Earnings Call: H2 2017

Feb 28, 2018

So thank you all for joining us for the 2017 results. As usual, I'm going to start with an overview of the year, focus on how the funds performed, how we've developed our client relationships during the year. Mark will then take you through the numbers in more detail. And after that, I'll come back to talk about the progress we've made as a business and where we stand today. And then we'll open it up for questions about sales in the last three weeks sorry, or any other questions. There might be. Look, we're very pleased to report a 35% increase in funds under management to GBP 100 and 100,000,000.0. I'm supposed to be pressing a button. Hey, thank you. Billion. Our investment performance was strong in both absolute and relative terms. We outperformed our peers by 1.9% on average across our strategies. That strong outperformance, coupled with the positive momentum in markets during 2017, led to investment performance related increase in pharma of $10,700,000,000 Strong client demand for emerging market debt, FRM managed accounts and risk premium strategies particularly led to net inflows of GBP 12,800,000,000.0 for the year, albeit the mix of inflows is typically lower margin on our menu. An FX tailwind and the acquisition of Alto added another 4,700,000,000.0. What's doubly pleasing is that this increase was broad based with our alternative and long only, our quant and discretionary processes and all of our investment engines growing their funds under management during the year. The growth in assets and good absolute performance, combined with our continued focus on running the business in an efficient and effective manner, has led to excellent profit growth with an 87% increase in adjusted profits for the year to million. The strong profit growth reflected a rapid rebound in performance fees with material contributions from a wide range of strategies. We continue to believe that while our performance fees are variable year by year, they are a very valuable earnings stream to our shareholders over the cycle. This year is a great illustration of the benefits of a diversified set of performance fee earning strategies. Adjusted management fee profits before tax was up 14%, growing at a steadier pace than the increase in FUM as our revenue margin compressed due to the strong asset growth in the lower margin strategies. Statutory profit before tax was NOK272 million compared to the loss in 2016, which was driven, of course, by the impairment of FRM and GLG's goodwill. In line with our dividend policy, we'll be proposing a final dividend equating to adjusted net management fee earnings of $0.58 or $0.04 $1.08 pence per share payable in May. That brings the total dividend for 2017 to 10.8, up 20% compared to 2016. As you'll have seen from our Q3 announcement, we continue to manage our capital actively. We completed the GBP100 million share repurchase program announced in 2016 at the September, and then we announced a further GBP100 million buyback in October 2017. Since then, we've repurchased about million worth of the shares, so we're about halfway through. So let's talk about performance in a bit of detail, starting with the alternatives. The market environment in 2017 proved challenging to many other trend following strategies with the Barclays B Top 50, which is about the best index, ending the year down 0.6. AHL Alpha fared noticeably better, finished the year up 5.3%. And AHL Evolution, the trend following strategy in nontraditional markets, continued its very strong track record as one of the best performing large CTAs, ended up the year up 17.9%. Dimension, with its allocation to a broad range of AHL strategies, ended the year up 3.9%. While we don't normally comment on 2018 investment performance in the 2017 results, you will have seen that these strategies had a very strong January, but then declined rapidly as markets dropped at the start of this month. As of February 26, these strategies are down between 25% year to date. And from what we've seen, we're broadly in line with the peer group. One off script bit. This is perfectly normal behavior for momentum strategies for CTAs. Our institutional clients understand that when you get sharp reversals in markets, you get reversals in P and L, and they're not driven by one month or another month. They look at the long term reasons for owning these things. Anyway, back to script. Going back to 2017, in contrast to the strong overall performance for Numeric, its alternative strategies had a disappointing performance during 2017 with the largest market neutral strategy actually down 1.7 for the year. As I talked about a year ago, towards the end of 2016, when Mark and I took over, we took steps to improve the consistency of discretionary alternative performance. And I'm really pleased with the progress that's been made with the strong performance generated in 2017. GLG's alternative strategy's dollar weighted composite delivered returns of 8.3% compared with the HFRX return of 6%. Equity strategies had a particularly strong year with GLG's flagship ELS strategy generating returns of 6.5% and a net Sharpe ratio of 1.94, so outperforming the HFRX equity market neutral index and also most of its direct competitors. Credit Strategies followed up a strong 2016 with another year of excellent performance. Crave and the Global Credit Multistrategy, we used to call that market neutral for those who think we've changed the funds. Crave and Global Credit Multi strategy were the standout performers, delivering returns of 17.513.4%, respectively. I actually think a better indication of the progress is actually how GLG's strategies perform in the trickier market conditions. The fact that GLG's alternative strategies have also held up well throughout the recent volatility, with ELS up 2.2% year to date on the low vol version and the credit strategy is also performing well, suggests that we've made real progress on improving the consistency and performance. Across our total return strategies, the alternative risk premia, which combines liquid strategies from AHL and Numeric, continued its strong performance since launch, ending 2017 up 10.1%. The emerging market debt total return strategy, which launched in 2016, ended up the year 2.3% that is underperforming its competitors because we had a very bearish positioning on. Finally, FRM strategies had good performance in 2017. FRM diversified was up 6.2%, again, outperforming its benchmark by 2.2%. On the long only side, Numeric's range of strategies had another strong year, generating overall net asset weighted outperformance versus their benchmark of 2.1%. Positive alpha generation in international strategies, including the emerging markets core and the global core, was partly offset by weaker alpha in U. S. Strategies, both small cap and large cap. Most of GLG's long only strategies had good absolute and relative performance in the period. However, the largest individual strategy, Japan Core Alpha, with its strong value approach, underperformed the topics last year by 5.5% as value underperformed as a style in Japan, which resulted in GLG's long only strategies overall, including JCA underperforming their benchmarks by 2.5% on an asset weighted basis. The Continental European equity strategy outperformed by 1.2% and The U. K. Undervalued asset strategy outperformed by a rather remarkable 17.2%. On a three year basis, you can see that GLG strategies marginally underperformed their benchmarks by 0.4% on an asset weighted basis. This is despite the fact that Japan Core Alpha actually outperformed over that period, but is due to the fact that the measure that we calculate this performance on takes daily assets to use the weighting as opposed to being based on current assets looking backwards. We use this tougher measure as it gives us a better representation of the returns generated for clients over the period. I'm sure somebody will have a detailed question on that, and Mark will sit you down and go through it in great detail at some point. 2017 saw excellent engagement with our clients across the globe, and we've also seen an acceleration of the inflows we saw in 2015 and 2016 to record levels in 2017. This was driven by strong flows into the FRM managed accounts, the GLG emerging market debt strategies and risk premium strategies in particular. Whilst it's encouraging to see such strong levels of client interest in our strategies, As I mentioned earlier, the margin on those flows, in particular the infrastructure mandates, are lower than the average for the group. Mark will take you through the detail in a minute. We continue to make good progress in building long term relationships with the world's largest and most sophisticated asset owners. We saw more than 25 material global allocators make new initial investments with MAN last year. We also continued to see the trend of our clients investing more with the firm. Across the firm, 31 of our top 50 current clients invested in new products last year and 36 of our top 50 current clients increased their allocations in existing products. 73% of our farm now relates to clients investing in two or more products and 56% relates to clients investing in four or more products. From a geographical perspective, whilst EMEA naturally continues to be our biggest market, we have seen strong growth in The U. S. Market. Gross sales from The Americas were PHP10.8 billion in 2017, up from PHP6.4 billion in 2016 and net flows were PHP4.6 billion, up from PHP2.2 billion in 2016. Seeing some of the most respected asset allocators globally make their first investments with MAN and our existing clients trusting us with further allocations is one of the best signs of the progress we've made and the strength of MAN's business today. So I'll talk about those strengths a bit later, but now Mark is going to do the detail. Thank you, Luke, and good morning, everyone. I'll start with an overview of our P and L, and then I'll go into more detail on FUM revenue and costs. Net management fees increased 7% to GBP $736,000,000, with the revenue margin compression offsetting some of the FUM growth. Performance fees, including gains on investments, were GBP $333,000,000. We're pleased to see the diversification of this fee stream. We had over 50 strategies that generated a performance fee in 2017 and '13 that generated a performance fee of over $5,000,000 I would also emphasize we've achieved this growth despite 2017 being a year where the trend following industry had weaker performance. It's worth noting in particular that the old AHL diversified fund, which used to be the driver of man's performance fees, generated negligible performance fees in 2017. Turning to profits. Our adjusted management fee PBT was $2.00 £3,000,000 up 14%, increasing faster than net management fee revenues due to our focus on cost control and the FX benefit from a lower sterling hedge rate in 2017. Our total adjusted PBT increased 87% to GBP384 million, reflecting the strong performance fees. Statutory PBT was GBP272 million compared to a loss of GBP272 million in 2016. As Luke said, the 2016 loss was due to the impairment of GLG and FRMs goodwill and intangibles. Our adjusted management fee EPS was $0.01 $08 per share, and our total EPS was $0.02 $03 per share, up 2095%, respectively. Both grew faster than PBT due to the lower share count as a result of the buyback and a slightly lower tax rate. Turning now to our thumb. As our business has evolved, we're now developing more cross content strategies. We've changed the categorization to better represent strategies with similar characteristics. Apologies to all of you updating models, but we think it's going to give you a clearer picture of the trends in our business I'm getting an evil eye from the audience in our business going forward. We've included some additional tables in the appendix to the presentation to help you understand the changes in a bit more detail. Absolute return includes quant alternative and discretionary long short. In this category, we had flows into Institutional Solutions, partially offset by outflows from AHL Diversified and GLG Equity Long Short and Credit. Growth was driven primarily by the positive performance Luke talked about. Total return includes EM debt total return, risk premia, global private markets and the CLO strategies. We saw very strong flows into this category in 2017 with GBP 3,700,000,000.0 into risk premia, GBP 3,500,000,000.0 into EM debt, 400,000,000 into CLOs and GBP $550,000,000 into private markets. Multi Manager Solutions includes the traditional funder funds and the infrastructure and segregated mandates. The net inflows of GBP 2,900,000,000.0 in the year included GBP 2,100,000,000.0 of infrastructure mandates and GBP 2,200,000,000.0 into segregated portfolios, partially offset by outflows of GBP 1,300,000,000.0 from traditional funder fund strategies. The slight decrease in FUM in this category compared to the old categorization is because we're showing FUM where it's managed rather than where the client invests, so FRM's allocation to risk premia is thus recategorized to total return. For systematic long only, you see we had some outflows in the fourth quarter. These were driven by clients rebalancing their portfolios following the strong equity market moves during the year. FUM ended the year at GBP 26,800,000,000.0, considerably higher than at the In discretionary long only, we've moved the EM debt total return out, unsurprisingly, as I said, to the total return category. We've also moved the convertibles and onethirtythirty equity strategies in. We had GBP 1,800,000,000.0 of inflows into our discretionary business during the year, driven by flows into Japan, in particular, but also Continental European equity and the EM fixed income strategies. This next slide gives you our traditional breakdown of net management fee margins. Absolute return decreased as a result of the growth in our institutional assets and the outflows from some of our historic retail businesses, particularly AHL Diversified. While our clients continue to pay full fees for products with a strong track record and limited capacity, such as Evolution, in line with the industry, we do see more pricing pressure for products where there is more competition. The increase in total return is due to the growth of EM debt and risk premiere in 2017, which are at a higher margin than the CLO assets, which made up the bulk of this category in 2016. The decline for multi manager continues as the business shifts with the growth of infrastructure and managed account mandates. As I mentioned earlier, the new categorization moves FUM to where it is managed, not where the client invests. So the margins you see here are slightly lower than in the previous categorization. The slight drop in systematic long only here reflects a small mix effect. There's no underlying trend to speak of. And the discretionary long only year end run rate is slightly higher than it was in 'seventeen as Japan core alpha grew, particularly in the fourth quarter. The next slide shows you the run rate margin move at the group level, just to illustrate the overall mix effect. So five basis points comes from net inflows, particularly the FRM infrastructure mandates two comes from better performance and FX gains from our lower margin strategies there's one basis point from guaranteed products continuing to run off and then lastly, there's one from either small pricing adjustments or the mix of clients in individual funds. So overall, seven basis points is to do with inflows or market and FX mix effects. I said this at the half year, but it does bear repeating. Our group margin is largely about mix. It's not a number we target. It's an outcome based on everything else that we do. We are focused on doing profitable and sustainable business with our clients. However, as we've said before, we do manage the business on the assumption that this trend of faster growth and lower margin mandates will continue, and hence, there will be some decline in the blended margin, albeit at a slower pace. This drives the continued focus on cost control and growth in our core business. Bringing together the FUM and margin trends, you can see that there was a 10% increase in core net management fees compared to 2016. Over half of this came from the strong growth in the total return category, driven by those inflows into EM debt and risk premia. The growth in the long only categories was driven by market moves and inflows into Japan, U. K. Undervalued assets and Continental European growth. And the small decline in absolute return reflects the fact that we entered 2017 at a lower run rate than 2016 actuals. Revenue has been growing through the year, as you can see from the that we entered 2018 at a higher run rate. The runoff of our legacy business continues, providing a bit of a headwind, and total growth in net management fees was 7% year on year compared to that 10% for our core. On a run rate basis, you can see the continued growth in total return but also strong growth in discretionary long only. As discussed before, the shift in our multi manager business model means that despite those strong inflows, run rate revenue has declined. FRM have been doing an excellent job of transitioning the business model, but that does still result in declining revenues. Overall run rate revenues are healthy coming into 2018, and the quality of these revenues continues to improve with our legacy business representing a smaller and smaller percentage over time. Turning now to performance fees. We earned £289,000,000 in 2017 with contributions from across the business. Gains from investments were 44,000,145 million pounds was from AHL, 85,000,000 from GLG, 52,000,000 from Numeric, 5,000,000 from GPM and 2,000,000 from FRM. This is a testament to the ongoing diversification of the business. At year end, 41% of our fund was eligible to earn performance fees and about GBP 40,000,000,000 was at or within 5% of high watermark. Given the recent market moves, this number has reduced to approximately GBP 29,000,000,000 as of earlier in February, which we still think is a very healthy number. Our five year average performance fees, as you can see here, were just over GBP $240,000,000, with average performance fee PBT of around GBP 165,000,000. Over a cycle, the business will generate significant performance fees. While we cannot control the outcome in any given year, given that, that will depend on the market environment, we focus on improving the quality of our strategies year by year and growing the performance fee earning capacity in the business over time. Turning now to costs. Our compensation ratio for the year was down to 44 from 48%. This decline is primarily due to the higher performance fees. To reiterate, we expect to be at the lower end of our target range of 40% to 50% when the absolute performance fees are high and the proportion from AHL and FRM are higher. And conversely, we expect to be at the higher end of the comp range when performance fees are low and the proportion from the American GLG is higher. 2017 was a year of higher performance fees but also one with a higher proportion from the American GLG. Our fixed cash costs for the year were £321,000,000 4% lower than 2016 and below the $325,000,000 guidance. The reduction compared to 2016 is due to the FX benefit of our sterling hedge rate and the impact of the cost restructuring actions we took in the 2016, partially offset by some of the MiFID II implementation costs. For 2018, we are choosing to invest 15,000,000 into our client service and investment management capabilities given the opportunities we see to work further with clients today. We will again benefit from a lower sterling hedge rate in 2018, although that effect looks likely to reverse in 2019. We continue to focus on achieving cost efficiencies, most notably through rationalizing our real estate footprint during 2017. This allows us to offset various inflationary cost pressures within the business. Lastly, some of the 2018 cost increases we flagged in relation to MiFID II impact our fixed cash costs. As a result of these moves, overall, our fixed cash cost guidance for 2018 is approximately $330,000,000 Depreciation and amortization increased to $18,000,000 in line with expectations. Asset servicing costs were £37,000,000 in 2017, equating to around six bps of FUM, excluding the American GPM. The majority of the MiFID II cost increases will be included in our asset servicing line in 2018, and it's expected to increase to around seven bps on FUM, excluding the American GPM as a result. The overall impact of MiFID II across asset servicing and fixed cash costs is in line with our previous guidance of 10,000,000 to 15,000,000 from the Q3 trading statement. As you all know, Mann has been transitioning away from a legacy business model focused on guaranteed products to our diversified institutional focused business of today. I wanted to touch on that core business as I did at the first half. As we said earlier, net management fees in the core grew at 10%, partly that's due to the Alto acquisition, but the majority is organic growth. We operate as one firm, and we don't allocate cost by product. But to give an indication of the profit growth in the core business, we take the firm's adjusted management fee PBT and subtract the legacy net revenues. Adjusted management fee PBT grew by 14% compared to 2016, but core management fee PBT has increased by 35% over that period. We're towards the end of the runoff process for our legacy business, and the organic growth in core revenues and profits will drive our business forward from here. Lastly, before handing back to Luke, let me run through our capital position. At the year end, the ceding book was GBP $480,000,000, down from GBP $642,000,000, principally as a result of the redemption of The U. S. Distressed credit strategy, our largest seeding position, following the decision to exit the strategy at the tail end of last year. Surplus capital at year end was £256,000,000 but the pro form a surplus is GBP $460,000,000, which incorporates the second half earnings, the payment of the final dividend and receipts of cash for year end performance fees and that redemption of our largest position. I also wanted to flag in advance the expected impact of the adoption of the new leases accounting standard, which comes in from the 01/01/2019. We expect a reduction in the capital surplus from 2019 of £90,000,000 or $120,000,000 at year end FX rates. The reduction is due to the requirement to capitalize operating leases on the group's balance sheet. This reduces our surplus capital when it is recognized because the liability will initially be larger than the asset, which is about $80,000,000 of that effect. And we also need to hold capital against the asset itself, which is the remainder remaining $40,000,000 As this mostly relates to our U. K. Leases, the dollar impact will move with changes in the sterling FX rate. The accounting treatment does not allow us to net off the various subleases we have in place. The rule is, as I said, as of 2019, not today, and it has absolutely no impact on the actual lease payments we make or our cash flows. It will unwind in its entirety over the life of the lease, so it has no permanent effect. Nonetheless, we wanted to highlight it well in advance, and we've included some more information in the appendix. I'd said last year that we'd expect to update you on our ICAP at these results. In fact, as everyone will be aware, we communicated at Q3 that we'd submitted our ICAP in August, and the FCA had informed us it will not be reviewed at this time. Lastly, we continue to actively manage shareholders' capital. As Luke said, during 2017, we completed the share buyback that we denounced in 2016. And then in October, we announced the return of a further £100,000,000 to shareholders through a subsequent buyback program. Across the two, we repurchased $92,000,000 of shares in 2017. And over the last five years, we have returned roughly $1,400,000,000 to shareholders, 900,000,000 in dividends and 500,000,000 in share repurchases. With which, let me hand you back to Luke. Thank you, Mark. All right. Before I move on to talking about what we see as the key strengths business today, I just want to spend a moment reminding you of the journey, the transformation of the business we've undergone over the past few years to get us to where we are now. We've transitioned the business away from its pre crisis focus on guaranteed products with essentially one central strategy to a much larger, much more diversified provider of active investment strategies with a greater focus on research, innovation and technology to serve our clients. Our quant assets have grown over 20% on a compound basis over the last three years through strong organic growth at Numeric and the work has gone to diversify the product range at AHL. Over 50% of our strategies are now quant based, 32% are discretionary, run-in GLG and 15% are run-in the multi manager basis through FRM, and we now have a private markets capability with the acquisition of Alto. From a geographic perspective, while EMEA continues to be our biggest market, the business is now much better balanced as we've seen strong growth in The U. S. Market over the last few years. Most importantly, and as Mark explained earlier, we've been able to mitigate the impact of the guaranteed product runoff on profitability by growing our core net management fees and reducing our fixed costs. Our ongoing focus is on innovation, hiring teams, acquiring businesses and organic growth, and it's resulted in our core net management fee profits growing by over 21% a year over the last three years. So in terms of strategic priorities, we want to deliver differentiated outcomes for our clients through research and innovation, building long term partnership with those clients and operating the business efficiently to generate long term value for shareholders. That's unchanged and will remain unchanged. These priorities are underpinned by our key strengths as a business, which differentiate us from our competitors. So what are those strengths? Firstly, there's the breadth of what we do and the range of different and distinct approaches to investing at MAN. Alpha focused firms such as ours need this range of different perspectives and approaches to remain relevant to clients throughout the cycle. Secondly, we've built an innovative culture. We keep learning and developing both to improve what we do today and to look for creative new solutions for our clients' issues. Thirdly, I want MAN always to be a client focused firm. MAN's purpose is to help global institutions meet their investment needs. In the end, it's to deliver better pensions to the farmer in Utah, the bank teller in Hull or the factory worker in Osaka. We need to stay focused on that purpose. It may sound obvious, but far too many people in asset management look inwards and focus on the products they want to manage rather than listening to their clients and thinking about how they can best serve the clients. Lastly, we want to be at the forefront of bringing technology to bear on helping clients and delivering value to shareholders. We've got a huge amount of expertise and experience in this space, and we think we have a huge advantage compared to our competitors as this becomes a more and more central part of what clients expect from their investment managers. So now we'll look at each of these strengths in turn, starting with the breadth of our investment capabilities. As an alpha focused business, we understand that we are naturally capacity constrained, and we need diversification to provide scale and stability. This chart illustrates the diverse set of strategies we have at Man today. Each of our five investment engines has numerous investment teams, working both independently and collaboratively within the framework of the group. Our teams invest across a diverse range of strategies with highly specialized approaches from quantitative to fully discretionary, accessing a broad spectrum of asset classes. Within their specialized area, portfolio managers operate with a high degree of autonomy over their investment decisions and strategy. Each team benefits from the strengths and resources of the firm's single operating platform, enabling their focus to be solely on alpha generation for clients. In fact, only one of our products today is more than 5% of MAN's overall FUM. The breadth of our strategies and the performance fee generating capability of those strategies was illustrated in 2017, with performance fees earned across over 50 strategies at various points during the year. Over 40% of our farm across a range of strategies are eligible to earn performance fees. And while it is a variable earnings stream, as Mark mentioned earlier, it is a very valuable earnings stream. Research and innovation is a key priority across our business, and our ability to continuously innovate is a critical strength of the firm. We devote an enormous amount of effort every year to maintaining and improving our existing capabilities for clients, whether that be research focused on building further EVO capacity, adding new models to Dimension or building tools to help the Alpha and GLG. In addition, we focus on developing new capabilities that can help our clients to meet their future needs as markets change. We add these new capabilities with Inman through a number of routes. The first route is researching new approaches with our existing teams. The alternative risk premium is a good example of this, where a number of teams across the group work together to develop strategies, which aim to offer uncorrelated returns within very liquid markets. We started marketing this strategy in early twenty seventeen, and it's proved of growing interest to clients due to its liquidity and uncorrelated return profile. Dollars 4,000,000,000 has been raised in this strategy to date, and there is a good pipeline of interest from clients looking forward. The second route is hiring individuals or teams that bring new capabilities into and EM Debt Strategies is a good example of this. The strategies are run by a team who joined MAN during 2016, and they have broad experience across all aspects of emerging market debt investing, including credit analysis, currencies, rates trading and so on. The funds launched in April 2016 and have raised 5,300,000,000.0 to date, and we continue to see strong client interest. Other examples here include undervalued assets and the Continental European growth strategies, both of which have over GBP 1,000,000,000 of assets and are run by teams who've been brought into the firm in the last few years. We have a great track record of rapidly integrating teams into Man's culture, our processes and then scaling them as our clients allocate over time. The third route is acquiring businesses, which also allows us to improve our offering to clients. Over the past five years, we've acquired six businesses, and most recently, at the beginning of the year, we added a new private markets capability through the acquisition of Alto. Lastly, we don't think of innovation as just about the investment strategies. We also want to improve how we provide our capabilities to clients. Asset management is often a product centric industry, but we aim to put the client at the center of what we do. Our AHL institutional solutions offering allows the largest clients to invest in tailor made portfolios of AHL strategies. Our infrastructure managed account platform is an alternative way of investing in hedge funds that allows large clients to have increased transparency and control over their investments. And our product structuring capability enabled us to develop a range of usage products for Numeric, making those products available to a much broader group of investors in a way that wouldn't have been possible outside MAN. Mark and I get asked often about the capacity in individual strategies when we speak to shareholders. The point I'd like to make in talking about innovation is that MAN is much bigger than any one strategy, and this innovation is a central part of what we do every day. At any one time, we're working on improving our existing capabilities for clients, developing other strategies or structures we can manage with our current teams, looking to potentially adding new teams or looking at businesses we can acquire to improve our offering to clients. For us, it's a process and a continuous process. It gives us a much wider range of options for growth. We're not expecting every idea to work, but provided we're constantly researching and innovating, we will keep developing new ideas. That, combined with the strength of our client relationships who put great trust in us and our focus on running the business efficiently, means we can grow profitably over the cycle and generate returns for our shareholders. So I make no apologies that you've seen this slide before. Core beliefs shouldn't change regularly. We are a client focused organization, as I explained. Building long term relationships with our clients is key to growing organically, particularly as an institutionally focused business. Each of our clients have one point of contact at Man, whose role is to be an expert in the clients' needs and wants and who can deliver the MAN organization to the client. As I explained earlier, we offer a diverse range of strategies: alternative, long only, quant, discretionary across a wide array of asset classes and markets. That breadth means we really have to understand our clients, their needs and how to help them access the right strategies. That breadth means clients can start their relationship with Man in many different ways. But once they find they start working with us, they generally want to work with the whole organization and get access to the breadth of our expertise. I want our sales team to be experts in their clients. They can't be expert in all of our strategies. Over the last twelve months, a lot of hard work led by John has gone into strengthening the sales organization and improving our focus on what clients need. It's been evidenced not only by the strong level of net inflows during 2017, but by the addition of a significant number of new relationships with strategically important asset owners during the year, who can, of course, grow to being significant sized clients for over time. Now let's look at our fourth key strength, our edge from a technology perspective. At Mann, we use innovative financial technology and quantitative techniques across our business. We believe this enables us to deliver better results for clients and for shareholders. We're committed to being a leader in this area, and we have literally hundreds of researchers and technologists and decades of experience. Expertise in applying technology to financial markets takes a long time to build, and we think others will struggle to replicate what we spent decades building. Lots gets talked about machine learning, and we've been researching those at MAN for a number of years, and it's just a natural part of what we do. We don't view it as a replacement for talented human researchers. It's just a tool that enables people to tackle problems where the amount or structure of the data or the nature of the patterns are hard to address by other techniques. We're already seeing the benefit of these techniques applied in both our quantitative and discretionary investment engines as well particularly in execution, and we expect them to play a role throughout MAN in the coming years. One particular focus during 2017 was on our trading and execution. We've appointed a Director of Trading to manage this effort across MAN, and Sandy has spent a lot of time driving this initiative, bringing together the traders, trading technologists and researchers from across the firm. This initiative will deliver superior execution results for all of our investment engines to the benefit of our clients. In many asset classes, electronic market makers are increasingly replacing traditional brokers as the principal source of liquidity. And as a result, a globally coordinated central execution team with real technological expertise will allow us to better adapt to today's market structures. We delivered significant improvements in this area and reduced trading costs in 2017, which just translates straight through to better performance for our clients. At MAN, we use data in a comprehensive way across all of our investment engines. Within AHL, Numeric, GLG, we use hundreds of data sources to develop and improve our strategy, with each data set bringing a unique insight into how markets trade. We have dedicated teams, such as the data innovation team at AHL, which seek out new data sets and bring them into our investing strategies. We recognize that to transform data into knowledge, we need market acumen, we need technology and yes, we need high level mathematics. We also invest in technology to make our own business more efficient. During 2017, we worked hard to enhance our internal operating system to implement MiFID II. As I mentioned earlier, we have the new Director of Trading, and we're working on improved trading systems in order to build that center of excellence. This year, we've also invested in a new CRM system in sales, and we use technology to help our clients understand their portfolios through our Clarus platform. Look, I'm conscious that was a bit of a rush, and I don't have time to go into this in more detail today. And it's clearly an important part of understanding both man, but also frankly, the future of our industry. So we'll be holding a session for analysts and shareholders later in the year to demonstrate what we do and provide a teaching on the subject. It's about teaching people to understand what we can bring to the subject. Before I finish, I wanted to touch on some of the longer term trends we observe in the industry and how we are placed to respond to them. Revenue margin decline is a trend which has been impacting the industry for a number of years. While this has impacted certain areas of our business where price competition is more intense, As Mark explained earlier, most of the reduction in fee margin at the group level over recent years has been due to the change in business mix. Our clients continue happily to pay premium fees for innovative products with a strong track record. We also believe there's a number of opportunities to work profitably for our clients on a larger scale business at a lower basis point fee, which is still attractive to shareholders, such as infrastructure mandates within FRM or the CLO business within GLG. Asset management isn't that different to other industries. There's price deflation for older products as they commoditize, and you have to keep innovating to find higher value offerings for clients. We've been faced with the biggest regulatory change the industry has been through in recent years with the requirements of MiFID II. 2017 implementation costs were a headwind for many in the industry, including us. Although this new regulation adds complexity and cost to our business, these factors do also make it more difficult for small firms to compete and actually provide us with some competitive advantage over new entrants. We're big enough to amortize the cost pressures across the firm without, as you saw, a material impact on profitability. On rates, I'm certainly not going to stand here and try and predict the interest rate cycle. It's clearly a big issue in financial markets as we've seen year to date. But the diversification of man should help us prosper if we are getting a higher interest rate cycle and higher rates generally create significant alpha opportunities across the firm. The growth of passive has not had a significant impact on our business, to be honest. We think the growth of passive is driven by investors who either want cheap or free beta on one side or truly actively managed assets on the other side with real alpha. We view the two as interrelated parts of the same trend. And given that we are an active investment manager focused on high alpha strategies, the increased demand for actively managed assets creates a real opportunity for us for growth. We think overall, frankly, this is a tailwind for us, not a headwind. Another beneficial trend for us is the growth in quant. Our experience and expertise in this area means we benefit as clients grow quant allocations. Similarly, with risk premium and factor investing, those are primarily a quant skill set. And so we've been able to rapidly create and offer high quality products to our clients over the last year or two. That sort of historic algorithm aversion that you saw from some clients who weren't willing to consider allocating to quant techniques has largely disappeared, and we see most clients growing their quant allocations today. There are three trends we want to capitalize on over the longer term. They include private markets, faster growth in Asia and the increased focus on responsible investing. The Alto acquisition brings some capability within private market space, and it remains an area where we're looking to grow. We have a long history across Asia, and the opportunities in this market, particularly in China, are vast. You've seen we've been at the forefront of all new developments in the Chinese domestic market for foreign asset managers, and we continue to be positioned very significantly there. But it's a long period. And we have a history of specific ESG investing and analytics, and we're broadening our efforts across the firm on this area. But all of these are long term trends. They aren't about 2019, they're about the long term, and I want to position Mann to benefit from those over time, and we're actively progressing each area, but it's a five-, ten year answer, not a twelve month one. So before we take the inevitable question about flows, I just want to take a stock on 2017 and touch on our outlook for 2018. 2017 was a year of very strong results across our business. The record net inflows of $12,800,000,000 reflected not only the outperformance we delivered for clients, but also the quality of our investment propositions and the strength of our client relationships. Our fund grew by 35%. And this, combined with the good investment performance and our focus on running the business in an efficient and effective manner, led to an exact led to excellent profit growth. And I'd like to thank the management team who are all in the front row here for all of their efforts last year. We entered 2018 with a good pipeline of interest from clients. Recent moves in markets have created a more uncertain trading environment, and yes, the momentum strategies in particular suffered in February. This may impact our short term performance fee generation, but it doesn't change the strengths of the firms that I've discussed today and nor does it change our outlook on the pipeline of interest from clients. We have institutional clients who have long term mindsets. We're happy with the strong progress we've made over the last few years. We're particularly happy with 2017. We're well positioned as a firm. And as ever, we remain focused on delivering long term performance for our clients. That's what drives the success of the business. So with that, we will take some questions. Somebody is running around with a microphone. You. It's Arnaud Gebler from Exane. Three questions, please. Firstly, since you invited a question on flows, I'll start with that. On AHL, you mentioned that the institutional investor base expected this kind of performance. I think this implies probably the flows in February were looking okay. I'm wondering what it looks like on the retail side. And particularly, could you update us maybe on what proportion of the AUM in HL is still coming from retail? My second question is on acquisitions. All your peers are talking about bolt on acquisitions in alternatives and private markets. Everybody is seeking to do that. So perhaps could you update us on what the pricing looks like in M and A and any prospects of doing in acquisitions? And finally, update on capacity, notably Dimension and Evolution. Thank you. Sure. Okay. So I'll take the first bit and you can jump in where you want. We don't comment on flows in the quarter. We're going to try and get through this without giving a specific answer about things. I wasn't making a comment on whether flows in particular in any particular product were or weren't good in February or January or whatever other month you want to pick. The reality is we have a breadth of business in the firm, which as you've seen over the last three years has generated, I think it's 10 out of 12 positive quarters of flows and the two other ones are marginal on net flows. We think that we have an engine which works well. And we're not particularly focused on one moment of performance or another on one particular product or another. Did that get close to not answering the first question? Yes. And you can see the factual stuff on how much of AHL is retail at the back, but it's basically AHL diversified and it's about GBP 3,000,000,000 at year end. There's a little bit in the U6 products and some of the other styles. Maybe just picking up on the M and A point. So you've clearly seen from our past history that we're disciplined on both price, but more importantly, on structure. So there's appropriate risk sharing when we do, do deals. We have looked at probably about 150 things to some degree or other during the course of the year, some of that very passing interest, some of it more detailed. And we are typically a long way off where the market is on price and structure at the moment. That's just a reality of where pricing in M and A markets is today. We will stay where we are in our view around how to price and structure transactions. If that doesn't mean if that means we don't do anything, it means we don't do anything. The reason we've been successful in M and A is because of that approach in the past. And then lastly, on capacity, EVO and Dimension are essentially full. So clearly, there's work going on as to whether you can do things which are capacity adding. But as of today, both are at capacity. Hi, good morning. It's Gertrude Campbell, JPMorgan. In terms of just looking at new strategies, obviously, you launched a number last year. I know have you got many new strategies in the pipeline? Just thinking about seeding capital, I know that it reduced because you closed one of the credit funds, but how to think about seeding going forward? So one of the things that so we have a constant process that I was trying to identify in innovating new strategies and new products. What we know is that they don't all work. And if everyone worked, you're not trying enough different things. So we have very clear metrics on how many we're doing, whether they're working, tracking them and so on and so forth. One of the things that we tried to get away from last year and repeat it again this year is, I don't want to sit here and tell you what next year's new products are, because by definition, some of them will work and some of them won't and people go, oh, look, that didn't work. So we've tried to focus on the things that we launched a couple of years ago, which have clearly worked. We have a number of things in the hopper from existing teams, from hiring new teams, so on and so forth. It is just a constant regenerative process within the firm and it's something we spend a lot of time and energy on. The seed book is something that we think is very useful in that process. We're happy with it. There's no reason to I mean, the limits there, we're not going to change and we will use it or not use it as the opportunity, the value of seeding is there or not there, if that makes sense. Yes. And just to reiterate, the limit is VaR. So there's a $75,000,000 VaR limit. It's not a limit on notional. So we're a bit under $500,000,000 at the moment. We've actually got quite a low VaR because the book is just more balanced than it has been in the past following that redemption from The U. S. Credit strategy. Paul McGinniss from Shaw Capital. Just following up on that question with respect to acquisitions. If things are currently a long way off where you see value, I'm just wondering with respect to the surplus capital position at the moment and the fact that I think there's just about $50,000,000 left on the current buyback. Just wondering whether you would consider either increasing that, particularly in respect of the fact that the pace of it didn't really seem to change very much despite the fact that your own valuation was changing quite substantially last year. I was wondering if you feel that what's currently happened on the price is a dislocation from what's going on within the business, whether you would consider changing either the pace or scale of it in the absence of any other use for surplus capital at the moment? So the pace of it did change. It's set up in way you have to set the rules. The rules are very clear in terms of what we've given to the executing bank. And at higher prices, they buy a lot more slowly than they do at lower prices. That seems an obvious answer to the problem. The current buyback is underway, and we'll see what we do when we get to the end of it. The current M and A world is full of people who seem to be panic buyers and willing to pay. It's particularly in structure. I mean, a, a lot of money, but people seem to be willing to throw around a lot of cash upfront, which our experience is that's not the right way to do asset management in the asset management business sorry, to do M and A in the asset management business. So we will stick to our process. And as we've always said, if we don't have a better use for capital, we will return it to shareholders over time. Finish one mouthful before you worry about the next one. Neil Welch from Macquarie. Two questions on the outlook. First is, rather than thinking about immediate flows, what is the institutional pipeline looking at maybe based around your new descriptions of asset split, particularly the strength of total return flows last year. I'd be interested to understand what was behind your commentary about pipeline in the presentation. And just in the same context, you were highlighting the growth of your U. S. Or Americas business and indeed the balance towards Asia. Is there anything to note in the strength of demand build out of distribution in those areas or products in those areas that will continue to address that balance over the next year, maybe three years, please? So we try not to and we're going to keep trying not to say what future flows are. Apart from to say that the two things we talk about is we have a very institutional business. So that creates a lumpy nature, which means whether a flow comes in one particular quarter or another quarter is entirely noise and not something we worry about. But we came into the year with a what was the adjective we used? Strong? Continuing pipeline. Continuing good pipeline. The we have a process of working with clients. I didn't notice anybody scribble when I threw out a data point in the course of the presentation, so I'm going to repeat it now because I think it is incredibly important to understand. So last year, our top 50 clients, 31 of those top 50 clients invested in a new thing, which they hadn't done with Mann before, and 36 out of the 50 of them added money to something they already had. There's some double counting in there. But the point about it is large clients when they start working with MAN, tend to do more and more things with us. I can't tell you what is going to be the thing that they need this year or next year. What we have to do is to keep generating high quality product. And then honestly, our clients rip it out of our hands. Sorry, that's probably a bad expression and someone on the phone will get excited about me saying, you know what I mean. It's like if we build good product, the relationships we have will want that because the institutional investors of the world have an alpha problem. If you have a basic portfolio made up of bonds plus equities, you aren't going to make the expected returns that almost every pension fund or other institutional investor has over the next ten years. They need alpha and they need it in scale. And we are one of the relatively few places where you can come and buy alpha in scale. There might have been a second bit, which I can't remember. Yes. The other question was on The U. S. And Asian distribution. I was just trying to understand the extent to which that balance is continuing to redress and indeed how you position the business potentially in distribution to continue to grow the Asia or North America balance of the business geographically? I guess we so look, we used to be horribly imbalanced by having no U. S. Distribution and no U. S. Clients. And depending which stat you use, 50% or 60% of the investable assets in the world are in The U. S. So that was clearly suboptimal. We are getting nearer towards a natural balance. We are focused on servicing clients, large clients everywhere in the world. There's still a number of clients in The U. S. That we don't touch or we've only started touching. And therefore, if we do repeat business with them, that can continue to grow. But we don't sit with a sort of goal as we must get it to X percent or y percent. We're really trying to address the largest investors in the world and give them high quality product. And naturally, that has a diverse global footprint. Anybody else want to have a go at February flows? No? Cool. The only thing I'd say in closing, you all know Fiona very well. She had a fight with a set of stairs yesterday, which as you can see well, the stairs haven't been retired, therefore the stairs won. And I'd just like to thank her for all of her efforts in getting today together and working with you all this morning and tomorrow because you can see she's a little battered and bruised. So with that, thank you all very much.