Press Release 

1 August 2014

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

Key points

·     Funds under management (FUM) up 7% to $57.7 billion (31 December 2013: $54.1 billion)

o  Gross sales up 91% to $12.4 billion (H1 2013: $6.5 billion)

o  Redemptions down 17% to $9.6 billion (H1 2013: $11.5 billion)

o  Net inflows of $2.8 billion (H1 2013: net outflows -$5.0 billion)

o  Investment movement of $0.7 billion (H1 2013: $2.5 billion)

o  FX translation effects and other movements of $0.1 billion (H1 2013: -$2.5 billion)

·     Mixed absolute performance in the six months to 30 June 2014: AHL Diversified Programme +8.7%; GLG Multi-Strategy -1.9%; FRM Diversified II +1.4%; Japan CoreAlpha -1.4%

·     Adjusted profit before tax (PBT) up 10% to $148 million (H1 2013: $134 million) 

o  Adjusted net management fee PBT of $83 million (H1 2013: $64 million)

o  Adjusted net performance fee PBT of $65 million (H1 2013: $70 million) 

·     Adjusted diluted EPS¹ of 7.1 cents (H1 2013: 5.7 cents per share); adjusted diluted management fee EPS of 4.0 cents (H1 2013: 2.6 cents per share)

·     Statutory PBT for the six months ended 30 June 2014 of $106 million (H1 2013: $122 million); diluted statutory EPS¹ of 5.0 cents (H1 2013: 5.3 cents per share)

·     Acquisition of Numeric (a US based quant manager with $14.7 billion of FUM) on track for completion in Q3 / Q4; Acquisition of Pine Grove (a US based fund of fund credit manager with $1.0 billion of FUM) due to complete shortly

·     Completed $115 million share repurchase at an average price of 99.7p (68.8 million shares)

·     Surplus regulatory capital of $625million at 30 June 2014, before acquisition-related usage for Numeric and Pine Grove of $345 million

·     Interim dividend of 4.0 cents per share (H1 2013: 2.6 cents per share)

 

Summary financials	Page ref.	Six months ended 30 June 2014  $	Year ended 31 December 2013 $	Six months ended 30 June 2013 $
Funds under management (end of period)	10	57.7bn	54.1bn	52.0bn
Gross management and other fees2	23	404m	979m	535m
Performance fees3	23	107m	223m	113m
External distribution costs	24	(59m)	(145m)	(80m)
Net revenues		452m	1,057m	568m
Compensation	25	(196m)	(445m)	(239m)
Other costs	26	(105m)	(270m)	(150m)
Net finance expense4	26	(3m)	(45m)	(45m)
Adjusted profit before tax	23	148m	297m	134m
Adjusting items5	23	(42m)	(241m)	(12m)
Statutory profit before tax	23	106m	56m	122m

¹The reconciliation of diluted statutory EPS to adjusted diluted EPS is included in note 11 in the financial statements (page 27)

²  Includes income from associates  

³  Includes income or gains on investments and other financial instruments

⁴ Includes one-off costs related to debt buy-backs of $28 million in the six months to 30 June 2013. Refer to Note 9 in the financial statements (page 26)

⁵Adjusting items primarily relate to amortisation of purchase intangible assets. Refer to Note 2 in the financial statements (page 23) for further detail

 

 

Manny Roman, Chief Executive Officer of Man, said: 

 

"In the first half of 2014, we made progress towards our strategic objectives taking significant steps to position the firm for future growth and largely completing our restructuring process. We were delighted to announce the planned acquisitions of Numeric and Pine Grove in June, two highly complementary businesses which will enhance our offering for clients and increase our geographical footprint in the US.

 

Whilst it has been a positive first half for the firm and we recorded another quarter of net inflows in Q2, we remain cautious as we look to the second half of the year. Investment performance in H1 was mixed amid a continued volatile market environment. AHL performed strongly on an absolute and relative basis across all its alternative strategies. Performance elsewhere was good in credit and discretionary long only but below expectations in equities and macro.

 

We remain committed to investing in talent, research and technology and building the optimal environment to deliver superior risk adjusted performance for our clients which will ultimately translate into the delivery of value for our shareholders."

Dividend

Man's dividend policy is to pay at least 100% of adjusted management fee earnings per share in each financial year by way of ordinary dividend. In addition, the Group expects to generate significant surplus capital over time, primarily from net performance fee earnings. Available surpluses, after taking into account required capital, potential strategic opportunities and a prudent buffer, will be distributed to shareholders over time, by way of higher dividend payments and/or share repurchases. Whilst the Board continues to consider dividends as the primary method of returning capital to shareholders, it will continue to execute share repurchases when advantageous.

 

In line with this policy the Board has declared an interim dividend for the year to 31 December 2014 of 4.0 cents per share, being the adjusted management fee earnings per share for the six months to 30 June 2014 (refer to Note 11 to the financial statements (page 27)). The interim dividend will be paid at the rate of 2.37 pence per share.

 

Dates for the 2014 interim dividend

 

Ex-dividend date	13 August 2014
Record date	15 August 2014
Dividend paid	3 September 2014

 

Results presentation, audio webcast and dial in details

There will be a presentation by the management team at 8.30am (UK time) and there will be a live audio webcast available on https://www.man.com/GB/results and video.merchantcantos.com  which will also be available on demand from later in the day. The dial-in and replay telephone numbers are as follows:

 

Live Conference Call Dial in Numbers:

UK Toll Number:                       0203 426 2890

UK Toll-Free Number:              0808 237 0062

US Toll Number:                       +16467224897

US Toll-Free Number:              18778414559

 

30 Day Replay Dial in Numbers:

UK Toll:                                    020 3426 2807

UK Toll Free Number:              0808 237 0026

US Toll Free Number:              18665358030

Playback Pin Code:                 649377#

 

This interim report can be found on Man Group's website, www.man.com.

Enquiries

Fiona Smart

Head of Investor Relations

+44 20 7144 2030

fiona.smart@man.com

 

Rosanna Konarzewski

Head of Communications

+44 20 7144 2078

Rosanna.Konarzewski@man.com

 

RLM Finsbury

James Bradley

Ryan O'Keeffe

+44 20 7251 3801

 

About Man

 

Man is a leading alternative investment management business with a diverse offering in hedge funds and long only products across equity, credit, managed futures, convertibles, emerging markets, global macro and multi-manager solutions. At 30 June 2014, Man managed $57.7 billion. The original business was founded in 1783. Today, Man is listed on the London Stock Exchange and is a member of the FTSE 250 Index with a market capitalisation of around £2.2 billion. Man also supports many awards, charities and initiatives around the world, including sponsoring the Man Booker literary prizes. Further information can be found at www.man.com.

 

Forward looking statements and other important information

 

This document contains forward-looking statements with respect to the financial condition, results and business of Man Group plc. By their nature, forward-looking statements involve risk and uncertainty and there may be subsequent variations to estimates. Man Group plc's actual future results may differ materially from the results expressed or implied in these forward-looking statements.

 

The content of the websites referred to in this announcement is not incorporated into and does not form part of this announcement. Nothing in this announcement should be construed as or is intended to be a solicitation for or an offer to provide investment advisory services.

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Performance across our investment managers was varied in the first half of 2014. AHL's momentum-based strategies benefitted from trends in fixed income markets and delivered strong returns however GLG's equity long short strategies suffered from a strong sector and factor rotation and ended the half with negative performance. Flows continued to be positive, with particularly robust sales in the first quarter, linked primarily to the strong performance at GLG in 2013. We continued to make good progress in developing and building in new business areas in the period and the Numeric acquisition provides us with the opportunity to advance two of our core strategic objectives of building out a diversified quantitative fund management business and developing our presence in the US market. The solid flows in H1 overall drove a 7% increase in funds under management to $57.7 billion at 30 June 2014. Adjusted profit before tax increased by 10% with cost savings and lower interest costs being partially offset by a decline in net management fee revenues.

Market overview

Returns across asset classes were mixed in the first half of 2014 with the S&P 500 up 7.1%, the FTSE 100 up 1.9%, the TOPIX down 1.9% and world bonds and corporate bonds up 3.9% and 9.6% respectively.

 

At the index level, central bank liquidity continued to drive asset prices in the first six months of 2014 and markets unsurprisingly took the path of least resistance, reaching higher valuations on low volumes and falling volatility. This rather simplified view of markets however masked a strong sector rotation as well as a move from growth to value in equity markets, which significantly detracted from performance of equity long short managers in the second quarter. In particular, value did very well hurting the short side of many hedge funds.

 

Fixed income markets were unaffected by the instability in equity markets and were helped by the strong rally in US treasury yields with the result that momentum and credit strategies performed well over the period.

 

Investment performance

 

Against this backdrop performance across our three investment managers was varied.

 

After a slow start to the year, performance across all of AHL's trend following strategies picked up in the second quarter resulting in strong positive returns for the half. Trends were pronounced in fixed income, notably in Italy and France, as yields compressed towards German levels.  Stock markets also recovered after a difficult first quarter, resuming the upward direction of 2013. The result was that performance for the AHL Diversified Programme was up 8.7% to 30 June 2014 and the AHL Alpha strategy, which runs at lower volatility, was up 6.0%. The AHL Evolution strategy, which trades a range of non-traditional markets not typically traded by CTA managers, continued its run of strong performance and was up 13.3% for the half. AHL's multi-strategy quantitative fund, AHL Dimension, was up 6.7% with positive contributions from all three of its strategy styles, namely momentum, fundamental, and technical. MSS's Europe Plus strategy was up 3.5% to 30 June 2014 underperforming its benchmark by 2.7%, whilst TailProtect was down 6.8% but outperforming its benchmark by 12.6%. This strong performance resulted in AHL recording $70 million of performance fees in the first half, 87% of which were from Evolution.

 

Discretionary hedge fund performance over the first half was mixed with credit strategies continuing their good run of performance and equity long short strategies suffering in line with the rest of the industry.  Some of the stronger performing strategies included Euro Distressed (+5.9%), Market Neutral (+4.0%) and the Cross Asset Value strategy (CRAVE) (+6.8%) while GLG's equity long short strategies had more mixed performance between +1.4% and -6.5% being hit particularly hard by the move from growth to value in the technology sector in March and April. After a volatile start to the year impacted by the move to a 'risk off' environment, performance improved across the majority of GLG's long only strategies in the second quarter with the larger strategies continuing to outperform. The Japan CoreAlpha strategy was down 1.4%, slightly ahead of its benchmark, the Strategic Bond strategy was up 5.5% well ahead of its LIBOR benchmark and the Undervalued Assets Strategy was up 3.2% in the first six months of the year compared to the FTSE All Share Index which was up 1.6%. This performance resulted in GLG recording $26 million of performance fees in the first half, the majority of which were from credit strategies.

 

FRM products had muted performance in the first six months of the year. Although equity market moves were relatively benign over the period, underneath the surface there were huge rotations in sectors and factors, which impacted the performance of Equity Long-Short managers in the second quarter. Despite this, the strategy was still able to generate positive returns in the first six months, helped by a strong first quarter. Statistical Arbitrage managers were also caught up in the more extreme bouts of sector rotation, but the more diversified nature of their portfolios meant the impact was less severe and the strategy had small positive returns. Credit Long-Short was one of the strongest performing strategies helped by the strong rally in US treasury yields. Global Macro strategies were among the worst performing, with the abnormally low volatility of macro assets resulting in low risk utilisation. The result was mixed investment performance across FRM portfolios. Actively managed diversified portfolios with exposure across strategies, such as FRM Diversified II, made a small positive return of 1.4%. Statistical Arbitrage performance was also a small positive with FRM Equity Alpha +1.6%. Managed futures performance was flat however, with FRM Sigma returning +0.2%.

 

Growth opportunities

 

Quant (AHL)

 

At AHL/MSS the marketing of the Evolution strategy continues to progress well with sales of $500 million to date in 2014 and there is further capacity in this strategy to sell in the remainder of the year. We have also started marketing the Dimension strategy and raised $500 million in this strategy in the first half. We continue to see demand for our long only quant strategies with $500 million raised in the MSS Europe plus strategy in the first half and the various equity index plus strategies including Europe Plus, Continental Europe Plus and Asia Plus now have $2.1 billion of assets in total.

 

On 19 June 2014 we announced the acquisition of Numeric, a Boston-based quantitative equity manager with $14.7 billion of funds under management across a range of long only and long short, fundamentally based strategies. Numeric has an excellent track record of performance across these strategies and has seen substantial growth over the past 2 years.

 

One of Man's core strategic objectives is to build a broader-based quantitative platform across alternatives and long only, trend-following, technical and fundamental strategies. The acquisition will advance this objective by creating a diversified, global quantitative investment management platform comprising AHL and Numeric with over $25 billion of funds under management with a balance between value, momentum and technical based strategies. Another of our core strategic objectives is to expand our presence in the US. The addition of the Numeric business helps us to establish a credible investment footprint in North America, through a recognised brand, a presence in an important investment centre and relationships with over 25 US based institutional clients.

 

In addition, Numeric's strong investment track record of relative and absolute performance and the scalability of their wide range of long only and market neutral strategies provide the opportunity to leverage Man's global distribution capability to grow Numeric's asset base over time. The firm has a highly experienced and well regarded team and there is a strong cultural fit with Man.  The Numeric management team is led by Mike Even who is the Chief Executive Officer, Robert Furdak who is Co-CIO and Director of Portfolio management and Shanta Puchtler who is Co-CIO and Director of Research. Together these individuals will be responsible for the on-going management of the Numeric business within the enlarged group and Mike and Shanta will be appointed to Man's Executive Committee following completion. In structuring the acquisition, we have endeavoured to align the interests of Numeric management with those of Man's shareholders.

 

Discretionary (GLG)

 

We have seen significant growth in GLG assets in the first half of 2014 from $30.2 billion to $34.1 billion with continued flows into strategies that sold well in 2013 including European Long Short, Japan Core Alpha and Euro Distressed. In addition, following strong performance since launch in November 2011 $1.2 billion was raised into the Strategic Bond strategy in H1, $400 million was raised into the Global Long Short strategy which launched in October 2013 and (CRAVE) which has reached its target level of asset raising following strong performance in 2013.

 

We continue to look for talent to broaden out the Alternatives and Long Only product offering. On the alternatives side, Pierre-Henri Flamand joined at the beginning of June and will focus on a global catalyst-driven strategy across the capital structure. Pierre-Henri brings 20 years of experience to Man having spent 15 years at Goldman Sachs where he was head of the Principal Strategies Group and more recently he ran Edoma Capital Partners, a Europe focused event-driven hedge fund. In our long only business, Rory Powe joined the European equity team managing a focused European equity long-only strategy. Rory has more than 25 years' experience managing portfolios and selecting stocks in Europe and joins GLG from Powe Capital Management, which he launched in 2001. Rory will also continue to manage the PCM Europe Fund, launched in July 2009.  

 

Fund of Hedge Funds (FRM)

 

At FRM the growth of the business outside of Japan is dependent on working closely with clients on the services that best fit their needs. We raised $0.7 billion from one client into a tailored managed account and saw further flows from existing European clients into our infrastructure managed accounts. In Japan where the client interest is for direct co-investment into our existing platform, we raised $0.5 billion into FRM Diversified strategies.

 

In early June we announced the acquisition of Pine Grove, a US-based fund of hedge fund manager specialising in the management of credit-focused hedge fund portfolios with approximately $1.0 billion of assets under management. Since inception, the firm's hedge fund selections and portfolio management have delivered attractive risk-adjusted returns across market cycles. Approximately two thirds of Pine Grove's assets are from institutional investors, primarily US-based, with the remaining third from US high net worth individuals and family offices. Pine Grove will further enhance our presence in the US and add to FRM's fund of hedge funds business, reinforcing our efforts to offer clients a wide variety of investment opportunities including SEC-registered US 40 Act funds and complementary fund of hedge fund products.

 

Distribution effectiveness

 

The flow picture improved from 2013 with net inflows of $2.8 billion in the half. Gross sales were $12.4 billion, an increase of 91% compared to the first half of 2013 with most of the increase coming from flows into GLG alternatives and long only strategies linked to strong performance in 2013. The majority of the demand continues to come from institutions with institutional sales constituting 66% of total sales.  There were some lumpy institutional sales in the first half including $1 billion into the European long short strategy, $0.8 billion into the strategic bond strategy, $0.7 billion into an FRM managed account and $0.4 billion into AHL Dimension. Redemptions were $9.6 billion in the six months, down from $11.5 billion in the first half of 2013 but reflecting mixed levels of absolute investment performance across the product range.

 

The US remains a key focus for us from a distribution perspective and as outlined earlier the Numeric and Pine Grove acquisitions will help us with this effort with Numeric in particular adding presence in an important investment centre and relationships with a range of institutional clients.

 

We continue to restructure our retail distribution infrastructure and during the period our retail sales offices in Canada and the Netherlands were sold to the management teams in those regions. We maintain a strong ongoing relationship with these teams enabling us to continue to sell Man products through these offices. Representation on global private banking platforms remains of key importance from a retail distribution perspective and we are now represented on 8 global private banking platforms covering 50 funds. From an institutional perspective we continue to work hard on our consultant relationships and we now have consultant coverage of 116 products with 26 strong buy ratings.

 

Cost reduction

 

We remain on track with the implementation of the cost saving programmes announced in 2012 and 2013. Our restructuring programme is nearly complete: H1 total fixed costs were $154 million, $308 million annualized versus the $305 million target set for 2015. H1 fixed compensation costs were $78 million, $156 million annualised versus the $161 million target for 2014. H1 other cash costs were $76 million, $152 million annualised versus the $169 million target for 2014. Underlying cost saving targets for 2015 remain unchanged, despite being ahead of schedule versus the targets for 2014.  The inclusion of the fixed costs related to the acquisitions of Numeric and Pine Grove, and the weakening of the US Dollar against Sterling leads to a revised total fixed cost target for 2015 of around $360 million. 

 

Balance Sheet efficiency

 

Our balance sheet remains strong and liquid with net tangible assets of $0.9 billion or 54 cents per share at 30 June 2014. Gross cash was $0.8 billion compared to $1.0 billion at the end of 2013 and the committed revolving credit facility of $1,525 million is available and undrawn.

On 19 June 2014 we completed the $115 million share repurchase announced in February at an average price of 99.7p, buying back 68.8 million shares. Surplus Capital at 30 June 2014 was $625 million with the decrease from the 31 December 2013 position of $760 million being due to the payment of the final dividend and the share repurchase partially offset by a decrease in the regulatory capital requirement related to lower seed investments, fee receivables and loans to funds.  Pro-forma surplus capital is around $300 million after taking into account the impact of Numeric and Pine Grove Acquisitions, interim profits which are not included in the 30 June 2014 figure until they have been audited and the payment of the interim dividend.

 

KEY PERFORMANCE INDICATORS (KPIs)

 

Our financial KPIs, as presented on pages 14 and 15 of our Annual Report for the year ended 31 December 2013, illustrate and measure the relationship between the investment experience of our fund investors, our financial performance and the creation of shareholder value over time.  The KPIs are used on a regular basis to evaluate progress against our four key priorities: performance, growth, distribution, and efficiency. The results of our KPIs for the six month period to 30 June 2014 reflect the strong positive performance for AHL and mixed performance for GLG and FRM.  FUM flows have improved, particularly for GLG, with net inflows of $2.8 billion for the Group in H1 2014.  FUM has increased during the period, which has had a positive impact on our profitability and EPS growth.

 

Investment performance

 

The investment performance KPI measures the net investment performance for our three managers (AHL, GLG, and FRM), represented by key funds, against relevant benchmarks.  The target for this KPI is to exceed the relevant benchmarks.  The key funds and the relevant benchmarks are AHL Diversified versus three key peer asset managers for AHL (the target being to beat two of the three peers), GLG Alternative Strategies Dollar-Weighted Composite versus HFRX for GLG, and FRM Diversified II versus HFRI Fund of Funds Conservative Index for FRM.  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.  For the six months to 30 June 2014, we are achieving one out of the three performance targets as AHL's performance of 8.7% is exceeding all three relevant peer benchmarks of -0.1%, 1.3% and 6.2%.  GLG has performance of -3.2% and is below the relevant benchmark of 1.8%, primarily as a result of the greater proportion of GLG's FUM that is in equity long short strategies compared to the benchmark. FRM has positive performance of 1.4% but is below the relevant benchmark of 2.5%, primarily as their portfolios generally carry less equity market beta than the broader indices.

 

Net flows

 

This KPI measures net FUM flows for the period as a percentage of opening FUM, with net flows defined as gross sales less gross redemptions.  The target for this KPI is 0%-10% net inflows each year.  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 are within the target range for the six months to 30 June 2014 with an annualised net inflow of 10%, compared to a net outflow of 6.3% for the year to 31 December 2013.  The improvement in flows primarily relates to an increase in flows for GLG alternative and long only strategies as a result of strong performance in 2013.

 

Adjusted management fee EBITDA margin

 

This KPI measures adjusted management fee EBITDA as a percentage of net revenues (gross management fee revenue and income from associates less external cash distribution costs). The target for this KPI is 25%-40%. Our adjusted management fee EBITDA margin is a measure of our underlying profitability. The adjusted management fee EBITDA margin of 31% is within the target range for the six months to 30 June 2014, compared to 36% for the year to 31 December 2013.  This margin has declined since 2013 with the continued decline in FUM for our higher margin guaranteed and open-ended products.

 

Adjusted management fee EPS growth

 

This KPI measures our adjusted management fee EPS growth in excess of RPI, where adjusted management fee EPS is calculated using post-tax profits excluding net performance fees (and including the cost of the dividend on the Perpetual Subordinated Capital Securities in 2013), divided by the 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 is just below the target range for the six months to 30 June 2014 at 1.3%, which is higher than the -14% for the year to 31 December 2013, primarily as a result of reduced fixed costs and finance costs, but lower than RPI at 1.9%.

 

 

RISK MANAGEMENT

 

It is a key objective of Man to remain a leader in risk management and governance. As such, risk management is an essential component of our approach, both to the management of investment funds on behalf of investors, and the management of Man's business on behalf of shareholders. Our reputation is fundamental to our business, and maintaining our corporate integrity is the responsibility of everyone at Man. Our approach is to identify, quantify and manage risk throughout the Group, in accordance with the Board's risk appetite. We maintain surplus capital and liquidity to give us strategic and tactical flexibility, both in terms of corporate and fund management.

 

The principal risks faced by Man are set out on pages 22 to 23 of our 2013 Annual Report. These remain our principal risks for the second half of the financial year - below we set out some highlights and specific activities that have taken place since 31 December 2013.

 

The risk of the underperformance of the funds is a principal risk to Man shareholders. Persistent underperformance would reduce levels of funds under management and may result in lower subscriptions and higher redemptions. Consequently, this will lower management fees, as well as reduce performance fees. In mitigation of this risk, we maintain a high quality, diversified range of investment styles and products, principally across quantitative (AHL), discretionary (GLG) and fund of funds (FRM) strategies. This diversity gives us protection against concentrated underperformance from any one sector.

 

In H1 2014, the AHL funds performed well with a strong Q2. The strategies benefited from stronger equity and bond markets, together with lower correlation between asset classes allowing diversification to enhance risk adjusted returns. At GLG, there was good performance in credit strategies, as individual trades were supported by falling credit spreads.  Equity strategies had below average performance, as sector rotation and reversals in momentum and value hurt certain parts of the equity market (e.g. technology) in March and April.

 

As previously stated, in 2013 we took steps to optimise the efficiency of the Group's capital and liquidity structure. The recently announced acquisition of Numeric, a US based asset manager, utilised our  balance sheet to add FUM and fund diversification to the overall group.  A focus for H2 will be the management of the risks associated with the integration of Numeric into the overall group, following closing.

 

We actively and closely manage our counterparty risk exposures, both at corporate and fund level.  While credit default spreads have remained low in H1, we are conscious of the risk of individual events, or a turn in market sentiment, and continue to take a conservative approach.

 

We remain focused on outsourcing risk, given the move of several functions to external providers and the integration and simplification of operational processes and technological infrastructure. This risk is mitigated by the methodology used, and the experienced team put in place for the selection, appointment and monitoring of our third party service providers, which ensures that they carry out their services as required.

 

We continue to devote resource to the management of regulatory risk as we see continuous evolvement in the landscape, such as the implementation of the Alternative Investment Fund Managers Directive (AIFMD), the proposed EU financial transaction tax and new rules on central clearing of OTC derivatives. It is a top priority that we keep abreast of new regulations and understand the implications these will have on the Group.

 

Furthermore, we are focused on the developments and consequent implications of the proposals by European regulators in relation to the use of dealing commissions. The proposed developments could have a significant impact on the investment management sector, including Man Group. We continue to monitor these developments and assess the implications on the Group.

 

 

FUNDS UNDER MANAGEMENT (FUM), FLOWS AND GROSS AND NET MANAGEMENT FEE MARGINS

 

In the six months to 30 June 2014, FUM increased 7% from $54.1 billion to $57.7 billion with $2.8 billion of net inflows, $0.7 billion of positive investment movement and $0.1 billion of FX gains and other movements.

 

In aggregate, our total gross margin has decreased from 177 basis points for the year ended 31 December 2013 to 142 basis points for the six months ended 30 June 2014. Our total net margin has decreased from 150 basis points to 121 basis points over the same period. These reductions are due to reduced guaranteed product FUM as well as a mix shift towards institutional money, particularly in the alternatives quant category.  This product mix shift and consequent reduction in overall margin is likely to continue as we sell more open ended alternative product, particularly to institutions, and sales of guaranteed product remain negligible.

 

Six months to 30 June 2014

 

$bn	FUM at 31 December 2013	Sales	Redemptions	Net inflows / (outflows)	Investment movement	FX	Other	FUM at 30 June 2014
Alternative	36.5	8.1	(7.2)	0.9	0.7	0.3	(0.2)	38.2
Quant (AHL / MSS)	8.9	1.2	(1.8)	(0.6)	0.6	0.1	0.0	9.0
Discretionary (GLG)	16.3	5.2	(2.6)	2.6	(0.3)	(0.1)	(0.5)	18.0
Fund of funds (FRM)	11.3	1.7	(2.8)	(1.1)	0.4	0.3	0.3	11.2
Long only	15.3	4.3	(1.9)	2.4	0.1	0.3	0.0	18.1
Quant (AHL / MSS)	1.5	0.5	0.0	0.5	0.1	0.0	0.0	2.1
Discretionary (GLG)	13.8	3.8	(1.9)	1.9	0.0	0.3	0.0	16.0
Guaranteed	2.3	0.0	(0.5)	(0.5)	(0.1)	0.0	(0.3)	1.4
Total	54.1	12.4	(9.6)	2.8	0.7	0.6	(0.5)	57.7

 

Gross and net management fee margins

 

	Six months ended 30 June 2014		Year ended 31 December 2013
$bn	Total gross margin (bps)	Total net margin (gross margin net of external distribution costs) (bps)	Total gross margin (bps)	Total net margin (gross margin net of external distribution costs) (bps)
Alternative	149	133	163	142
Quant (AHL / MSS)	239	205	283	233
Discretionary (GLG)	135	120	137	124
Fund of funds (FRM)	99	96	102	94
Long only	87	67	90	67
Quant (AHL / MSS)	28	27	34	32
Discretionary (GLG)	94	72	98	72
Guaranteed	516	369	521	436
Total	142	121	177	150

 

Alternatives

 

Funds under management in alternative strategies increased by 5% in the period to $38.2 billion.

 

FUM in the quant alternatives category (AHL/MSS) remained flat with $0.6 billion of net outflows offset by $0.6 billion of positive investment movement. Sales of $1.2 billion in the six months to 30 June 2014 continued to be driven by institutional client flows into AHL Evolution and AHL Dimension. Redemptions totalled $1.8 billion, the majority of which were from investors in AHL Diversified and AHL Alpha. The AHL Diversified strategy was up 8.7% in the half which was the main driver of the positive investment movement of $0.6 billion. FX and other movements were negligible in the period. As at 30 June 2014, AHL/MSS open ended FUM (including long only FUM) of $9.5 billion was 5.6% below peak on a weighted average basis.

 

The quant alternatives (AHL/MSS) gross and net margin reduced by 44 basis points and 28 basis points respectively compared to the year ended 31 December 2013. This is due to the fact that over 85% of the redemptions were from predominantly retail investors in AHL Diversified and AHL Alpha where the margin was 2% to 4% whereas the majority of the sales were from institutional investors into AHL Evolution where the margin is 2% and AHL Dimension where the margin is around 1%. The reduction in margin is lower at a net level due to the fact that there are higher external distribution costs associated with retail FUM than institutional FUM. Looking forward, we would expect this mix shift towards institutional money to continue and hence we would expect the margin to decline further.  

 

FUM in discretionary alternatives (GLG) increased by 10% in the period to $18.0 billion driven by net inflows of $2.6 billion. Sales for the six months were $5.2 billion with flows of $3.6 billion into Equity long short strategies (including $1.0 billion from one client into the European long short strategy) and $0.8 billion into Euro distressed and Convertibles strategies linked to strong performance in 2013. Discretionary alternatives redemptions totalled $2.6 billion. Within this $1.8 billion came from equity long short strategies, $0.5 billion from credit strategies and $0.3 billion from macro and emerging markets strategies. Investment performance across the GLG alternatives range was negative in the six months and reduced FUM by $0.3 billion. FX movements were negligible. Other movements relate to Pemba and Ore Hill maturities of $0.4 billion and $0.1 billion respectively. 39% of GLG performance fee eligible funds (including long only) of $15.6 billion were at peak at 30 June 2014 and 28% were within 5% of peak.

 

Gross and net margins in the discretionary alternatives category remained stable compared to the year ended 31 December 2013. 

 

Funds under management in the alternatives fund of fund (FRM) category remained at $11.2 billion. Alternative fund of fund sales were $1.7 billion and included $0.7 billion from one client into a separate managed account, $0.3 billion of inflows into infrastructure mandates and $0.5 billion into FRM Diversified strategies. Redemptions totalled $2.8 billion, $1.3 billion of which related to redemptions from legacy Man multi-manager products and there is $1.7 billion of FUM left in these products. There were also $1 billion of redemptions from two institutional clients in other FRM products in the period. Performance in the six months was positive overall across FRM's strategies and increased FUM by $0.4 billion in the period. FX movements (mainly in relation to the strengthening of the Japanese Yen against the US dollar) increased FUM by $0.3 billion. Notified quarterly redemptions for 1 July were $0.4 billion. Other movements of $0.3 billion in the half relate to exposure adjustments to bring the methodology for reporting legacy FRM funds under management into line with the rest of the Group.

 

The gross margin in the alternatives fund of fund category remained broadly stable compared to the year ended 31 December 2013.

 

Long only

 

Long only funds under management rose 18% to $18.1 billion, driven by net inflows of $2.4 billion in the six month period.

 

FUM in the quant long only category (AHL/MSS) increased by $0.6 billion driven by net inflows of $0.5 billion into the MSS Europe plus strategy. The gross and net margin reduced slightly in this category due to the inflows having a slightly different fee mix between management and performance fees than the existing FUM.

 

Discretionary (GLG) long only sales were $3.8 billion in the half with $2.0 billion into the Japan CoreAlpha strategy and $1.8 billion into other long only strategies including $1.2 billion into the Strategic Bond strategy. Redemptions totalled $1.9 billion with $1.3 billion from Japan CoreAlpha and $0.6 billion from other long only strategies. Investment performance was broadly flat in the period with negative performance in Japan Core Alpha being offset by positive performance across the majority of the other long only strategies. FX movements increased FUM by $0.3 billion due to the strengthening of the Japanese Yen and sterling against the US dollar.

 

Guaranteed products

 

Guaranteed product funds under management reduced by 39% in the six months to 30 June 2014, from $2.3 billion to $1.4 billion. Redemptions were $0.5 billion ($0.3 billion of which was switched into other Man products) and investment movement reduced FUM by $0.1 billion in the period. The net de-gear in the period was $0.3 billion with de-gears of $0.4 billion in the first four months of the year being offset by re-gears of $0.1 billion in total in May and June. There were further re-gears of $0.1 billion on 1 July and $0.3 billion on 1 August. FX movements were negligible in the period.

 

The guaranteed gross and net margin reduced by 5 basis points and 67 basis points respectively compared to the year ended 31 December 2013. The main reason for the more significant reduction in margin at a net level was due to placement fee write offs related to the net de-gear in the period and excluding this impact the net margin would be 404 basis points versus 436 basis points last year.

Three months to 31 March 2014

 

$bn	FUM at 31 December 2013	Sales	Redemptions	Net inflows / (outflows)	Investment movement	FX	Other	FUM at 31 March 2014
Alternative	36.5	4.4	(3.5)	0.9	(0.2)	0.2	(0.4)	37.0
Quant (AHL / MSS)	8.9	0.7	(0.9)	(0.2)	(0.3)	0.1	0.0	8.5
Discretionary (GLG)	16.3	3.1	(1.0)	2.1	0.0	(0.1)	(0.3)	18.0
Fund of funds (FRM)	11.3	0.6	(1.6)	(1.0)	0.1	0.2	(0.1)	10.5
Long only	15.3	2.1	(0.8)	1.3	(0.4)	0.1	0.0	16.3
Quant (AHL / MSS)	1.5	0.2	0.0	0.2	0.1	0.0	0.0	1.8
Discretionary (GLG)	13.8	1.9	(0.8)	1.1	(0.5)	0.1	0.0	14.5
Guaranteed	2.3	0.0	(0.2)	(0.2)	(0.1)	0.0	(0.3)	1.7
Total	54.1	6.5	(4.5)	2.0	(0.7)	0.3	(0.7)	55.0

 

 

Three months to 30 June 2014

 

$bn	FUM at 31 March 2014	Sales	Redemptions	Net inflows / (outflows)	Investment movement	FX	Other	FUM at 30 June 2014
Alternative	37.0	3.7	(3.7)	0.0	0.9	0.1	0.2	38.2
Quant (AHL / MSS)	8.5	0.5	(0.9)	(0.4)	0.9	0.0	0.0	9.0
Discretionary (GLG)	18.0	2.1	(1.6)	0.5	(0.3)	0.0	(0.2)	18.0
Fund of funds (FRM)	10.5	1.1	(1.2)	(0.1)	0.3	0.1	0.4	11.2
Long only	16.3	2.2	(1.1)	1.1	0.5	0.2	0.0	18.1
Quant (AHL / MSS)	1.8	0.3	0.0	0.3	0.0	0.0	0.0	2.1
Discretionary (GLG)	14.5	1.9	(1.1)	0.8	0.5	0.2	0.0	16.0
Guaranteed	1.7	0.0	(0.3)	(0.3)	0.0	0.0	0.0	1.4
Total	55.0	5.9	(5.1)	0.8	1.4	0.3	0.2	57.7

 

 

FUM by manager

 

$bn	30 June 2014	31 March 2014	31 December 2013
Quant styles - AHL - MSS	12.1 9.4 2.7	11.3 9.0 2.3	11.9 9.9 2.0
GLG Alternatives	18.1	18.2	16.4
- Equity
-     Europe	6.4	6.4	4.8
-     North America	2.2	2.5	3.0
-     UK	0.3	0.3	0.3
-     Other equity alternatives	0.8	1.0	0.1
- Credit and Convertibles
-     Convertibles	4.4	3.9	3.5
-     Market Neutral	1.2	1.1	1.0
-     Ore Hill	0.8	0.7	0.9
-     Pemba	1.5	1.6	1.9
- Macro       -     Emerging markets	0.2	0.5	0.5
-     Macro	0.3	0.2	0.4
GLG Long only	16.0	14.5	13.8
-     Japan	10.6	9.7	9.7
-     Other	5.4	4.8	4.1
FRM	11.5	11.0	12.0
Total	57.7	55.0	54.1

 

Investment performance
	Total Return				Annualised Return
	3 months to 30 Jun 2014		6 months to 30 Jun 2014		3 years to 30 Jun 2014			5 years to 30 Jun 2014
AHL/MAN SYSTEMATIC STRATEGIES
AHL Diversified1	11.2%		8.7%		1.9%			1.8%
AHL Alpha2	7.2%		6.0%		2.3%			3.0%
AHL Evolution3	11.2%		13.3%		n/a			n/a
AHL Dimension4	6.1%		6.7%		4.1%			4.5%
MSS TailProtect5	-4.1%		-6.8%		-4.0%			n/a
MSS Europe Plus6	1.6%		3.5%		9.9%			n/a
GLG ALTERNATIVES
Equity
Europe
GLG European Long Short Fund7	-5.0%		-5.4%		2.9%			5.0%
GLG European Equity Alternative UCITS Fund8	-5.2%		-5.7%		3.0%			n/a
GLG European Alpha Alternative UCITS Fund9	-0.5%		1.4%		3.0%			4.4%
North America
GLG North American Opportunity Fund10	1.9%		0.4%		-0.5%			4.3%
GLG North American Equity Alternative UCITS Fund11	0.2%		-0.9%		-2.9%			n/a
UK
GLG Alpha Select Fund12	-3.3%		-0.9%		2.3%			3.5%
GLG Alpha Select UCITS Fund13	-3.2%		-0.8%		1.8%			n/a
Other equity alternatives
GLG Global Opportunity Fund14	-1.2%		-1.5%		-0.9%			2.8%
Convertibles
GLG Global Convertible Fund15	0.1%		1.2%		3.7%			7.3%
GLG Global Convertible UCITS Fund16	0.4%		2.5%		5.2%			8.6%
Market neutral
GLG Market Neutral Fund17	1.7%		4.0%		8.2%			23.7%
GLG European Distressed Fund18	2.7%		5.9%		7.8%			n/a
Macro and Special Situations
GLG Atlas Macro Fund19	-9.6%		-16.9%		-5.3%			0.8%
GLG Atlas Macro Alternative UCITS Fund20	-9.5%		-16.9%		-5.1%			n/a
Multi-strategy
GLG Multi-Strategy Fund21	-1.4%		-1.9%		1.1%			5.8%
GLG LONG ONLY
GLG Japan Core Alpha Equity Fund22	4.8%		-1.4%		16.9%			8.2%
GLG Global Equity UCITS Fund23	3.6%		1.9%		9.9%			12.0%
GLG Strategic Bond Fund24	2.7%		5.5%		n/a			n/a
GLG Undervalued Assets Fund25	-1.5%		3.2%		n/a			n/a

 

	Total Return			Annualised Return
	3 months to 30 Jun 2014	6 months to 30 Jun 2014		3 years to 30 Jun 2014		5 years to 30 Jun 2014
FRM
AA Diversified26	0.8%	1.0%		1.2%		2.9%
FRM Diversified II27	0.9%	1.4%		2.4%		4.4%
FRM Dynamic Selection28	1.6%	2.3%		1.2%		1.9%
Indices
World Stocks29	4.4%	5.5%		13.0%		14.5%
World Bonds30	1.8%	3.9%		4.4%		3.9%
Corporate Bonds31	3.7%	9.6%		9.4%		10.2%
Hedge fund indices
HFRI Fund of Funds Composite Index32	1.5%	1.9%		3.2%		4.2%
HFRI Fund Weighted Composite Index32	2.0%	3.2%		4.0%		6.5%
HFRX Global Hedge Fund Index	0.6%	1.8%		1.5%		3.0%
Style indices
Barclay BTOP 50 Index33	1.9%	0.4%		-0.5%		0.1%
HFRI Equity Hedge (Total) Index32	2.1%	3.6%		4.9%		7.4%
HFRI EH: Equity Market Neutral Index32	0.3%	1.5%		2.4%		2.5%
HFRI Macro (Total) Index32	1.2%	0.9%		-0.5%		1.4%
HFRI Relative Value (Total) Index32	2.4%	4.8%		6.4%		9.1%
Source: Man database, Bloomberg, MSCI and Source. There is no guarantee of trading performance and past or projected performance is not a reliable indicator of future performance. Returns may increase or decrease as a result of currency fluctuations.
1) Represented by Man AHL Diversified plc from 26 March 1996 to 29 October 2012, and by Man AHL Diversified (Guernsey) USD Shares - Class A from 30 October 2012 to date. The representative product was changed at the end of October 2012 due to legal and/or regulatory restrictions on Man AHL Diversified plc preventing the product from accessing the Programme's revised target allocations. Both funds are valued weekly; however, for comparative purposes, statistics have been calculated using the best quality price that is available at each calendar month end, using estimates where a final price is unavailable. Where a price, either estimate or final is unavailable on a calendar month end, the price on the closest date prior to the calendar month end has been used.
2) Represented by AHL Alpha plc from 17 October 1995 to 30 September 2012, and by AHL Strategies PCC Limited: Class Y AHL Alpha USD Shares from 1 October 2012 to 30 September 2013. The representative product was changed at the end of September 2012 due to the provisioning of fund liquidation costs in October 2012 for AHL Alpha plc, which resulted in tracking error compared with other Alpha Programme funds. Both funds are valued weekly; however, for comparative purposes, statistics have been calculated using the best quality price that is available at each calendar month end, using estimates where a final price is unavailable. Where a price, either estimate or final is unavailable on a calendar month end, the price on the closest date prior to the calendar month end has been used. Both of the track records have been adjusted to reflect the fee structure of AHL Alpha (Cayman) Limited - USD Shares. From 30 September 2013, the actual performance of AHL Alpha (Cayman) Limited - USD Shares is displayed.
3) Represented by AHL (Cayman) SPC - Class A1 Evolution USD Shares.
4) Represented by AHL Strategies PCC Limited: Class B AHL Dimension USD Shares until 31 May 2014, and by AHL Dimension (Cayman) Ltd - Class F USD Shares from 1 June 2014 to date.
5) Represented by TailProtect Limited Class B.
6) Represented by the official performance of Man GLG Europe Plus Source ETF net of a 0.75% p.a. management fee and no performance fee. Provided by Source.
7) Represented by GLG European Long Short Fund - Class D Unrestricted - EUR.
8) Represented by GLG European Equity Alternative IN EUR.
9) Represented by GLG European Alpha Alternative IN EUR.
10) Represented by GLG North American Opportunity Fund - Class A Unrestricted - USD.
11) Represented by GLG North American Equity Alternative IN USD.
12) Represented by GLG Alpha Select Fund - Class C - EUR.
13) Represented by GLG Alpha Select Alternative IN H EUR.
14) Represented by GLG Global Opportunity Fund - Class Z - USD.
15) Represented by GLG Global Convertible Fund - Class A - USD.
16) Represented by GLG Global Convertible UCITS Fund - Class IL T USD to Class IM USD (08/06/2009).
17) Represented by GLG Market Neutral Fund - Class Z Unrestricted - USD.
18) Represented by GLG European Distressed Fund - Class A - USD.
19) Represented by GLG Atlas Macro Fund - Class A - USD.
20) Represented by GLG Atlas Macro Alternative IN USD.
21) Represented by the gross return of Man GLG Multi-Strategy Fund - Class A - USD Shares until 31 December 2012. From 1 January 2013 the actual gross performance of Man GLG Multi-Strategy Fund - Class G - USD Shares is displayed. 22) Represented by GLG Japan CoreAlpha Equity Fund - Class C to Class I JPY (28/01/2010).
23) Represented by GLG Global Equity Fund - Class I T USD to Class I USD (13/05/2011).
24) Represented by GLG Strategic Bond Fund Class A. 25) Represented by GLG Undervalued Assets Fund - C Accumulation Shares. 26) Represented by Absolute Alpha Fund PCC Ltd Diversified - USD.
27) Represented by FRM Diversified II Fund SPC - Class A USD.
28) Represented by FRM Dynamic Selection USD I.
29) Represented by MSCI World Net Total Return Index hedged to USD.
30) Represented by Citigroup World Government Bond Index hedged to USD (total return).
31) Represented by Citigroup High Grade Corp Bond TR.
32) HFRI index performance over the past 4 months is subject to change.
33) The historic BarclayHedge data is subject to change.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors confirm that this condensed set of financial statements in respect of Man Group plc forthe period ended 30 June 2014 has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union, and thatthe six month review herein includes a fair review of the information required by the Financial Conduct Authority's Listing Rules, including the Disclosure and Transparency Rules 4.2.7 and 4.2.8, namely:

 

·     an indication of important events that have occurred during the six months ended 30 June 2014 and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties forthe remaining six months ofthe year ending 31 December 2014; and

 

·     material related party transactions in the sixmonths ended 30 June 2014 and any material changes in the related party transactions described in the lastannual report.

 

The Directors of Man Group plcare as listed in theAnnual Report for the year ended 31 December 2013, subject to the following change:

 

·     Frederic Jolly retired as a Non-Executive Director on 9 May 2014.

 

 

By order of the board

Manny Roman

Chief Executive Officer

1 August 2014

 

 

 

Jonathan Sorrell

Chief Financial Officer

1 August 2014