Morning, everybody. Thank you for joining us. I know you've had a busy morning. Well, some of you have. I gather there were longer and shorter ones out there that you could have already done. As usual, I'll take you through an overview of 2018. Mark will take you through the numbers. Then I'll talk a bit about the progress we're making on the overall business. Then we'll take your questions about first quarter flows. Sorry. Anything else that you happen to want to ask about. I'm sure it says that on there. This one's rather good. Pages don't follow. Don't worry about that. Grand. 2018, and the fourth quarter in particular, saw a lot of downside volatility in pretty much all asset classes. As you'd all be aware, it created a more difficult trading and performance conditions.
Investment strategies generally across the industry lost money in 2018. Against that broad backdrop, we did a good job of delivering results in the areas we can control, namely generating outperformance for clients, developing our client relationships, and managing our costs while investing for growth. We outperformed our peers by 1% on average. We think that's a pretty reasonable result given the tougher performance environment. New business remained strong in 2018 with net inflows of GBP 10.8 billion. Fixed costs were similar to the prior year, despite the cost increases from the lovely MiFID II and GDPR, and us continuing to invest in our new talent and technology. We were, though, I must admit, aided by a favorable FX hedge. Despite the good relative performance, absolute results for 2018 were lower given the market backdrop.
Equity market declines and FX moves, which affect us a lot on AUM, and the weaker environment for factor, particularly value, broadly offset with stronger net inflows, resulting in the small reduction in total AUM you see to GBP 108.5 billion. Adjusted management fee profit before tax was up 7%, driven by the higher net management fees, which comes from the fund growth in 2017 and in the first half of 2018 before the sell-off. The environment obviously impacted performance fee generation. Total adjusted profits before tax decreased to GBP 251 million compared from GBP 384 million the previous year. We continue to manage our capital to benefit you, the shareholders, with, during the course of the year, a very profitable sale of our stake in Nephila and the repurchasing of $211 million worth of shares over the year.
In addition to this, in line with the dividend policy, the board recommended a final dividend of GBP 0.054 per share. As a result of the growth in management fee profitability and also the reduced share count from the buyback programs, our total proposed dividend per share is up 9% in dollars or 12% in sterling. Looking at the fund movements in 2018, it's hopefully a pretty clear picture. You can see the things we can influence, which are the flows and the relative performance we talked about before. They're shown in blue. They both go in the right direction. Against that, the bits that we can't control, the external factors, went against us. We're pleased with the GBP 10.8 billion of net inflows during the year. That included GBP 2.1 billion of inflows in Q4.
In addition, generating $1 billion of relative outperformance for our clients, 70% of which was in the fourth quarter when it really mattered to clients, makes a significant difference. The macro environment and its impact on markets meant that with equity indices down, and remember, we have a decent amount of long-only equity business these days, reduced our fund by about $9 billion. In addition, almost half of our assets now are non-dollar denominated, so the stronger dollar over the course of the year meant FX translation was negative. Together, these macro factors more than offset the inflows, as you can see. Moving on to performance. You can see our absolute performance was heavily influenced by the equity moves last year. Overall relative performance across the group was solid, as mentioned earlier, with the asset-weighted performance against peers of over 1%.
Absolute performance in the absolute return category was down just less than 1%, with our quant strategies holding up particularly well, despite it being a weaker environment for momentum. You could see it was a tough period generally for absolute return in the space, so the down 1% is actually a strong relative performance. In particular, we outperform with AHL, Alpha, and Dimension, both generating positive returns against a period where a number of CTAs had losses, some of them quite significant. In the total return category, the Alternative Risk Premia strategy did have negative returns, but the EM debt strategy actually ended up the year positive, despite sell-offs in EM debt. Both strategies, again, materially outperformed their peers. Systematic long only were down on average about 16% across the product category. It is an area where we have had several years of very strong outperformance.
Our relative performance this year, I am afraid, was weak, so we had an underperformance of 2.8%, and it is particularly because of the value bias at Numeric. Our long run performance here remains particularly strong in this category, and it was somewhat inevitable after seven years of outperforming not just the market, but also our target alpha in that strategy, that we would have a weaker year at some point. Returns in the discretionary long-only category were dominated obviously by Japan CoreAlpha, given it is the largest strategy in the group. Relative performance was slightly positive, and Japan CoreAlpha was ahead of its peers and other strategies were broadly in line in simple terms. If I then look at flows.
In 2018, we continued to see broad demand for our products, and one of the things we are pleased with is 10 of our strategies generated net inflows of over $500 million. We saw continued interest in the alternative risk premia, in the emerging market debt, and actually in both our U.K. and European long-only strategies. Alternative risk premia was the biggest contributor to net flows and remains a great demonstration of how the firm works when we all come together. During the year, we made further progress in strengthening relationships with existing clients and adding new relationships with strategically important asset allocators and distributors globally. We continue to see the trend of clients investing across the firm. Now 71% of our firm relating to clients invested in two or more products and 48% relating to clients invested in four or more products.
Those stats are marginally lower than last year, but that's just because we won several large mandates from new clients. Interestingly, our top 10 clients now have an average of six and a half mandates with us. You can work that out with 65 mandates across 10 clients, which demonstrates the breadth of their engagement with the firm. One of our big opportunities is progressing other clients up into doing that number of things with us. With that, I will pass on to Mark to do the specific numbers.
Thank you, Luke, and good morning, everyone. I'll start with an overview of our P&L and then take you through all the normal detail on fund, revenue, costs, and capital. Net management fees were up 7% to $791 million, driven by higher average fund, which was partially offset by a lower revenue margin. As Luke explained, 2018 was a more difficult performance environment, which reduced our performance fees and led to a small loss on our seeding book. Performance fees were $127 million, and we lost $5 million on seeding. Our adjusted management fee PBT was $217 million, up 7%. This was driven by the higher management fees and the limited increase in fixed cash costs, partially offset by an increase in asset servicing costs due to MiFID II. Core management fee PBT, which excludes legacy income, was $203 million, up 14%.
Total adjusted PBT was $251 million, 35% lower than last year due to the lower performance fee profits. The gain on the sale of Nephila, which Luke mentioned earlier, and a reduction in the Numeric contingent consideration liability following the market sell-off in Q4, means statutory profit was $278 million, which was up by $6 million from the prior year. Adjusted management fee EPS was $0.118 per share, up 9% year-on-year, which is faster than the PBT growth due to the lower share count following the buybacks. The tax rate on the adjusted profit was in line with last year at 14%. As Luke mentioned, turning to fund. Fund was down slightly at year-end. Net inflows in Q4 were $2.1 billion, with strong inflows into alternative risk premia and systematic long only, partially offset by outflows from absolute return and discretionary long-only.
The outflows were driven by redemptions from discretionary usage strategies, which are typically more sensitive to short-term performance, plus a couple of redemptions from a few larger institutional mandates. The negative investment movement is $7.7 billion, was heavily concentrated in Q4, as you can see, with the majority of it coming from our long-only strategies as equity markets fell. FX moves reduced fund by a further $2.7 billion as the dollar strengthened, and other movements reduced fund by $1 billion, which includes CLO maturities and negative leverage movements, which was partially offset by $400 million increase as the strategic bond assets came in as the Sanlam team joined in Q4. Turning now to the revenue margins. You can see our standard chart here. You can see the same trends that we've discussed previously.
Long only and total return margins are basically flat, bouncing up and down one way or another, period by period. The absolute return net margin decreased as a result of the continued growth in our institutional assets and the outflows from some of our historical retail business, particularly AHL Diversified. As we've said previously, we expect that gradual decline to continue. The multi-manager solutions margin decreased to 36 basis points. The rest is clearly just mixed across the group, which gets you to the blended margin at the group level.
Bringing together fund and margin, you can see that the bulk of the growth in core net management fees this year was driven by the growth in total return and discretionary long-only strategies. Absolute return fees were flat year-on-year, reflecting the fact that assets were also broadly flat. Multi-manager revenues fell as assets and margin dropped. The fund drop, in particular, reflects the infrastructure redemption we mentioned at our interim results. The headwind from the run-off of our legacy products, which you'll have heard us talk about over the years, is nearly over. If anyone hasn't already done so, please remove any associate income given we've sold Nephila. This slide is again just summarizing the moves through the year, and particularly the run rate net management fee.
It reflects the fact that we had strong growth generated from flows, but that those have been more than offset by the market headwinds. In particular, the sell-off in Q4 more than offset our progress earlier in the year. This leaves us with lower run rate revenues as we enter 2019 despite the inflows we saw from clients during the year. Turning now to performance fees. As I said, we earned $127 million of performance fees in the year, $92 million from AHL, of which $43 million was from Evolution and $35 million from Dimension. GLG earned $31 million, the majority of which were from the European Long Short, European Distressed, and then a range of the smaller equity long short strategies. FRM and Numeric each contributed $2 million. The seed book lost $5 million, as I said earlier, compared to a gain of $44 million last year.
The risk management and hedging of our seeding positions kept losses to about 1%, which we think is a creditable outcome given the backdrop. At year-end, we had $39.5 billion of performance fee earnings from. Of that, $4.7 billion was June crystallization, which was at peak. Please bear that in mind when thinking about the H1 performance fees. Evolution is the main strategy that crystallizes in the first half, and it's currently slightly above high-water mark. I'd also highlight that the netting risk from ELS we've discussed previously is elevated given the fund starts the year about 5% below high-water mark. The bigger point I want to reinforce, as I always do on this page, is about the performance fee earning capability over the cycle. We've said this every year, but we cannot control performance outcomes in any one year.
What we're focused on is improving the quality of the strategies year by year and growing the performance fee capability over time. Turning now to costs. The compensation ratio was 48%, up from 44% last year. That's in line with what we've said previously. Just to reiterate, we expect to be at the higher end of the range in years when performance fees are low and the proportion from Man GLG is higher. Conversely, we expect to be at the lower end of the range when performance fees are high and the proportion from AHL and FRM is higher. Fixed cash costs for the year were $325 million, below our guidance of $330 million. There were cost increases from the investments we told you about into our investment management and technology capabilities.
These were partially offset by real estate cost savings and by a favorable FX hedge rate, which was a $10 million benefit year-on-year compared to 2017. The new lease accounting standard that everyone is becoming familiar with is now in effect. That brings our leases onto the group's balance sheet, but it also changes the P&L treatment from now on. Although this change does not impact our actual costs or cash flows, the P&L treatment will be different, and it's going to increase net expenses by about $30 million in 2019. That will normalize and then eventually decrease over time, but please be aware for the 2019 modeling. As usual, we've got all the details in the appendix. Our 2019 guidance for fixed costs, including leases on the new basis, is $350 million.
In simple terms, that's the 2018 costs plus the $5 million change from leases, plus $11 from the FX translation to the 2019 hedge rate, then adding on the impact of annualizing any investments we made in 2018. Please also be aware that we're no longer planning to hedge the fixed cash costs from 2020 onwards. Asset servicing costs were $51 million, $14 million higher due to the MiFID II costs and our higher average assets. Going forward, guidance remains about seven basis points excluding the Man GPM. Before turning to capital, I wanted to explain the rationale and mechanics of the proposed corporate structure change we announced at Q3. We've seen significant growth in our business over the past five years, and we're now a much more global business. As a result, we're proposing to adjust our structure and our governance.
We're proposing a Jersey-incorporated holding company and will be increasing our senior management presence in the U.S. This structure should provide greater flexibility in future and support the effective and efficient management of our business. It would give us more flexibility in financing, including, for example, the seed capital program that supports innovation in our international businesses. We also believe it's a structure that is consistent with other global asset management firms and helps us compete over the long term. At the moment, our U.S. and Asian businesses are regulated by both the U.K. and their local regulators. The proposed structure would result in the group no longer being subject to those global consolidated capital requirements and would therefore provide us with greater flexibility, comparable, as I say, with other global firms. As we've said before, there's no expected change to our tax. We're going to remain U.K. tax domiciled.
As a neat segue into the next slide, there's also no proposed change to our capital policy today. One of the strengths of our business is its capital generation. As Luke said, we continue to actively manage shareholders' capital. The sale of our stake in Nephila generated net proceeds of $140 million. We're midway through the buyback that we announced in October, so you've seen us both pay a healthy dividend and return capital steadily to shareholders. Pro forma surplus capital is $340 million, which includes all the normal pro forma adjustments at year-end as well as the new lease accounting impact.
That's slightly better than some may have forecast due to a lower lease impact and the drop in contingent consideration in the second half. As we previously outlined, we have a seed capital program to support new products, which is managed within a $75 million value at risk limit. The seeding book increased during the year to $662 million, up from $480 million at last year-end, as we supported a range of new strategies. Before handing back to Luke, I wanted to pull together a few of the cyclical trends and longer-term strengths we've touched on already today. Run rate net management fees are lower as we enter 2019, as I said, despite the growth from net flows and relative performance during the year. Those two are the long-term engines of growth for asset management firms, and we're pleased we continued to deliver on them last year.
Over time, performance fees are a very valuable earnings stream for our shareholders. However, we are currently below high watermark for some of our funds. Across our performance fee earning strategies at AHL, Dimension, and Evolution entered 2019 largely at high watermark, but Alpha was about 5% below. At GLG, ELS is also about 5% below high watermark, and the majority of Numeric strategies have some way to go before they're in performance fee earning territory. This may or may not impact 2019 profits, depending on markets. What it doesn't materially impact is the long-term value of that fee stream to shareholders. I'd remind people that we entered 2017 with various high watermarks to make up, and that was a very positive year for performance fee profits.
As I said before, the FX hedge rates and accounting items are a headwind in 2019, although both of those will normalize in the longer run. Lastly, before handing back to Luke, I wanted to leave you with a chart illustrating one of the great strengths of our business. Whenever we stand up, we naturally focus on recent performance, but I think the longer-term strength showing on this chart is quite striking. Over the last five years, we've returned over $1.5 billion to shareholders through dividends and buybacks. That is over 30% of our total revenues over that period, and it's also over 50% of our market cap as we stand here today. I think 55% as of this morning.
Yeah. Even more importantly, it's driven by the profitability and cash flow generation of the business. We have made these capital returns that you see while growing our management fees and performance fee capability and maintaining a strong balance sheet. We are realistic that there are some cyclical headwinds for this year, we're also realistic about some of the structural strengths of the business and the cash flow generation and the capital return is a great strength. With which I'll hand back to Luke.
Thanks, Mark. As Mark just highlighted, in the current environment, it's natural to focus on short-run performance and particularly on flows. As we all know, there'll be lots of questions on that in a minute. Before we get there, I wanted to spend some time talking through why we think we are structurally well-positioned for growth, organic growth, and even if there are some short-term headwinds at the moment. 10 years ago, Man's business and profitability was centered around retail-focused guaranteed products. Post-2008, clients either redeemed from these products or didn't reinvest when the products matured. When people worry about the asset management business generally offering products that don't work with today's clients and the redemption pressures that average asset managers might face, we don't shrug that challenge off. It's actually one Man has had to confront and to manage our way through over the past decade.
The benefit we have here is that we've already repositioned our business such that we now offer clients a much more modern, diversified product range with a much greater focus on research, innovation, technology, and delivering for clients what they need. Please don't get me wrong. This transition was far from easy. It took some successful acquisitions, Numeric, FRM, and so on, in particular, have been hugely positive contributors in their different ways. It's taken a huge focus on innovation and on building real client relationships. It took some material crop cutting, as you'll see on the next page. We added up roughly the number of people that worked at Man, FRM, GLG, Numeric, and so on about a decade ago. As you could see, there were around 2,500 people. Today, there are roughly 1,100 less people working in the firm.
That improvement has primarily come from figuring out how to support the business more efficiently as we brought everybody onto one core operational platform. We did that. It's not about making announcements about maybe one day we'll start trying to consolidate things. We've done this over the last 10 years. Importantly, the number of frontline investors and salespeople looking after real clients and their investments hasn't moved by nearly as much. That level of change is hard to deliver, but it's a necessary part of repositioning, and we went through it, and the rest of the asset management industry will need to go through that. What we've seen in recent years is the result of a lot of hard work.
We're pleased with the diversified range of products we can offer clients today, though at the same time, it's absolutely essential we have to keep innovating, otherwise you'll start to drift backwards. What you see from this chart is clients have now recognized our efforts to build the products and solutions they want and need today, and they've rewarded that work with inflows into our core products. We've now seen cumulative net inflows of over $25 billion over the last three years, or roughly a third of the starting AUM in that period. It's not all about beta. It's about offering products to clients that they actually need. It is about the strength of those products today, but yet it is about getting rid of the headwind from the legacy products redeeming maturing as we've repositioned ourselves.
Before I finish with some comments on our outlook, let me run you through why we remain structurally well-positioned for long-term organic growth. The whole industry is trying to figure out how best to use technology to help clients, whether that be to improve performance, manage risks, or reduce costs. We've had that in our DNA for a long time now. Over 30 years of quant development for AHL and Numeric, and we have a huge advantage compared to competitors as this becomes a more and more central part of what clients expect. One of the interesting things with quant development is you get a real compounding effect, because once you've done something in quant, you don't have to redo it. You can keep reusing it. In the discretionary world, you have to start every day afresh. In the quant world, you get a real compounding benefit.
We have hundreds and hundreds of researchers and technologists with decades of experience. Others will struggle to replicate what we've spent decades building. It isn't an abstract conceptual advantage. It turns into real hard dollars. To give one very tangible example from this year, we estimate in 2018, we saved our clients about $140 million as we've deployed various technology tools, including machine learning and other quant research to improve the execution across the firm. Putting that in perspective, that's almost 20% of our net management fee for last year. The amount that we can save by making the execution better has a real value generation for our clients. We're a performance-focused asset manager, and to deliver performance at our scale, you need a broad range of strategies for clients.
The breadth of what we do and the range of different and distinct approaches to investing at Man is compelling for clients. There are very few firms with the breadth of solutions we can offer. It allows us to be relevant to a wide range of clients across the world, and also importantly, to remain always relevant throughout the market cycle. It allows us to find collaborative solutions to clients' problems because we have a diverse set of skills within the firm. We remain very proud of our diversified set of risk premium strategies. Maybe I go on about it a bit much, but they share the value of collaboration across the firm, and it's been recognized by clients with over GBP 10 billion raised, and they've generated three-year returns more than 13% ahead of the benchmark cumulatively over that period.
Finally, we're a client-focused firm, and by that I don't mean a distribution-focused firm. Our industry tends to be very inward-looking, focusing on the products people think they can easily build and then flog, rather than focusing on solutions to the problems clients actually need solved. We've made it a big priority for the firm to shift that mindset, to be outward-looking and listen to our clients. We think you can see that difference in how clients interact with us. Our 50 largest clients are invested in more than three products with or three solutions with us on average. And again, it's demonstrating the depth of the relationships as well as the breadth of people that we deal with. And lastly, before I turn to the outlook, I want to remind people why all this matters.
We're an institutional firm, but ultimately we serve tens of millions of people around the world, all saving to meet their financial goals. Our purpose is to help those people actually meet and exceed their goals. And if we do that well, our business thrives. Before we open up for questions, just a couple of comments on the outlook. We've had a healthy number of mandate wins over the past few months, but as clients responded to the change in markets at the end of last year and adjust their portfolio, we have seen a pickup in redemptions in the first quarter. We've always talked about the lumpy nature of flows in the firm, and what we're seeing in the first quarter is just the normal course of business that we expect to see. It's not something we're worried about in terms of the status of flows.
We remain really confident that we're structurally well-positioned for the future. We have compelling investment propositions. We have deep client relationships. We have a competitive advantage in our experience of using financial technology to drive investment returns. As ever, we remain focused on delivering superior risk-adjusted performance and the highest quality service to our clients. If we get those two things right, it translates into the delivery of value for our shareholders. With that, we'll open it up to questions. Probably use this slide here.
Yeah. Morning, Thomas Judder from Exane. I've got three questions for you. Firstly, you talk a lot about being outward-focused and looking to add value to clients. I'm wondering in terms of when you look at your product set or your solution set, where do you see opportunities to build out and how are you addressing these opportunities? Secondly, could you talk a bit about fees on the front book and around the back book in your two retained product sets, in terms of the fees at which the gross inflows are coming in and the gross outflows are coming out? Thirdly, well, since you mentioned you're seeing a pickup in redemptions, could you perhaps talk about which asset classes you're seeing those redemptions pick up in? Thank you.
Sure. I mean, I'll leave you to do the fees one. I'll do the value for clients and the growth opportunity. There are lots of things we don't do. One of the things I've always talked about is we only want to do things where we believe we can generate alpha for our clients or value add. Alpha works is a very easy definition in something like equities, but in some of the other areas it's a bit more complicated. If you think of it in those terms, there are lots of asset management products which don't add value to clients, and I think they don't have a future over time. We are very much focused on looking wherever we can find things that we can add value.
We are, have been, and will continue to invest in the quant businesses we've got to find new things that we can do with quant techniques. That's about both getting better at the things we do. You could see that in the outperformance of AHL Alpha, which is a very long-standing product, but it's outperforming the industry because of the fact that we've continued to innovate within that, as well as new areas. Obviously we'll keep adding teams. I think last year we looked at about 200 teams and we added two, I think. The bar is very high, but we added, well, two at the end of last year in the credit side of GLG. We added a team that got quite a lot of coverage this year, the beginning of this year in the GPM side.
We look at a lot of people before adding those teams because we only want to add the ones where we're convinced they can generate alpha. There's lots of room for growth from the point of view adding new capabilities.
On the fee side, the most important component of the back book is AHL Diversified because it's about 3% management fee. It's the runoff of that that causes the biggest part of that mix effect with an absolute return. If you look at the front book, it's pretty close actually to the blended mix. It's this slightly counterintuitive thing where the back book rolls off at a higher rate, the front book's coming in not far off the existing, and that actually causes a drop. The main thing to focus on is AHL Diversified running off. There's no increase or decrease in the speed of that. It's just steadily been decreasing over time.
I think the other question was, are the redemptions focused anywhere particularly? Sort of the short answer is no. I mean, in the same way as the inflows aren't the balance of the book isn't changing at all. It's just you get some people reposition after a year like 2018.
Hi, good morning. Gurjit Kambo , JP Morgan. Two questions. Firstly, you mentioned you're basically positioning your business to meet the needs of clients or solutions that clients want. What are the key solutions that clients are asking you for in terms of the discussions you're having? The second one is really around the private market area. You haven't really talked much about that. How's that going? Any opportunities there?
Sure. On the solution thing, I think part of the business in asset management, people have a great tendency to talk very specifically about the thing they do. They get very fast about whether you are a European income fund or whether you're a European excluding U.K. income fund, and think that that's really significant. The reality is when you sit with the CIO of a $100 billion pension plan, they're not bothered by that question. They're sitting there going, "I'm supposed to make 5% real return because it's an American plan. I'm supposed to make 7.5%, 8%." They sit there, they're looking at their bond portfolio. They sit there looking at their equity portfolio, and they go, "Okay, that's not going to get me there.
What do I do?" They're not looking to. When you get down to the individual analyst picking an individual fund, there's always a certain amount of discussion. The reality is they're trying to deal with a big picture problem and always amazed how much asset managers only want to talk about the tiny detail. A lot of the conversations are about how can we use skills we built up. One of the things as a firm is when you look at core skills, we're so used to managing large risk positions. We just sort of take it as second nature. Similarly, we're used to trading large volumes over the course of the year. I suspect that's why many of you are here.
That means that we can look at the big picture problem the clients have rather than just the micro one, and we can apply some of those skills we've got because when you sit and talk to a $50 billion or a $100 billion pension plan, and you talk about how they manage their risk between equities and bonds, they sort of sit and they go, "Okay, but we can't do anything about it because we can't possibly change our asset allocation because markets are too illiquid." We think nothing about moving $10 billion, $20 billion from one part of the market to another because we do it every day with our normal risk management. As you start to bring those ideas to bear for clients, they really understand you're trying to help them. They may use those techniques directly.
They may thank you for the advice and use it themselves. They may then just decide to buy something else from us, you are helping them solve their problem, through that you build a differentiated relationship.
Just on that, you need to monetize some of that.
Yeah. Look, some of it, we don't offer execution services for our clients. We'll leave that to the banks to do. We run money for our clients. As many of you work in organizations where the reality is if you help your clients, they will find a way of paying you. They may pay you directly for the way you help them. They may buy a service which looks exactly like the thing you told them about, or they may buy something over here to pay for something over here. We all know how that works across different parts of finance, and it really works with clients. When you look at the flows, what's very clear is the vast majority of the flows come from places where we have a dialogue with the senior people, the CIO equivalent of that organization.
We're helping them think about how they get to 7.5% in dollars, how they get to 5% over CPI, as one of our clients said. Is that what you think? The second one at the beginning.
GPM.
GPM. We haven't talked too much about GPM here because from a pure results point of view, it's still a small portion of the firm, a couple of % of the assets. We are making good progress there. We are going in a considered fashion. We've grown assets within the thing. We've had good client reception. I think there are lots of parts of the private markets world where assets are expensive, and boy, some of the businesses that are investing in those expensive assets have very high expectations of the value of those businesses. We don't want to try and chase that at all. We continue to look for niches where we think either there's value or we could create value.
The bit around affordable housing is a good example of that, where we can all imagine how many pension funds in the world are looking for things which meet a responsible investing type of banner, but also generate some sort of reasonable return. We think that's an interesting opportunity there. We're finding things to do, but we're going steady rather than rushing.
Thanks. It's Haley Tam from Citi. I've got three pretty technical questions, actually, so I promise, not about flows. The first one was just actually on the reason for moving away from hedging FX in the fixed cost. I wonder what the thinking was behind that, whether there's some significant savings in hedge costs. Because I think 60% of those costs are still sterling, so that'd be great to understand. Secondly, in terms of the move to Jersey, could you help us maybe frame the potential benefit from not having to do a global consolidated capital requirements in the future? Or if you can't, then maybe tell us when you can. That'd be great. The last thing is just on the ELS netting risk. If you could help me again think about the quantification of that, maybe some reminder of the formula involved, that'd be great. Thank you.
Sure. On FX hedging first, there's effectively some execution costs associated with that. The only real benefit that we see, given it's a one-year hedge, is helping the outside world understand one-year costs. It makes no real difference to the long-term profitability of the business. That just feels like a bad trade-off for us, paying the execution costs each year for something that just has a one-year benefit. We'll obviously explain to you how the costs will move relative to FX in each year so you can understand it. I think that's relatively simple. Jersey, as we said, the change post-that is moving out of a setup where our international businesses are regulated both by the U.K. and the rest of the world, so global consolidated supervision not applying. Putting a number on that would be premature at this stage.
We want to go through the process. We need to then put a submission into the FCA for the European business. We'd expect to talk to you about it in more detail at the half year. Lastly, on the ELS netting, there's quite a big distribution effect within that. Putting an exact number on it is difficult. For context, you've seen it in $double-digit million in the past. It's certainly capable of being that size of effect this year.
Good morning. It's Hubert Lam from Bank of America. A couple questions. Firstly, on AHL, just wondering if you can give us a sense in terms of client risk appetite for your traditional trend following products. Secondly, on capital, $340 million investors capital is probably better than what I anticipated. If you can give us a feel for what you think about the M&A environment right now, and also whether or not that's an M&A, if you can use that for buybacks when your current buyback completes.
I think on AHL trend, the sort of basic trend products, if you like. Again, you should just recognize basic trend is not that high a proportion of what AHL does today. Traditional trend is probably 25% of what goes on within AHL today. The demand for that is a sort of consistent AUM. Is that a reasonable expression for it? The reality is people buy that content for the rainy day, and if it comes around as a rainy day, it will be very important that it makes good returns out of that. As you can imagine that wherever it was early in December, it was positioned for to make a very large amount of money if the sell-off had continued, but when Powell woke up and decided to blink, to get repositioned the other way around.
The reality is, AHL Alpha was marginally positive last year, I cannot remember, 50 basis points or something. On a three, four-year basis, again, it has been about that. The reality is only that as a hedge within a portfolio is something that a bunch of clients think is a sensible thing to own. You get the odd one gives up on it and you get new ones come in every now and again. The sort of flows there are not particularly material, will become so again if it makes good money or I guess if there is a big sell-off and it does not make good money, I guess. Does that make sense?
The flows across AHL, there is many other things we do there and one of the really exciting bits over the last few years has been the innovation going on in AHL, has been the increase in content. We are pleased to see AHL Dimension last year was up two and a half, I think, something like that.
Three? Okay, something like that. That in the context of what was going on is a nice outcome and clearly is not driven by the momentum at all. I think it is recognizing there is a lot of innovation in AHL while keeping the optionality in the momentum, if that makes sense. The question on the M&A front and capital. Look, we have seen the value of public market businesses come down in asset management. Clearly, as you know, there is a lot of execution risk in a public market business, public market acquisition or merger or whatever you want to call it. The bar is very high for doing something like that. Private market valuations have not really changed very much as of now. We continue to look on a very consistent basis at businesses. We looked at over 100 businesses last year.
There was a couple of times we got interested and then nothing came of it. We'll continue to be disciplined. We're in the middle of a buyback now, as Mark showed you on the slide, we have been very consistent about returning capital in what I think are quite material amounts over the years. There's no reason to think we'll change that. We'll have to decide as we get into the year and the buyback's out of the way and we've done the restructuring and so on, how we want to position ourselves there.
Thank you. Michael Werner from UBS. Just a quick question. I think you said at the end of 2018, the performance fee eligible AUMs were about 4.5%-5% away from their high watermark on a weighted average basis. We've seen a lot of movements in the markets year to date. I was just wondering if you have a little bit of an update as to where that might be today.
The general pattern is Numeric performance picked up a bit, so the gaps dropped. There hasn't been a huge difference on the AHL and GLG side, so they haven't done a massive amount so far. There's no dramatic change from year-end.
If you knock it up a bit, down a bit, you end up about where you started. Remember when we talk about Numeric, it's all in relative performance. We don't have a performance fee anywhere based on getting paid for beta in the equity market. Any more for anymore? Well, we made it past the 25 minutes call. Thank you very much, everybody.