Good morning, everybody, and thank you for joining us. I'm going to start today with an overview of 2016. I'm going to focus on how the funds have performed and how we've developed our client relationships during the year. Mark, our CFO, will take you through the numbers in detail, I'm going to discuss our priorities for the business and the progress we've made during the year. We're pleased to report a 3% increase in our funds under management to $ 80.9 billion, despite an unforgiving year for active management, on a backdrop of outflows for the active management industry generally. We saw net inflows of GBP 1.9 billion during the year, mainly into our quant strategies and our managed account mandates, partially offset by outflows from our discretionary business and the traditional fund of fund strategies.
Our quant alternative fund increased by 20% during the year due to strong inflows. Investment performance added $ 3.2 billion, somewhat offset by a big FX headwind to FUM as the U.S. dollar strengthened. Performance across our investment managers was mixed, but reasonable given the significant binary political events we saw during the year. Alternative strategies were broadly flat overall. While we're disappointed with the absolute performance you get there, we performed reasonably compared to each strategy's peer group. On the long only side of our business, we're pleased to report that both our quant and discretionary strategies had positive alpha for the year, following a strong fourth quarter. I'll give you some more detail on the performance in a minute. Adjusted profits before tax fell to $ 205 million for the year, down from GBP 400 million for 2015, mainly as a result of the lower performance fee revenue.
Adjusted management fee profit before tax was $ 178 million, down 8% compared to the previous year. Our adjusted performance fee profit was GBP 27 million, down from GBP 206 million in 2015. While we've performed reasonably well relative to the industry in a difficult environment, the weak absolute performance in the discretionary and fund of funds areas is reflected in the substantial impairment of goodwill and intangibles for both GLG and FRM. This results in a statutory loss before tax of $ 272 million for the year. Mark will talk about the details on that in a minute. As you'll have seen from our Q3 announcement, we continue to manage our capital actively. We started a GBP 100 million share repurchase program in the fourth quarter to return capital to shareholders. We also announced the acquisition of Aalto, which closed in January and used around GBP 70 million of regulatory capital.
On the cost side, I implemented a restructuring exercise to save GBP 20 million on an annualized basis, with some of those savings already realized in 2016, despite the increased costs of implementing MiFID II. Again, Mark will explain more detail as we go through. Let me turn to performance across our strategies, starting with alternatives. As you could see from the range of returns in 2016, AHL now comprises a platform of differing quant strategies. AHL Evolution was again the best performing strategy and one of the best performing large CTAs across the whole industry, returning 6.2% for the year. AHL's traditional trend following strategies, AHL Diversified and AHL Alpha, found the market environment more difficult, particularly the third quarter, returning -7.6% and -3%, respectively, for the year. Dimension, which is AHL's multi-strategy program, returned -1.5%.
With the exception of AHL Diversified, which has a higher volatility in fee load than the industry, these returns are above the Barclays CTA Index, with AHL Evolution in particular, once again, materially outperforming. Man GLG's alternative strategies ended the year slightly up on an absolute basis, with good performance from credit, but weaker performance from equities. The ELS strategy, which is Man GLG's largest alternative strategy, improved after a very difficult first half, but still ended the year down 1.4%. The European Mid-Cap strategy, again, performed well, returning 4.8%. While Man GLG underperformed the HFRX Global for the year, individual strategies actually did reasonably well compared to their specific peer groups. In Man FRM's traditional diversified fund of funds strategy, Diversified II, it had weak performance during the year, losing 3.8% and underperforming its benchmark by 5.7% due to its lower directional credit exposures.
Our new Man Alternative Beta strategy, which is a multi-risk premium strategy run in cooperation by FRM, AHL, and Numeric, had much better performance, returning 6.8% in 2016. This strategy's had reasonable performance since its inception in late 2015, and it's starting to attract interest from clients. Numeric's alternative strategies had another very good year, particularly given the environment, and outperformed the equity market neutral index materially. On the long only side, Man GLG strategies outperformed their benchmarks by 2.1% on an asset-weighted basis. Japan CoreAlpha was the strongest performance. It has exceeded its benchmark by over 5%, coming back very strongly from a weak first half. Our EM Debt team have started well with their total return fund up 6.1%, despite Trump. The Continental European Growth strategy underperformed by 3.2% after exceptional performance in recent years.
The other strategies didn't perform as well, with weak performance, particularly in the U.K. after the Brexit vote in June. Numeric had another good year with outperformance of 1.4% on an asset-weighted basis. The largest contributors to Numeric's outperformance were Emerging Markets Core and Numeric Global Core strategies. The weak spot was in the U.S. Where the US Large Cap Core strategy underperformed its benchmark by 2.4%. Delivering positive alpha across GBP 34 billion of long-only FUM in this year, and if you look over the last three years cumulatively, which has been a very difficult environment for active management, is encouraging and shows active management delivering value for clients. Building long-term relationships with our clients is key to growing our business organically, particularly now that we're a more institutional business.
Our priority is to build long-term partnerships with our clients through one key point of contact, who understands the client's needs and is able to offer answers from across the broad range of our strategies. We continue to see our clients investing in a number of different strategies across the group, with 78% of our FUM coming from clients invested in more than one product. Clients are also increasingly investing across the different investment engines, with 64% of the FUM from clients invested with more than one of our four investment engines, now five investment engines, sorry. We believe this theme will continue as large investors look to work more with fewer people. We've also seen the hard work we've put into the U.S. over the last few years paying off.
In 2016, 29% of our sales were from North American clients, up from 22% in 2015, and now fully 27% of our FUM comes from North American domiciled clients, up from 24% last year. With that introduction, I'll now pass you over to Mark to take you through the numbers in more detail. I'll try not to shut the system down.
Thank you, Luke, and good morning, everyone. Let me start at the top with an overview of our P&L for the year. I'll take you through some more detail on FOM, net revenues, and costs. Net management fees decreased 9% to $691 million, as the decline in our management fee margin more than offset the growth in FOM over the course of the year. Performance fees, including gains on investments, were $112 million, down from $326 in 2015, with lower performance fees for all of our managers. As Luke highlighted, 2016 was a difficult environment, particularly for quant alternative strategies, with the Barclay CTA Index down over 4% for the year. The diversification within AHL meant it did earn $50 million of performance fees, mainly from Evolution, despite this environment. Numeric performance fees were $19 million, with the majority being earned from their emerging markets and European strategies.
GLG earned $9 million and FRM $3 million during the year. While 2016 was a weak year for performance fees for us and the industry as a whole, we enter 2017 with $15.5 billion of FOM at high-water mark, spread across a range of different strategies, and a further $10.6 billion within 5% of high-water mark. We continue to believe that our performance fees deliver meaningful value to shareholders over time, as Luke will discuss later. For everyone updating their models, we've got the customary detail in the appendix. Gains on investments were $31 million, primarily relating to our seeding book, and the investment in the GLG US distress strategy was the largest contributor in 2016. Our adjusted management fee PBT was $178 million, down 8%, declining slightly less than net management fee revenues due to our actions on costs, which I'll give more detail on later.
Our total adjusted PBT fell 49% to $205 million, reflecting the material decline in performance fees during the year. We've performed relatively well in a poor environment for businesses such as ours in 2016, with positive net flows, positive alpha across our long-only business, and our funds typically at or close to high-water mark as we enter 2017. Nonetheless, our results highlight that 2016 was weak on an absolute basis, particularly in our discretionary business. GLG had difficult business performance, with lower FOM management fees and performance fees. While these trends are partially mitigated by lower future costs following the actions we've taken, there is still a material reduction in the carrying value of the business. As a result of the 2016 performance and a weakening of industry growth forecasts during the year, we've impaired the goodwill and intangibles in relation to GLG by $281 million.
We've also impaired the carrying value of FRM. For FRM, this impairment really reflects reduced prospects for the higher margin traditional fund of funds business in light of 2016 performance rather than declines experienced in the year. In particular, we expect continued margin declines as the business mix moves further towards investment solutions. This has resulted in an impairment to FRM of $98 million. It's worth noting that while we refer to our fund of fund business today as FRM, the majority of the goodwill that was on the balance sheet actually relates to Man's historical acquisition of Glenwood in 2000. These impairments are the main cause of our statutory loss before tax of $272 million for the year.
Our final dividend for the year is $0.045 a share, bringing the total dividend to $0.09 per share, equivalent to just over GBP 0.07 for the full year, up 2.5% in sterling compared to 2015. Turning now to our FOM, I'll start with the high level movements for the year. As Luke mentioned, we're pleased to report organic growth for the year up 3% to $80.9 billion. Net inflows were $1.9 billion, driven by our quant strategies. We think this is a creditable outcome against the industry backdrop in 2016. I'll take you through some more detail on flows on the next slide. Investment performance was positive, increasing FOM by $3.2 billion. That's mainly due to the market moves and the positive alpha on the long-only side, as Luke has just discussed.
FX moves reduced FOM by $2.1 billion as the dollar strengthened. Other movements reduced FOM by $0.8 billion. That's $0.4 billion from CLO maturities, $0.7 billion from the guaranteed product maturities and de-gears, and partially offset by $0.3 billion of positive investment exposure movements within FOM. As you'll have heard us say many times before, the majority of our clients today are institutions, and that means our flows are going to be uneven quarter-to-quarter. To illustrate that point, you can see here that the top 10 sales for the year were 22% of total sales, and the top 10 redemptions were 18% of total redemptions for the year. Taking a look now at the detail of our FOM by strategy, you can see the strong inflows into quant over the course of the year, in particular quant alternatives, which had over 20% growth from flows.
We think clients have become increasingly receptive to quant in recent years, with a lot of interest in some of our more innovative strategies and research efforts. Our fund of fund business grew as we won three further managed account mandates and our existing mandates funded during the course of the year. This increase has more than offset the outflows from the traditional fund of fund business, but it has lowered our revenue margin. We had $3 billion of outflows from our discretionary business during the year, partly in response to weak performance in the first half. The outflows for alternatives were concentrated in equity long short and converts. On the long-only side, Japan CoreAlpha had outflows of $1.6 billion despite the strong performance that we discussed.
These outflows were partially offset by $1.1 billion of inflows into the new EM Debt strategies launched in the middle of the year, which continue to attract good interest from clients. Outflows started to moderate in Q4 for discretionary, with reduced outflows in alternatives and a small inflow on the long-only side. We're focused on improving the performance of the discretionary business and returning to growth, and Luke will touch on some of the steps we've already taken. It is worth noting that for the discretionary business in particular, it's historically been more sensitive to short-run performance. As you can see overall in Q4, we had a $0.4 billion outflow. This was due to one large redemption from an AHL long-only client, which was actually the largest single redemption across the whole firm for the year.
As you've heard us say plenty of times before, our clients are mainly institutions. Our quarterly flows can swing either side of zero based on one large individual subscription or redemption. We continue to caution everyone against reading too much into the flows for one quarter, whether they're driven by one large outflow or one large inflow. I would also add that we saw some clients delaying activity following the U.S. election as they digested the market rotations. This next slide gives a breakdown of our management fee margins. This will be a familiar slide to many of you from presentations past. You can see that the margin trends we've been seeing over the past few years are continuing. Our quant margins are broadly similar to where they were at the half year.
Within fund of funds, the growth in managed account mandates has lowered the margin through mix, as you would expect. The margins in our discretionary business have declined more noticeably in the second half, both for alternatives and long-only. We have reduced pricing in some areas, which explains part of the move. We've also seen some further outflows from higher fee products. Then we've seen inflows from products like EM Debt, which have a lower average management fee, although they often charge a performance fee as well. Looking forward, you can see from the run rate margin that we expect the reduction in the overall group margin to continue into 2017.
This is partly due to our legacy FUM rolling off. It is also because we continue to expect mix effects across our core business as we grow lower fee business at a faster rate, most obviously in the case of managed account mandates. The one overriding message I'd leave you with on our margin is that the movements both within individual businesses and across the group as a whole are largely about mix. Although as I mentioned, we have reduced pricing in some areas. We manage the business on the assumption that this trend of faster growth from lower fee mandates will continue. Hence a decline in the blended margin will also continue. This backdrop drives our continued focus on costs and growing FUM in our core business.
Bringing together the FOM and margin trends, there are three main movements on our net management fee revenues during the year that I would highlight. Firstly, our quant revenues grew by GBP 36 million, a double-digit % growth rate reflecting very strong progress during the course of the year. Secondly, our discretionary business declined by GBP 57 million, primarily due to net outflows, but also the margin declines discussed on the previous slide. Thirdly, you can see the continued runoff of our legacy guaranteed products and other income during the year of GBP 49 million. As you can see from the run rate illustration on the right, our core business enters 2017 slightly up on 2016, including the impact of Aalto. The group run rate is slightly down, including the continued runoff of our legacy business.
The headwind to our core business from these legacy products has been reducing year-on-year, and Luke will discuss the transition of our business away from the historical guaranteed products to our current business model shortly. Turning now to costs. Our fixed cash costs for the year were GBP 334 million, which is GBP 11 million below our full year guidance. This reduction reflects the partial impact of cost restructuring actions that we took in the second half of 2016. The full year savings as a result of these initiatives will be GBP 20 million, and we have reduced 2017 fixed cash cost guidance to GBP 325 million. That reflects these savings, the impact of Aalto, underlying inflation, and regulatory cost pressures, in particular in relation to MiFID II, and finally, the lower average sterling to dollar rate in 2017 compared to 2016.
That rate is expected to be 1.36 for the full year. There is also a GBP 17 million restructuring charge in 2016, and a further GBP 4 million expected in 2017 to deliver these cost savings. Please note that the average sterling FX rate for the first and second half of 2017 are quite different, at 1.43 and 1.29, so there will be different FX impacts in the first and second half of this year. The different rates are due to us hedging our costs quarterly one year in advance, and the sterling move following the Brexit vote. Our variable compensation costs reduced by 28% in 2016, slightly more than the decrease in net revenues. The overall compensation ratio is 48% for the year, which is towards the top end of our guided range.
To reiterate, we expect to be at the higher end of the range in years when absolute performance fees are low and the proportion from Numeric and GLG is higher. Conversely, we expect to be at the lower end of the range when absolute fees are high and the proportion from AHL and FRM is higher. Within variable compensation costs, we have GBP 130 million of management fee-related variable comp, and GBP 76 million of performance fee-related comp. The ratio of performance fee-related compensation is higher in 2016 due to the lower level of absolute performance fees. There were GBP 14 million of compensation costs within GLG, where teams are compensated based on gross trading profits, not performance fee revenues. We indicated that number was GBP 6 million at our half year results, and it has increased following improved performance in the second half.
Asset servicing costs for the year were GBP 33 million, equating to around 5.5 basis points of FUM ex-Numeric. Depreciation reduced to GBP 14 million. Lastly, before handing back to Luke, let me run through the key points on our capital position. Surplus capital at year-end was GBP 392 million. Surplus capital would be around GBP 325 million, adjusting for the impact of the Aalto acquisition, which completed on the 1st of January. We will be updating our ICAP submission during 2017. We'd anticipate updating you on that process at this time next year in the ordinary course of business. We're about 60% of the way through the buyback we announced at the back end of last year, at an average price of GBP 1.25 per share.
From a liquidity perspective, we reduced the size of our revolving credit facility to GBP 500 million, reflecting reduced liquidity needs as the guaranteed product business is reduced in size, which will lead to slightly lower financing costs. As we've previously outlined, we have a seed capital program to support growth of new products, which is managed within a GBP 75 million VaR limit. At year-end, the seeding book was GBP 642 million, which is GBP 116 million higher than 2015, as we had a larger than normal number of launches in Q4. Our balance sheet remains strong, with net tangible assets of GBP 633 million or GBP 0.31 per share at year-end. With that, let me hand back to Luke for the next section.
Thank you, Mark. I want to spend the remainder of the presentation talking about Man's business model and our priorities for the group. Man's changed significantly as we've transitioned the business away from its pre-crisis focus on guaranteed products, with AHL Diversified as the one dominant strategy. While that was a highly profitable strategy in its time, it's not a feasible business model today. Today, Man is focused on delivering high-quality active management solutions to our institutional clients. We are a client-focused organization. We want each client to have one point of contact at Man, whose role is to be an expert in that client's needs and their wants, and who can deliver the whole Man organization to the client. Today, we offer a diverse range of strategies, alternative and long-only, quant and discretionary, across a wide array of asset classes and markets.
That breadth means we really have to understand our clients and how to access the right strategies for them. Clients start their relationship with Man in many different ways, but once started, we find they generally want to work with the whole breadth of our expertise. It's not a cross-selling story, but it's rather a cross-buying story from the client. While it should go without me saying, I do want to be absolutely clear, we're completely committed proponents of active management. We think focused active strategies delivered with constant research and innovation add value to investors' portfolios and are central to them in achieving their investment goals. Generating alpha isn't easy, but we believe that markets are inefficient and that there are structural opportunities which skilled managers can take advantage. On to the strategic priorities.
Our core business model and our core belief in the value of active management feed naturally into the strategic priorities for the firm. Delivering differentiated investment outcomes is our first priority. You cannot continue to deliver superior risk-adjusted performance without hard work, constant innovative thinking, and investment into future sources of return. Creativity is a focus across all of our investment engines. I believe strongly in an open, collaborative, and entrepreneurial environment where individuals come together within and across teams. This way, you get creative ideas that we can develop, implement, and then commercialize. Ultimately, it's this innovation that drives client returns and sustains our business. Without outperformance, active management has no place. Delivering performance always has to be our number one priority. Our second priority is building strong long-term partnerships with our clients. As I mentioned, our business model puts clients at the heart of what we do.
The relationship we have with our clients, the service we provide to them, is vital to our success, particularly as we've moved our business to focus on serving large institutions, whether that be classic institutional clients or large retail private banking platforms, where the relationship is increasingly institutional in nature. As I've said, each client has one key point of contact at Man, whose role is to deliver deep, meaningful relationships where the strategic clients can recognize Man as a go-to place for advice and solutions to help them achieve their investment goals. Our third priority is to be as efficient as possible. We have a single shared infrastructure across the group, built on a single core universal technology backbone. This means we can deliver a very high quality support environment while controlling our costs.
We will remain disciplined on all aspects of our costs to mitigate the impact of future inflation. If we find attractive acquisition opportunities, we know we can add those businesses without materially adding to our support costs. These first three priorities are the building blocks that allow us to deliver the final priority, which is generating returns for our shareholders. Our business is set up to generate significant excess capital over time to return to or invest for the shareholders. We aim to pay a steady ordinary dividend based on our management fee profits, with additional capital generated through our significant performance fee earning capabilities. Over time, we'll either return those performance fee profits to shareholders or invest them on behalf of the shareholders to deliver further growth for the business if that creates a better return for shareholders.
Let me now take you through where we stand in each of the business areas. I'll start by looking at the quant, which is AHL and Numeric. Historically, shareholders associated Man Group with just one fund, AHL Diversified. Today, Man is a much broader business, but importantly, so is AHL itself. AHL Diversified is less than 20% of AHL's FUM, and now only the third largest strategy within AHL. AHL Diversified does account for around 32% overall of the run rate management fees in quant, as it does have a higher management fee. We've been steadily building out a high-quality diversified quant business. As an illustration of that progress, AHL Dimension, which is the multi-strategy program, is actually now AHL's largest strategy, with 5.2 billion of FUM at year-end.
As Mark mentioned previously, the net inflows for AHL's alternative strategies were strong in 2016 at GBP 3.7 billion, despite it being a challenging year for quant alternatives. This is testament not only to AHL's long track record and its strong reputation, but also to the differentiated strategies it provides to clients. Clients are increasingly interested in quant answers and increasingly persuaded of the benefits that they can provide within the broader client portfolio. During the year, AHL launched its Institutional Solutions offering to allow our largest clients to invest in tailor-made portfolios. Total assets were GBP 1 billion at year-end, and we think over time, more clients will want to define their own set of strategies from the broad array that we can deliver, and to be more and more precise about the exposures that they want from us.
I'm also pleased to say that we've increased the capacity of AHL Evolution by adding new markets over the course of the year. That now allows us to take in an additional GBP 500 million from investment clients over the course of 2017. 2016 also saw the launch of the short-term trading program, which is a good example of the benefits of our ongoing research and our innovation. While it was very capacity limited, with only GBP 200 million initially, it was only offered to a handful of potential clients. It reached capacity within a week of being offered, and all of it at the full 2 and 20. We think this is a testament to the differentiation of the product, also the strength of the relationships we've been building.
AHL continues to develop its research, particularly through its involvement with the Oxford Man Institute and the new specific focus there on machine and deep learning techniques. This will support the next generation of strategies for AHL and also across the rest of Man, with a number of models developed using machine learning techniques already running client capital at Man. As you've seen from the performance and flow numbers, Numeric core long only strategies performed well during the year. Numeric continues to diversify its product offering into a number of new markets and new strategies. During the year, they also launched a range of commingled funds, including UCITS and '40 Act strategies to expand their potential client base. As I mentioned, Numeric and AHL have worked together with AHL to develop Man's Alternative Beta strategy, which performed particularly well in 2016 and which we're now offering to clients.
We think we have a very compelling offering here because it leverages off multiple areas of the firm. Clients and shareholders continue to ask me what type of environment's best for AHL, or occasionally just say, "How much money are you going to make this year?" I'm not going to predict 2017 returns, I'm sorry, I can tell you what sort of environments have historically suited CTAs. This chart shows how AHL Alpha, the flagship trend following programs, performed since 1999. It shows that in periods of low average cross-market correlations, they're the blue shaded areas, the traditional trend following strategies perform well. In times of high cross-market correlations, as was the case after the global financial crisis from 2009 to 2013, the environment's more difficult. That's where we produce weak performance.
AHL benefits when it can apply its core trend following strategies to a broad range of markets that don't correlate with each other, and it can harvest the benefits of diversification to improve the risk-adjusted returns. That's why we trade over 400 markets in AHL Alpha. Where markets are highly correlated, that benefit from diversification just isn't available, and the returns suffer. In 2015, we saw lower correlations and AHL prospered. In late 2016, we saw a period of high correlation, which coincided with the weaker performance for AHL Diversified and AHL Alpha. If we were to see an environment of lower market correlations dropping back to the more normal historical levels, this is what we think is the environment that AHL benefits. Now let's turn to GLG, the discretionary business. It was a tough year and a tough environment for discretionary investment management, and GLG was no different.
It's clear from the impairment of GLG's goodwill and intangibles Mark discussed, which reflected the lower fund management and performance fees. Our performance at GLG has been too variable in recent years, and this resulted in continued outflows in 2016. We've already taken a number of steps to improve the consistency of GLG's performance. We appointed Pierre-Henri Flamand as the GLG CIO. It's the first time that we've had a CIO at GLG, and his role is to work with the PMs to generate more alpha. We've restructured the risk team in order to bring the best practices, both in risk management and technology, to bear from across the rest of the group. Hopefully we can reduce the drawdowns that funds suffer and increase the focus across GLG on idiosyncratic risk.
GLG has also been part of the cost restructuring program. We've closed a number of underperforming strategies to focus on our best talent to improve returns and, of course, to reduce our costs. We're also focused on driving down our spend with the Street and our execution slippage using the best practices from the quant side of the firm. While we need to deliver on the improved performance, we do believe we have a sustainable advantage in identifying and recruiting high-quality investment teams, and then importantly, commercializing those new strategies. For example, in 2015, we announced the launch of the EM Debt strategy. We built out the team in the first half of 2016 and launched three new strategies for them during the summer. Since that launch, these strategies have performed well.
They survived the Trump bump in November and have generated inflows of more than $1 billion. We're seeing further interest from clients this year, particularly in separate mandates. At a slightly smaller scale, the European growth strategy raised an additional $200 million during the year. In alternatives, the European Mid-Cap strategy I mentioned earlier has also raised an additional $200 million. While the GLG business performed badly in 2016, the actions we've taken already stand the business in better stead for 2017. We're focused on working with our senior investment professionals and taking the steps that are needed to turn around and maintain that performance. Now turning to the Fund of Funds business. At FRM, we continue to see strong interest in our managed accounts infrastructure, and we were awarded three additional mandates during the year, totaling $2.5 billion.
FOM saw gross sales of $2.3 billion from the new and existing infrastructure mandates. There's an additional $1.9 billion left to fund in the awarded mandates in 2017. FOM's traditional Fund of Funds assets, though, are continuing to drop as investor appetite for these products sinks. During the year, we saw $1 billion of net outflows from FOM's traditional Fund of Funds strategies. Honestly, we expect that to continue in 2017. FOM's business model is therefore moving more to a solutions provider, whether that be the managed accounts idea or partnering with the rest of the firm to develop our multi-product offerings. Stepping back from the individual areas, I wanted to talk about some of the longer-term strengths of Man's business model. We have material performance fee earning capability across our different business lines, and we expect these to generate significant profits over time.
The fees are variable year to year. They are a valuable earning stream for our shareholders over time. If you look at the last five years, our average performance fee revenue has been just over $200 million per annum, with average performance fee profits of around $130 million. Within a five-year period, we will have high performance earning years, as we had in 2014 and 2015, and we will have low performance fee earning years, as we had this year. Ultimately, we believe that over a cycle, the business will generate significant performance fees. The work we've been doing over the past years to build deep client relationships is paying off in the core business.
If we look at the cumulative net inflows over the past three years, you'll see that our core business, so excluding the guaranteed products, has generated $6.8 billion of net inflows over that time. Our flows can vary significantly from quarter to quarter, but we see good underlying growth over the course of the three years in those core areas. If we continue to develop innovative strategies that perform for clients, we're confident that we can be rewarded with further inflows over time. Let's look at the history of capital management. Since the current dividend policy was implemented in 2013, we've returned over $1 billion to shareholders through dividends and buybacks. In addition to capital returns, we believe we know how to add value from acquisitions.
We're very conscious of the risks with acquisitions. We think that the right discipline and the right execution can mitigate those risks. We believe in treating acquisitions as a process. We've met literally hundreds of businesses over the past four years to source the few potential investment opportunities that we've gone through with. We structured our recent acquisitions to reduce the downside risk for the firm and ensure that the majority of the consideration is paid only when the performance of the business is strong over the time we own it. Of the seven acquisitions we've completed over the past four years, including Aalto in January, an average of only 18% of the maximum consideration was actually paid up front. Once a deal closes, we aim to integrate it rapidly into the firm so we can support its growth.
We're happy, for example, with the growth within Numeric since it became part of Man, with over 50% of the inflows coming since then from traditional Man client relationships rather than pre-existing Numeric relationships. We think that's a testament to the quality of the relationships and the ability for clients to want to cross-buy. At year-end, Numeric's FUM was a little over GBP 23 billion, compared with a little over GBP 15 billion when we bought it. Our shared infrastructure means that we can take on businesses with limited extra cost, targeting simply taking on the investment management teams and immediately integrating all support and client service with marginal cost in our existing infrastructure. Our ability to generate significant performance fees over time has provided strong cash returns to our shareholders over the past four years. It has given us the flexibility to invest in these acquisitions.
Finally, before we open it up for questions, I just wanted to take stock a little on 2016 and touch on our outlook for 2017. 2016 was a difficult year for businesses such as ours. The fact it was a tough year is reflected in the material drop in performance fees and in the goodwill impairment you've seen. To me, it's really important, we've made real progress as we complete the transition of our business away from the legacy model to the core one that Man Group is today. We delivered positive net flows in a year when the industry saw outflows. We have material positive alpha across our long-only clients in a year when it's become very fashionable to question active management full stop. Our performance fee-earning funds are mostly at or within 5% of high-water mark as we enter 2017.
Looking ahead, we've come into the year with a good pipeline of interest from clients. As ever, the timing of any investments remains uncertain and performance dependent. As I mentioned, if we continue to see lower cross-market correlations and higher stock dispersion, as we've seen since the election, these should provide a better environment for alpha generation, therefore, for our business. Our focus in 2017 is on the things we can control. They're the long-term drivers of our success, the commitment and creativity of our investment teams that drive the performance, building deeper, meaningful client relationships, investing in our talent and our technology, remaining disciplined on costs and capital allocation. With that, we'll open it up to questions. Thank you, everybody. I thought John was going with the first question then. Go. Sorry.
By the way, I'm terrible at names. I'm going to point to people just so that I don't pick the wrong name for the wrong person.
Morning. It's Anil Sharma from Morgan Stanley. Just a few questions, please. Firstly on research on bundling, a lot of your competitors have come out in the last few weeks and months saying that they're going to, A, take it on their P&L, and B, trying to quantify the expense. I just wondered if you'd give an update as to what Man Group's position is. Secondly, in terms of the slide, one of your end ones there, slide 22, with the FRM assets. If I add the last two bars, so the .9 and the other 3 point something, are those the assets that are the legacy ones that we should think of are potentially in runoff? And if so, what's the revenue margins on those?
The final question is in terms of the comments you're making around the pipeline and client appetite. I think you mentioned post-Trump, there was a delay in decision making. Have we seen a reversal of that? Or are you indicating that that's continued into the start of this year? Thanks.
Cool. Do you want to take the first one? I'll take the other two.
Sure. On the research on bundling. Historically, we've always managed the spend for clients in a very structured way, so we're clearly looking to provide cost-effective research for them within the funds. They come in through due diligence exercises. They review the process that we go through, the budgeting that we go through, and they've always approved of that process. Our view is that clients want you to spend the right amount of money on research, not the minimum amount of money on research. If you've seen the consultation paper from the FCA in September, they talk about something called a research payment account, RPA, which is effectively a new process for managing the spend on behalf of clients from funds. We think the consensus position, certainly from our client base and across much of the city, will be to move towards that process.
There's a lot of work going on here and in the buildings around here to get ready for that implementation. That's the process that we expect to go through on the equity research side. We're not expecting on the equity research side to move significant costs onto our P&L. We think that's something that our clients are comfortable with. Clearly, we need to go through the implementation process in 2017.
On the FRM question, having found the slide. There's a bar which is almost invisible at the top, which is the guarantee products, which is sort of tiny at this point and is disappearing rapidly. Then it's particularly the diversified fund to hedge funds. The GBP 3.6, which is the one that we see the pressure on. On the pipeline, we don't say what our next quarter performance is until we get through it. It's not just that I don't have a French accent, that we use different tone in terms of what we're saying today compared to previously. If that helps.
Thank you. Good morning. It's Chris Turner from Goldman Sachs. Just two questions, if I may. The first on regulatory capital, which you signaled is going to be a review. You're going to announce a new figure in Q4. Given that some of your peers have reported some fairly sizable increases there, how should we think about that? Is that the kind of magnitude you're thinking about? What kind of impact does that have on your distribution policy, your M&A policy, maybe even your seed capital flexibility there? Then the second question on GLG, the rollout of additional sort of quants tools in that team there. One of the features of GLG historically has been a higher compensation ratio versus the more quant parts of Man.
Is that a factor we should think about medium, long-term, one of the benefits of this rollout of the quant tools? Thanks.
Maybe on the regulatory capital side. As we say, we're making the submission during the course of this year. We'd expect the FCA to respond to that towards the back end of the year. In the ordinary course of business, we'd actually update you basically in a year's time here, in 2018. 2017, sorry. We're not expecting particularly any dramatic change. There's clearly a number of items that are under discussion. There's been some comments around insurance. I would say in relation to insurance, we purchase insurance to protect the capital of the firm. Like the actual capital of the firm. We don't purchase it for regulatory capital purposes. We'll put submission in, including the insurance to the FCA. They will determine how they want to treat that. I think there's also been some commentary around the seed capital side in relation to reg cap.
We've always had a balance sheet. We've always had credit and market risk as components of our ICAP submissions. We'll be doing that this time in the same way we have the time before and the time before that. We're not aware of any dramatic changes. There's clearly been a general direction of travel of higher regulatory capital requirements from the FCA, but we really can't comment on the specifics until we go through it with them.
I think the last bit just on the reg cap. If you look at our reg cap as a percentage of assets relative to some of the other people's, you could see we're pretty conservatively provisioned to start. Just on your GLG question. Look, we're not trying to make GLG into a quant business. We have two very high quality quant businesses in Numeric and AHL. What we're trying to do is to use tools developed elsewhere and technology developed elsewhere to make GLG a better discretionary business. I think where that particularly can help is in delivering more consistent performance to clients. In the end, the big challenge on compensation at GLG has been where clients haven't received a return, but people have got paid.
The best way to deal with that problem is to make sure the clients get a return and therefore we earn a performance fee, and then people are getting paid out of that. Sorry, these chairs at the front are very low compared to So I can't see who got the microphone.
Thank you. It's Philip Middleton at Merrill's. That's the best way to view me. I just wondered, could you say a little bit about, firstly, capacity. Where are you in capacity, particularly on the funds that are selling well at the moment, so some of the Numeric funds, some of the AHL funds. Secondly, more generally, in terms of product development, you've talked about what's worked this year. What are you excited about for 2017?
Sure. One of the great things of the way the firm works is that when we have capacity and a high-quality strategy, the sales force is extremely good at getting clients to take that capacity up. As I said, we're big believers in active management, and if you believe in active management, I believe you have to cap the capacity of any particular strategy. Otherwise, it's not really active management. It becomes a factor bet of some sort. We are disciplined about shutting funds. Whenever we have a good fund, sales is very disciplined about raising all the money to get to the cap. Equally, we spend a lot of time and effort on generating new capacity. I mentioned the fact that we've increased the capacity in Evolution.
It's not because we're trying to push more through the same -buckets is that we found extra things to put into Evolution that increases the capacity. We've done that continuously in a range of different places. Today at Numeric, there's a decent amount of capacity, but the Emerging Market Core Strategy, which has been a tremendous performer, is definitely at capacity. Similarly, within AHL, there is reasonable amounts of capacity, but we have probably GBP 1 billion left to go in Dimension, for instance. We're constantly working on building out new products and capabilities. I'm always nervous of picking something we're excited about, because the answer is, when things work, clients get very excited about them, and when they don't work, when you launch a new fund, it can be quite a long time till you get the inflows.
The early performance on new funds is remarkably important to the speed with which the flows come in. The Emerging Market Debt Strategy had a very good performance in the first six months, avoided the Trump problem in November that hit a lot of emerging market funds. It's easy to feel confident about asset raising there. We are spending a lot of money and effort on research at both AHL and Numeric on developing new ideas, new strategies, and the bit when we talked about machine learning is clearly an area where we think we can generate some very differentiated ideas.
Institutional Solutions.
Sorry, Sandy reminded me. This bit of Institutional Solutions within AHL is a very good way we found of getting clients to look at not just the well-known strategies, but some of the other strategies that fit well into a portfolio. We found it a good way of selling some of the less on-the-run strategies, and we're now expanding that same idea into offering Man Solutions. Sorry. Solutions gets massively overused in the finance industry. Bespoke client portfolios where they get to pick strategies out of different things we do at Man and put that together into a single product for them. That's clearly very attractive to clients, and also buys them into the asset allocation problem. It's much stickier assets, we think, over time.
Good morning. It's Arnaud Giblat from Exane. 3 questions, please. Firstly, could you come back on AHL? I was wondering if you could give a bit more color around the pricing on gross inflows you're seeing on the front book and any redemptions you're seeing. At what pricing are those redemptions coming out? Secondly, on regulatory capital, if I could just come back to that. Could you envisage, for instance, spending a sizable amount of that surplus capital before going through the FCA review, say, an acquisition north of GBP 100 million of regulatory capital spend? Finally, in terms of the outflows, you mentioned you closed a few strategies at GLG. Have you seen any outflows as a consequence? If anything, is that behind us now? Thank you.
If I take the outflows point while Mark thinks about the way to answer the other two. Again, I know it sounds like a boring record, but I would caution people not to read too much into any one quarter of flows. The bit of that slide of trying to talk about the roughly 20% that came from the top X of investments, that's 20 individual tickets. If you think that over the course of the year, we had GBP 20 billion-plus of gross inflows, you could see that we get a lot of big tickets, both on the way in and some on the way out. A billion GBP can move from one quarter to another by just the timing of when somebody fills in a form. We did see some outflows in some of the things we closed.
The reason we closed them was that we didn't think that they were generating sufficiently good returns for clients. We didn't have sufficient confidence in them looking forward, and I would much rather shut a fund if we don't believe it's going to deliver alpha to the client than wait for the last client to turn the lights out.
On Man AHL, I think it really ties into the point that Luke was making earlier around Man AHL isn't just one product anymore, it's a diversified set of different products within it. The move that you see in the margin through the back half of the last year is really a slight reduction on the AHL Diversified fund within that, which is higher fee in general. If you look forward, we're talking about AHL Evolution opening up half a billion dollars of extra capacity. That's going to be above the average margin within Man AHL. Clearly, there's some other products where there's more aggressive price competition. There's a lower price point. I wouldn't read, aside from the fact that there's still within Man AHL, some higher fee product within diversified. I wouldn't read a huge amount into the moves through the second half.
On a forward-looking basis where you have strong product, we still price it 2 and 20 across the board and clients are still happy to pay it. In terms of regulatory capital, look, we're clearly going through the process with the FCA this year. We're conscious that there's some uncertainty around that, we've got a significant amount of excess regulatory capital today, also we've got a pretty significant regulatory capital requirement. While we'll take that into account, we don't think it's something that limits our flexibility unduly on acquisitions. If we were looking at something very large, clearly at some point it does, not at the sort of size that we tend to focus on.
Really have to get a taller chair for next time.
Hi, it's Haley Tam from Citigroup. Two questions, please. First question, obviously you have talked about the fact that your business is becoming much more institutional in nature. Can you tell us how important you think a three-year investment performance track record is for those institutions? I guess in particular here I'm thinking about the fact that some AHL strategies had a very good 12-month final performance from April 2014. The second question, if we can try and crack an egg in three different ways. Regulatory capital again. Obviously, you have got a $325 million surplus over a $294 million requirement. I think my interpretation of what you're saying is, obviously whilst you wouldn't want to say, because you're quite cautious, you probably don't expect that requirement to go up too much this year.
Given what you said also about quite a good performance fee outlook for this year, can we expect you to do anything outside the normal framework of waiting 12 months to hear about what you plan to do with it? Thank you.
The last one. Luckily, you saved yourself with the last bit of the question. In terms of what we've tried to say is we look at the position on regulatory capital on an ongoing basis. It's not a once a year exercise. It's a conversation we have all the time in terms of understanding what we think we need, what we think the prospects on the acquisition side are, what we think the opportunity to do a buyback is, et cetera. It's not a once a year exercise. It's a continuous process. That at least gives you a slightly different answer than the previous one. Saved Mark saying the same thing. Leslie?
You saw that clearly in the fact that we announced the buyback at the same time as the Q3 results. This isn't the annual board meeting to discuss capital allocation. It's a live process through the course of the year.
In terms of the three-year track records for institutional investors. Long track records are clearly much easier to sell than short track records, that's absolutely right. Brand and reputation matters a lot in the institutional market. I think one of the things that we are very proud of is We track a competitor set for AHL, and if you look at the three-year Sharpe ratio, and in the quant business, Sharpe ratios, I know Pete Buffett or whoever likes to say you can't eat a Sharpe ratio. In a quant business where you can leverage very easily, a Sharpe ratio really matters. The three-year Sharpe ratio, when we ranked a set of what we consider the competitors, Evolution was, not surprisingly, top of the chart in terms of Sharpe ratio.
Interestingly, I'm trying to remember which way around it was, I think Alpha was second and Dimension was third, out of a list of 20 competitors on a three-year basis. Even though performance naturally in those businesses will be episodic, we think on a relative basis that we really have made a big difference to the way AHL works over the last few years, and that it does deliver a very strong offering within that market.
Good morning. Daniel Garrard from Barclays. A couple of questions from me. I think you're very clear of the reduction in average management fee margin mainly came from product mix effect, but you did mention there were some product specific price reductions. I wonder if you'd give some more color on that and what is the outlook for potentially further action on that front. Second question is on costs. The GBP 20 million rationalization that you mentioned. I wonder if you'd give us an idea of the sort of timeline that went through your head when you formulated those areas where you were looking to rationalize. I missed the detail, I'm afraid, around how much of that impacted the 2016 P&L. If you could just clarify for that, and sort of what conditions might cause you to rethink or relook at that rationalization program. Thank you.
How do we do that one? I guess I'll say a philosophical comment on costs and then Mark can say a specific one. Sorry. It's much better that I leave the specifics to Mark. I think there's two things that I believe strongly in. The first is that you have to look at costs on a continuous basis. I used to use a quote to do with British Cycling but given that maybe it turns out it wasn't all about continuous improvement and marginal gains, it was about drugs. That's not such a good thing anymore. We believe, I believe very strongly in continuous improvement and marginal gains, we keep and will keep looking at the cost base to look at anything where we're not getting value out of the money we're spending.
I think the second bit is, which was important in the cost exercise and was important in the management change we went through in the year, that I am a big believer in the benefits of promoting people up internally. That the process of hiring people with big CVs and big salaries is often disappointing. The process where you give opportunities to people internally to step up is often incredibly rewarding. It's both good for the culture, and it's good for the outcomes, and it's also good for the cost base. If you get somebody to step up and take on responsibility, that tends to be cheaper than having somebody doing something that's not delivering the value you want from it.
Yeah. Then just on a couple of the specifics. The fixed cash costs overall are $11 million lower than guidance in 2016, significantly as a result of the restructuring exercise. You'll see a bit more of that is in the non-comp line. That's because we've effectively done trade-offs between the staff costs and the non-comp costs as part of that exercise. In terms of the margins, your first question, that was fairly across the board, across most of the products, just making some small adjustments around price competitiveness. It's not something that we're intending to re-look at in the near term.
Hi, good morning. It's Kian Abouhossein from J.P. Morgan. In terms of the compensation within the performance fees and gains on investments, that's quite a high number. I know it obviously is dependent on how much performance is coming from AHL. If I take out the gains, and it's getting close to 100% of compensation, I know, again. Could you perhaps explain why it is such a large number with any sort of exceptionals in there?
Sure. On the comp ratio and performance fees in particular, there's a couple of underlying business drivers, then there's a couple of accounting issues which sort of add to the ratio. On the business drivers, firstly, as we said, when we have lower absolute fees, you're going to expect us to be at the higher end of the overall comp ratio range, we're at 48% for the year, that's going to disproportionately affect the performance fee ratio in particular. The other point is clearly the $14 million in relation to gross profits within the GLG side rather than performance fee revenue. That's clearly inflating the ratio as a genuine business driver. The two accounting issues are, this is a lower performance fee year following on from two higher performance fee earning years.
You're getting a bit of the prior year deferral effect inflating the ratio. To the point around just looking at the performance fees, that's a slightly unfair way to focus on it because of the way the consolidation of funds works. Where we're invested in a fund, effectively all of the P&L of that fund comes onto the investment gains line. Embedded within that are performance fees relating both to clients and to our seed investment. I think if you look at those sort of collectively, hopefully that makes the ratio a little bit clearer.
Good morning. It's Peter De Leonardis from RBC. A quick question. You indicated the business is becoming increasingly institutional. Is there any focus or hope for a return of the retail investor into your FUM, or is it solely institutional focus going forward? Thanks.
I had slightly quirky words for it earlier. We are doing new business with retail, but we're doing it through partnerships with essentially large banks. The sales process, if you're doing business with RBC Private Wealth Management, the sales process is an institutional sales process, even if the clients at the other end are high net worth or retail. We don't do any direct retail sales. No, I don't expect to do that. That's not in the plans anywhere. If that makes sense. I'm quite happy to pay a partner. They have the relationships, and they deal with all of the complications of dealing with retail investors, which honestly, we'd have a different cost base if we dealt with retail investors, and I'd rather not. Cool. Well, thank you, everybody.
Thank you.
See you in a bit.