
the join in
the linked
track
records.
chief executive's review
2015 has been another challenging year in terms of trading conditions and investor risk appetite. Against this backdrop we
continued to focus on delivering superior risk adjusted returns for our clients, creating a more diversified product
offering, integrating our recently acquired businesses and running the Group efficiently.
Overview
Performance across our investment managers during 2015, while mixed was reasonable against a difficult market backdrop.
AHL's momentum strategies had a strong start to the year but were impacted by reversals in the second and fourth quarters.
GLG's equity long short strategies had a good year and the majority of its long only strategies ended the year ahead of
benchmarks, although certain strategies were some way behind. Numeric posted strong net outperformance versus benchmark and
FRM's performance was solid. Flows were slightly positive in the year with net outflows of $2.6 billion in the first half
of the year broadly offset by net inflows of $2.9 billion in the second half of the year. The acquisitions of Silvermine,
NewSmith and the BAML fund of funds portfolio at the beginning of the year drove an 8% increase in funds under management
to $78.7 billion at 31 December 2015. Adjusted management fee profit before tax was down 2% and adjusted management fee EPS
was up 1% at 10.2 cents. Total adjusted profit before tax decreased however by 17% compared to 2014 mainly as a result of
lower AHL performance fees. Our business continues to be strongly cash generative with adjusted EBITDA (a good proxy for
operating cash flow) of $422 million, compared to $492 million in 2014.
Progress against strategic priorities
Performance1
Investment performance continues to be the most important factor in our success.
AHL's momentum strategies ended 2015 with performance ranging from -2.7% (AHL Diversified) to +3.2% (AHL Evolution).
Returns were impacted by the sharp reversal in European bond markets at the end of April and in grain markets during June,
and by volatility in equities and FX, particularly in the fourth quarter. By contrast, AHL's multi-strategy quantitative
fund AHL Dimension, which has assets of $4.1 billion, had a much better year and was up 6.9%.
Numeric's range of strategies performed well in 2015 with overall net asset weighted outperformance versus benchmark of
3.0%2. The stronger performing strategies were the active extension (130/30) international strategies that outpaced their
respective benchmarks.
2015 was a year of two halves for discretionary hedge fund performance at GLG. While the majority of our alternative
strategies produced solid alpha, returns were largely generated in the first half. In the subsequent six months, investors
were forced to navigate violent sector rotations while buffeted with bouts of volatility. However, GLG's alternative funds
were resilient; the flagship European Long Short strategy posted a net return of 7.6% whilst funds from the recently
acquired NewSmith business delivered strong performance, highlighting a smooth integration. Within credit and convertibles,
GLG's strategies generally delivered positive returns against a backdrop of US rate uncertainty and heightened volatility
in some sectors.
In equities, GLG's long only strategies broadly outperformed markets. The flagship Japan CoreAlpha strategy built on its
impressive long-term track record, slightly outperforming the TOPIX's 2015 return of 12.1%. The Continental European Growth
strategy finished the year with 26% excess return and the Undervalued Assets strategy returned 9.0% above the FTSE
all-share. A handful of strategies underperformed with the Strategic Bond and North American equity strategies
underperforming their relevant benchmarks by 5.2% and 10.7% respectively.
FRM products had mainly positive performance during 2015 with FRM Diversified II making a positive return of 1.0%, 0.5%
ahead of its benchmark.
1 Figures shown net of representative management and performance fees.
2 Numeric's net asset weighted alpha for the year to 31 December 2015 is calculated using the asset weighted average of the
performance relative to the benchmark for all non-restricted strategy composites (representing approximately two-thirds of
Numeric's FUM) available net of the highest management fees and, as applicable, performance fees that can be charged.
chief executive's review (Cont'd)
Business development
During the year we made good progress in integrating the businesses acquired during 2014 and we continued to develop
options for growth across our investment businesses.
We saw strong organic growth at AHL during the year with $2.1 billion of net flows. The business continues to become more
diversified by product with over 60% of assets now in non-traditional strategies. The Numeric business continues to perform
well and since acquisition in September 2014, Numeric has raised gross assets of $6.5 billion, with total FUM increasing
25% to $19.0 billion. During the year good progress was made to integrate Numeric's operations onto the Man platform.
At GLG we completed the acquisitions of Silvermine and NewSmith at the beginning of the year and we continue to attract
talent to broaden out both our alternatives and long only product offering. In the Alternatives business Himanshu Gulati
joined in early 2015 as Head of US Special Situations and we have added a number of talented managers to our European
Equity alternatives team, including Moni Sternbach who is managing our European Mid-Cap alternative equity strategy. In the
long only business we appointed Guillermo Osses as Head of Emerging Market Debt, while Simon Pickard and Edward Cole joined
the firm to run an Unconstrained Emerging Market Equity strategy. Recent hires continue to make progress; Pierre-Henri
Flamand's Value Opportunities strategy has performed well since its launch in 2014, Henry Dixon's Undervalued Asset
strategy continues to perform well and is raising assets with FUM of over $450 million, while Rory Powe's European Equity
strategy has had very strong performance and we are beginning to market that strategy.
At FRM, we completed the acquisition of the fund of funds business of Bank of America Merrill Lynch, adding a $1.1 billion
portfolio of multi-strategy and strategy-focused funds to FRM, supported by a proven distribution platform. From an asset
raising perspective we made good progress in our managed accounts offering and were awarded a $2.0 billion mandate by a
large US-based State Pension Plan and two fund of funds mandates from UK local government pension schemes, totalling $0.4
billion during the year.
To complement our organic growth, we continue to look at other possible acquisitions, in the private markets, fund of funds
and long only spaces, seeking to ensure we remain disciplined on price, structure and cultural fit. The asset management
M&A environment was very robust last year, and despite reviewing a large number of opportunities we were unable to find
acquisition targets on reasonable terms. We remain patient.
Distribution effectiveness
2015 saw a 5% increase in gross sales to $22.9 billion, with strong Numeric sales being partially offset by lower sales of
GLG equity long short strategies compared to 2014. Sales for the year included mandates from three different institutional
clients which were each over $1 billion. Redemptions during the year were $22.6 billion, up from $18.6 billion in 2014 and
included $2.8 billion of redemptions from one client in the Japan Core Alpha strategy despite strong performance.
The majority of the demand continues to come from institutions with institutional sales in the period constituting 67% of
total sales. Over the past five years our business has become much more institutional in nature with 74% of FUM now run for
institutions globally. Our third-party retail business continues to be extremely important to us, but we hope to be a
beneficiary over time of a continued trend whereby large institutional clients seek to put more money to work with fewer
managers. This trend has been seen in our own business over the last three years and presents an opportunity for us in the
long run.
From a geographical perspective EMEA continues to be our biggest market, with sales from this region comprising 61% of the
total in 2015. The critical North American market remains a key geographical focus for future growth and $5 billion of
total sales were from the Americas in 2015, up around 160% from 2014. 24% of assets are now managed on behalf of North
American clients. Sales from the Asia Pacific region comprised 17% of the total which included three mandates totalling
$1.6 billion.
chief executive's review (Cont'd)
Efficiency
Having completed the cost reduction programme ahead of schedule in 2014, our focus in 2015 shifted towards sustaining our
focus on efficiency and ensuring that our cost base enables us to address both the opportunities and risks in our business
appropriately. We continue to invest in new investment talent as outlined above and there are a number of areas in which we
are investing in the infrastructure of our business which will be reflected in increased capital expenditure over the next
few years.
Our balance sheet remains strong and liquid and as we have previously outlined we have increased the capacity of our seed
capital programme to help to grow the business as we launch new products over time. Our surplus capital stands at around
$480 million proforma for second half earnings and our final dividend and accordingly we retain the flexibility to take
advantage of acquisition opportunities.
Objectives for 2016
Performance
· Continued focus on research at AHL by delivering new models and accessing new markets
· Collaboration between AHL and Numeric to further enhance research efforts in both managers
· Focus on improving areas of underperformance in certain GLG alternatives and long only strategies in 2015
Distribution
· Market AHL's strategies given their solid three year track record
· Continue to leverage Man Group's global distribution capability to grow assets in acquired businesses
· Continue to improve coverage and asset raising in the US
· At FRM continue to partner with institutional clients to provide managed account solutions and advisory services for
their hedge fund allocations
· Continue to develop relationships with existing clients with a focus on both asset raising as well as asset
retention
Growth
· Continue to innovate at AHL by delivering new strategies and accessing new data
· Continue to look for high-calibre investment talent at GLG to support the growth of our existing products as well as
to support the expansion of our alternatives and long only product offering
· Continue to focus on the US as a region for growth both from a distribution and acquisition perspective
· Continue to look at other possible acquisitions for example in private markets and long only strategies ensuring
that we remain disciplined on price, structure and cultural fit
Operating efficiency and capital discipline
· Focus on sustaining our efficiency and ensuring that our cost base enables us to address the risks and opportunities
in our business appropriately
· Maintain focus on balance sheet efficiency including ensuring our seeding portfolio is managed effectively
chief financial officer's review
Overview
Our financial results in 2015 reflect mixed performance against a challenging market backdrop, with a range of returns
across AHL's strategies, a solid year for GLG and FRM's strategies, and strong net outperformance from Numeric compared to
benchmarks.
FUM increased by 8% from $72.9 billion at the beginning of the year to $78.7 billion at 31 December 2015. We added $6.1
billion of FUM through the acquisitions of Silvemine, NewSmith and the BAML fund of funds business, with the remainder of
the movement in FUM reflecting net inflows of $0.3 billion for the year and positive investment performance of $2.4
billion, partly offset by adverse foreign currency and other movements ($3.0 billion).
Net management fee revenue increased by 6% from $715 million to $759 million in 2015, primarily as a result of the increase
in average FUM of 29%, driven by the inclusion of Numeric FUM for a full year in 2015 and FUM acquired in the first half of
2015. Offsetting this, average net management fee margins have continued to decline over the year as a result of the
ongoing mix shift toward lower margin institutional assets and long only funds, with institutional assets now constituting
74% of total FUM and long only constituting 42% of total FUM.
Performance fee revenues have decreased by 11% from $340 million to $302 million, largely as a result of lower performance
fees from AHL after a strong year in 2014, partially offset by an increase in performance fees from Numeric following
strong performance.
As Manny has noted, Man continues to focus on cost efficiency as a source of value. This year total costs before adjusting
items increased by $79 million, driven largely by the impact of acquisitions, the compensation structure of certain GLG
strategies and adverse year on year foreign exchange movements.
As a result of these revenue and cost drivers, our adjusted profit before tax was $400 million, down 17% from $481 million
the prior year, and adjusted diluted earnings per share were 21.1 cents (2014: 24.4 cents). Our statutory profit before tax
was $184 million (2014: $384 million), reflecting adjusting items of $216 million, which primarily relate to amortisation
of purchased intangible assets and increases in the fair value of the contingent consideration payable in relation to
Numeric as a result of better than expected flows and margins. The business continues to generate strong operating cash
flows. Cash flows from operating activities, excluding working capital movements, were $402 million for the year.
Our balance sheet remains strong and liquid with net tangible assets of $0.7 billion or 41 cents per share at 31 December
2015. Our regulatory capital surplus is $453 million at 31 December 2015, and we have a net cash position of $437 million.
We continue to enhance the efficiency of our capital and funding. We renegotiated our revolving credit facility during the
year, reducing it in size from $1,525 million to $1,000 million, and with a reduction in costs and an extension to June
2020. In the first half, we completed a $175 million share repurchase, acquiring 3% of our issued share capital.
Key performance indicators (KPIs)
Our financial KPIs illustrate and measure the relationship between the investment experience of our fund investors, our
financial performance and the creation of shareholder value over time. Our KPIs are used on a regular basis to evaluate
progress against our four key priorities: performance, distribution, growth and efficiency.
The results of our KPIs this year continue to reflect the volatile operating environment, with strong net investment
outperformance for Numeric, solid performance from FRM and GLG, and mixed performance for AHL with AHL Diversified, the KPI
strategy, underperforming other AHL strategies. Net inflows achieved in quant strategies were almost completely offset by
outflows in discretionary strategies. The shift towards lower margin institutional assets has continued to lower blended
net management fee margins, however the discipline we have maintained regarding our cost base has reduced the impact on our
profitability and EPS growth.
chief financial officer's review (cont'd)
The investment performance KPI measures the net investment performance for our four managers (AHL, Numeric, GLG and FRM).
For AHL, GLG and FRM, investment performance is represented by key funds against relevant benchmarks. The Numeric KPI has
been added with effect from 1 January 2015, and monitors the net asset weighted outperformance or underperformance (alpha)1
based on a predetermined benchmark by strategy. The target for the investment performance KPI is to exceed the relevant
benchmarks. The key funds and the relevant benchmarks are AHL Diversified vs. three key peer asset managers for AHL (the
target being to beat two of the three peers), the GLG Alternative Strategies Dollar-Weighted Composite vs. HFRX for GLG and
FRM Diversified II vs. HFRI Fund of Funds Conservative Index for FRM. For Numeric, net asset weighted alpha1 is based on a
benchmark against competitors by Numeric strategy. The performance of the key funds compared to the benchmarks gives an
indication of the competitiveness of our investment performance against similar alternative investment styles offered by
other investment managers. This measures our ability to deliver superior long-term performance to investors. We achieved
three out of the four performance targets. FRM and GLG both met the benchmark in 2015 as their performance metrics exceeded
their relevant benchmark. Numeric had positive net alpha in 2015 and therefore met the KPI. AHL did not meet the target for
2015 as the performance of its key fund was below all three of the relevant peer benchmarks. Further investment performance
information is provided on pages 6 to 10.
The second KPI measures adjusted management fee EBITDA as a percentage of net revenues (gross management fee revenue and
income from associates less cash distribution costs). Our adjusted management fee EBITDA margin is a measure of our
underlying profitability. The adjusted management fee EBITDA margin of 27.2% was within the target range for the year ended
31 December 2015. This margin has been declining as a result of the roll off of higher margin guaranteed product FUM and
the general product mix shift from higher margin retail assets to lower margin institutional and long only assets.
The third KPI measures net FUM flows for the period as a percentage of opening FUM, with net flows defined as gross sales
less gross redemptions. Net flows are the measure of our ability to attract and retain investor capital. FUM drives our
financial performance in terms of our ability to earn management fees. Net flows were within the target range in 2015 with
a net inflow of 0.4%, compared to a net inflow of 6.1% for the year to 31 December 2014. The reduced level of net inflows
in 2015 is largely as a result of higher redemptions, including a large one-off redemption from the Japan CoreAlpha fund
during the period.
The fourth KPI measures our adjusted management fee EPS growth, where adjusted management fee EPS is calculated using
post-tax profits excluding net performance fees and adjusting items, divided by the weighted average diluted number of
shares. The target is growth of 0%-20% plus RPI each year. Adjusted management fee EPS growth measures the overall
effectiveness of our business model, and drives both our dividend policy and the value generated for shareholders. The
adjusted management fee EPS growth of 1.0% was not within the target range of 0%-20% plus RPI of 1.2% for 2015. The
adjusted management fee EPS growth of 1.0% in 2015 is a result of the accretive impact of the share repurchase programme
which has reduced the number of shares, largely offset by a 2% decrease in net management fee profits.
1 Numeric's net asset weighted alpha for the year to 31 December 2015 is calculated using the asset weighted average of the
performance relative to the benchmark for all non-restricted strategy composites (representing approximately two-thirds of
Numeric's FUM) available net of the highest management fees and, as applicable, performance fees that can be charged.
chief financial officer's review (cont'd)
Funds Under Management (FUM)
Alternative Long only
$bn Quant (AHL/Numeric) Discretionary (GLG) Fund of funds (FRM) Quant (AHL/Numeric) Discretionary (GLG) Total excluding Guaranteed Guaranteed Total
FUM at 31 December 2014 12.9 14.5 10.8 16.7 16.0 70.9 2.0 72.9
Sales 4.7 3.9 3.3 4.4 6.6 22.9 - 22.9
Redemptions (2.0) (4.7) (2.7) (2.6) (10.2) (22.2) (0.4) (22.6)
Net inflows/(outflows) 2.7 (0.8) 0.6 1.8 (3.6) 0.7 (0.4) 0.3
Investment movement 0.6 0.4 (0.2) 0.1 1.6 2.5 (0.1) 2.4
Foreign currency movement (0.4) (0.9) (0.2) - (0.7) (2.2) (0.2) (2.4)
Other movements 0.6 (1.0) (0.2) - - (0.6) - (0.6)
Acquisitions of Silvermine, BAML fund of fund assets and NewSmith - 4.1 1.1 - 0.9 6.1 - 6.1
FUM at 31 December 2015 16.4 16.3 11.9 18.6 14.2 77.4 1.3 78.7
78.7
Quant alternative products (AHL/Numeric)
Quant alternative FUM increased by 27% during the year, primarily as a result of net inflows and positive investment
performance. Sales were $4.7 billion, which included three institutional mandates totalling $2.4 billion into the Dimension
and Alpha strategies. Redemptions were $2.0 billion, and were mainly from retail investors in AHL Diversified and AHL
Alpha. The positive investment movement was a result of strong performance for AHL Dimension, AHL Evolution, and AHL Alpha.
Negative foreign exchange movements were due to 18% of Quant alternatives FUM being denominated in Australian Dollars. The
positive other movements relate to re-gearing.
Discretionary alternative products (GLG)
Discretionary alternative FUM increased by $1.8 billion during the year. The acquisitions of Silvermine and NewSmith added
$4.1 billion to FUM. Net outflows of $800 million were mainly from European and North American equity strategies. The
positive investment performance was driven by strong performance in the equity long short strategies. Negative foreign
exchange movements related primarily to the strengthening of the US Dollar against the Euro and Sterling. At 31 December
2015, 56% of Discretionary alternative FUM was denominated in US Dollars, 36% in Euros and 3% was in Sterling. The negative
other movements relate to Silvermine and Pemba maturities.
Fund of funds products (FRM)
Fund of funds FUM increased by $1.1 billion during the year, primarily as a result of the Bank of America Merrill Lynch
fund of funds portfolio acquisition in the first half of the year. Sales of $3.3 billion included $2.0 billion from a large
North American based pension fund into an infrastructure mandate. Redemptions of $2.7 billion included $700 million from a
European pension fund's infrastructure investment and $600 million from FRM Diversified strategies. The negative investment
performance primarily related to some of the larger managed account mandates. The negative foreign exchange movements were
primarily due to the strengthening of the US Dollar against the Japanese Yen and Euro. At 31 December 2015, 56% of
alternative fund of fund FUM was denominated in US Dollars, 31% in Yen and 5% in Euro.
chief financial officer's review (cont'd)
Quant long only products (AHL/Numeric)
Quant long only FUM increased by $1.9 billion during the year, primarily as a result of net inflows. The net inflows for
Numeric mainly related to $900 million for Numeric Global Strategies, $800 million for Numeric US Small Cap strategies, and
$400 million for Numeric Emerging Markets. Although investment performance in quant long only products was broadly flat
for the year, net asset weighted outperformance for Numeric in 2015 was 3.0% alpha1. At 31 December 2015, 98% of quant long
only FUM was denominated in US Dollars.
Discretionary long only (GLG)
Discretionary long only FUM decreased by 11%, driven by net outflows. Sales were $6.6 billion and included $4.4 billion
into Japan CoreAlpha, $800 million into global fixed income strategies, $600 million into European equity strategies and
$400 million into UK equity strategies. Redemptions were $10.2 billion, of which $7.2 billion related to Japan CoreAlpha,
including $2.8 billion of redemptions from a single client in the first half of the year. The positive investment
performance was primarily a result of strong investment performance from Japan CoreAlpha. The NewSmith acquisition added
$900 million to discretionary long only FUM. Negative foreign exchange movements related to the strengthening of the US
Dollar against Sterling and Japanese Yen. At 31 December 2015, 58% of discretionary long only FUM was denominated in
Sterling, 19% was in Yen and 14% was in US Dollars.
Guaranteed products
Guaranteed product FUM, our highest margin product grouping, reduced by $700 million in 2015. There were no sales during
the year and redemptions totalled $400 million. The weighted average life to maturity of the guaranteed product range is
3.6 years, with $500 million scheduled to mature in 2016, the majority of which will mature during H1 2016, and $100
million in 2017. Investment performance for guaranteed products was negative during the year. Negative foreign exchange
movements were as a result of 67% of FUM being denominated in Australian Dollars.
Summary income statement
Investment performance and fund flows drive the economics of our business. Management fees are typically charged for
providing investment management services at a percentage of each fund entity's gross investment exposure or NAV.
Performance fees are typically charged as a percentage of investment performance above a benchmark return or previous
higher valuation 'high water mark'.
Man is fundamentally a people business and the majority of our costs comprise payments to individuals whether they are our
investment managers who manage investor assets, third-party intermediaries or internal sales staff who distribute our
products, or the teams that manage our operations and infrastructure.
1 Numeric's net asset weighted alpha for the year to 31 December 2015 is calculated using the asset weighted average of the
performance relative to the benchmark for all non-restricted strategy composites (representing approximately two-thirds of
Numeric's FUM) available net of the highest management fees and, as applicable, performance fees that can be charged.
chief financial officer's review (cont'd)
$m Year ended 31 December 2015 Year ended 31 December 2014
Management and other fees 833 810
Share of after tax profit of associates 3 9
Distribution costs (77) (104)
Net management fee revenue 759 715
Performance fees (including investment income/gains1) 326 367
Net revenue 1,085 1,082
Asset servicing (32) (27)
Compensation (462) (391)
Other costs (177) (174)
Total costs (671) (592)
Net finance expense (14) (9)
Adjusted profit before tax 400 481
Adjusting items (216) (97)
Statutory profit before tax 184 384
Adjusted net management fee profit before tax 194 198
Adjusted net performance fee profit before tax 206 283
Diluted EPS (statutory) 10.0 cents 20.5 cents
Adjusted net management fee EPS 10.2 cents 10.1 cents
Adjusted diluted EPS 21.1 cents 24.4 cents
1 Includes the adding back of $9 million (2014: nil) of third-party share of losses relating to line-by-line consolidated
fund
entities.
Gross management fees and margins
Gross management fees increased by 3% during the year. While average assets went up 29% year on year, the total gross
management fee margin decreased from 131 basis points for the year ended 31 December 2014 to 106 basis points for the year
ended 31 December 2015. The total net management fee margin (defined as gross management fees less external distribution
costs) has decreased from 114 basis points to 96 basis points in 2015. These reductions are due to a continued mix shift
towards institutional assets, particularly in the alternatives quant category, and the full year impact of including
Numeric's assets (acquired in September 2014) which have a blended margin of around 40 basis points. The reduction in
margin is less at the net level as there are higher distribution costs associated with retail FUM than institutional FUM.
This product mix shift and consequent reduction in overall margin is likely to continue as we sell more open ended
alternative and long only product, particularly to institutions, and there are no sales of guaranteed products.
During 2015, the alternatives quant net management fee margin reduced by 50 basis points as a result of the continued mix
shift towards institutional assets, with around 80% of the net inflows from institutional investors into AHL Dimension and
AHL Alpha, where the gross margin was around 1%. The inclusion of a full year of Numeric quant alternatives assets, which
have a margin of around 1%, has also been a contributing factor. Going forward, it is expected that this margin will
decline further with the continued shift towards institutional assets.
chief financial officer's review (cont'd)
Net management fee revenue
Year ended Year ended
31 December 2015 31 December 2014
$m Net margin $m Net margin
Quant alternatives 235 1.5% 188 1.9%
Discretionary alternatives 170 1.0% 207 1.2%
Fund of fund alternatives 83 0.8% 96 0.9%
Quant long only 60 0.3% 20 0.3%
Discretionary long only 121 0.8% 109 0.7%
Guaranteed 78 4.6% 73 4.1%
Other income1 9 13
Net management fee revenues before share of after tax profit of associates 756 1.0% 706 1.1%
Share of after tax profit of associates 3 9
Net management fee revenues 759 715
715
1 Other income primarily relates to distribution income from externally managed products.
Net management fee margins in the discretionary alternative category reduced by 26 basis points during the year, primarily
as a result of the Silvermine acquisition in the first half where margins are around 44 basis points.
The net margin for the fund of funds category was 6 basis points lower compared to 2014. Looking forward we would expect
the alternatives fund of fund margin to trend down as we see a greater proportion of sales into lower margin mandates,
including infrastructure managed account mandates where margins are between 15 to 25 basis points.
The long only quant net management fee margin has remained consistent with the prior year at 34 basis points as the Numeric
inflows in 2015 have been at a similar margin to the existing long only quant FUM.
The long only discretionary net management fee margin increased by 7 basis points as a result of $2.8 billion of
redemptions from a single client which were assets at a lower margin than the existing long only discretionary FUM.
The guaranteed product net management fee margin increased by 59 basis points compared to the year ended 31 December 2014.
In 2014, the margin decreased as a result of one-off accelerated amortisation of placement fees related to redemptions and
the net de-gear in the first half of the year.
Performance fees (including investment income/gains)
Gross performance fees for the year were $302 million compared to $340 million in 2014, $218 million (2014: $272 million)
from AHL (including $22 million relating to guaranteed products, compared to $25 million in 2014), $37 million (2014: $37
million) from GLG, $40 million (2014: $23 million) from Numeric and $7 million (2014: $8 million) from FRM. At 31 December
2015, around 42% of AHL open ended products ($7 billion) were above performance fee high water mark and of the $7.4 billion
performance fee eligible Numeric products, 92% were outperforming the relevant benchmark at 31 December 2015. Around 34% of
eligible GLG assets ($3.7 billion) were above high water mark and around a further 38% ($4.1 billion) within 5% of earning
performance fees, and FRM performance fee eligible products were on average approximately 4.3% below high water mark.
chief financial officer's review (cont'd)
Man Group benefits from a portfolio of performance fee streams across a variety of strategies that are charged on a regular
basis at different points in the year. 98% of AHL FUM is performance fee eligible, of which 64% have performance fees that
crystallise annually, 23% daily or weekly, and 13% monthly. The majority of GLG's performance fees crystallise
semi-annually in June or December. Around 50% of Numeric performance fee eligible FUM crystallises annually in November,
with the remainder crystallising at various points during the year.
Investment gains of $24 million (2014: $27 million), including the adding back of $9 million of third party share of losses
(2014: nil), primarily relate to gains on seeding investments. Third party share of losses relates to certain fund entities
in which Man holds an investment which require line-by-line consolidation of the fund into the Group's results, as a result
of a control assessment as defined by the applicable accounting standards. The funds requiring line-by-line consolidation
in the year to 31 December 2015 made a loss, and therefore the $9 million credit represents the third party share of these
losses.
Distribution costs
Distribution costs comprised $74 million of investor servicing fees and $3 million of placement fees.
Investor servicing fees are paid to intermediaries for ongoing investor servicing. Servicing fees have decreased by $15
million to $74 million in 2015 primarily due to the continued mix shift towards institutional assets, particularly in the
alternatives quant category, and the roll-off of guaranteed product FUM.
Placement fees are paid for product launches or sales and are capitalised and amortised over the expected investment
holding period. The reduction in placement fees is due to limited new payments in recent years and the roll-off of
amortisation of the previously capitalised balances.
Asset servicing
Asset servicing costs (including custodial, valuation, fund accounting and registrar functions) were $32 million (2014: $27
million). Asset servicing costs equate to around 5 to 6 basis points on FUM, excluding Numeric, and vary depending on
transaction volumes, the number of funds, and fund NAVs. The $5 million increase in asset servicing compared to 2014 is
largely due to the increase in average FUM over the year.
Compensation costs
Compensation costs comprise fixed base salaries, benefits, variable bonus compensation (cash and amortisation of deferred
compensation arrangements) and associated social security costs.
Total compensation costs, excluding adjusting items, increased from $391 million in 2014 to $462 million in 2015, an
increase from 36% to 43% of net revenue. This was driven by the increase in headcount due to current and prior year
acquisitions ($34 million), higher GLG performance related compensation ($24 million), and a less favourable hedged US
Dollars to Pounds sterling rate in 2015 compared to the hedged rate in 2014 ($10 million). The compensation structure for
the GLG equity long short strategies teams is based on gross profits, which in 2015 were in excess of performance fees
generated by the strategies given they started the year below high water mark. Additionally, compensation costs include an
increased year-on-year charge of $5 million as a result of the 2014 change in application of the accounting policy for
deferred compensation, which impacts the charges relating to deferred share and fund awards granted from 2015 onwards.
Other costs
Other costs, excluding adjusting items, were $177 million for the year compared to $174 million for the year to 31 December
2014. These comprise cash costs of $161 million (2014: $150 million) and depreciation and amortisation of $16 million
(2014: $24 million). The $11 million, or 7%, increase in cash costs reflects the impact of the less favourable hedged
sterling rate in 2015 ($10 million) and to a lesser extent the costs of the newly acquired businesses ($6 million),
partially offset by continued efforts to remain disciplined on costs which has resulted in a lower underlying other costs
base compared to 2014. The $8 million decrease in depreciation and amortisation is due to lower capital expenditure in
recent years, which is expected to increase in the future due to higher 2015 investment in operating platforms and business
infrastructure ($13 million) and planned capital expenditure of between $40 million and $50 million over the next two to
three years.
chief financial officer's review (cont'd)
Net finance expense
Net finance expense, excluding adjusting items, was $14 million for the year (2014: $9 million). The increase is due to the
full year interest charge for the ten-year fixed rate reset callable guaranteed subordinated notes (Tier 2 capital) issued
in September 2014, as well as the write off the remaining $2 million of capitalised costs relating to the previous
revolving credit facility, which was renegotiated in June 2015. Finance expense includes a charge of $3 million relating to
the undrawn revolving credit facility, which is as a result of the annual charge reducing from $4 million to $2 million on
renegotiation of the facility in June 2015.
Adjusted profit before taxes
Adjusted profit before tax is $400 million compared to $481 million for the previous year. The adjusting items in the year
of $216 million (pre-tax) are summarised in the table below and detailed in Note 2 to the Group financial statements. The
directors consider that the Group's profit is most meaningful when considered on a basis which excludes acquisition and
disposal related items (including non-cash items such as amortisation of purchased intangible assets and deferred tax
movements relating to the recognition of tax losses in the US), impairment of assets, restructuring costs, and certain
non-recurring gains or losses,
- More to follow, for following part double click ID:nRSX9345PcRecent news on Man
See all newsREG - Man Group plc - Transaction in Own Shares
AnnouncementREG - Man Group plc - Transaction in Own Shares
AnnouncementREG - Man Group plc - Transaction in Own Shares
AnnouncementREG - Man Group plc - Transaction in Own Shares
AnnouncementREG - Man Group plc - Transaction in Own Shares
Announcement