Good morning, ladies and gentlemen, and thank you for joining us. As usual, and for one last time, I'm going to start today by giving you a brief introduction. Jonathan will then take you through the numbers in detail. I will come back to talk about performance, business development, distribution, and our outlook. We will then open up for questions. The market environment for the first six months of 2016 has been particularly challenging for the global investment management industry. The volatile markets in the first quarter benefited AHL momentum strategies, which made good return in January and February, but these gains were largely given back in the second quarter when markets reversed. The recent volatility post the Brexit vote benefited AHL but created a difficult environment for our discretionary strategies.
Flows were positive in the half, with net inflows of GBP 1 billion, with consistent flows quarter-on-quarter. We saw strong institutional flows into our quant strategies, flows from FRM from previously awarded infrastructure mandates, and solid flows from Numeric into the emerging market strategy. Investors' appetite remained muted for GLG, with net outflow both for alternative and long-only. Funds under management decreased by 3% to $76.4 billion at the 30th of June 2016. Adjusted profit before tax decreased by 65% compared to the first half of 2015, primarily due to an 80% decline in performance fee revenue when compared to a strong first half last year. Adjusted management fee profit before tax of GBP 90 million was down 17% compared to last year.
In line with our dividend policy, we will be paying an interim dividend equating to adjusted net management fee earnings per share of GBP 0.045 or GBP 0.0343 per share, payable in August. I will hand over to Jonathan to take you through the numbers in more detail.
Thank you, Manny. Good morning. Let's start off by looking at the movement in funds under management during the first half of 2016. Net flows were GBP 1 billion for the half. Gross sales were GBP 9.8 billion, down 7% compared to the first half of 2015, largely as a result of lower GLG sales. Gross sales for the quant alternative strategies increased by 33% to GBP 3.6 billion as a result of strong flows into AHL's range of strategies. As you can see from the box showing the breakdown of quarterly sales and redemptions, a significant portion of our flows continue to be made up of larger mandates from institutional clients with GBP 3.9 billion in sales from 19 mandates of over GBP 100 million.
The larger institutional sales during the half included 10 mandates totaling $2.1 billion into AHL's range of strategies, $2.7 billion from FRM from previously awarded infrastructure managed account mandates, $2.3 billion for FRM in bespoke mandates, and six mandates totaling $2.7 billion for Numeric. We expect this trend to continue as large institutional clients continue to put more money to work with tier providers. Redemptions were $8.8 billion in H1 2016, 33% lower than last year. Notwithstanding the uncertain macro environment, we would hope to see our redemption rate decline over time as our assets and client base become increasingly more institutional in nature. In 2015 and H1 2016, we had an average redemption rate of around 23% for our institutional assets. Retail assets, of course, generally have higher average gross redemption rates.
When looked at in terms of net flows, our average net flow rate in retail assets in 2015 and H1 2016 was broadly flat. During the first half of 2016, investment performance across our four managers decreased funds under management by $2.2 billion, reflecting mixed results across our discretionary alternatives and long-only strategies. Manny will talk about performance in more detail later on. Man Group's functional currency is US dollars, and funds under management are reported in dollars. During the first six months of the year, the weakening of the US dollar increased funds under management by $300 million, of which $1.1 billion related to the Japanese yen, $1 billion to the euro, and $1 billion to the Australian dollar, partially offset by the strengthening of the dollar against sterling of $1 billion.
At the 30th of June 2016, around 11%, or $8.2 billion of fund was denominated in sterling, which is a good proxy for the percentage of our revenue that is denominated in sterling. I will explain how changes in the sterling-to-dollar exchange rate impacts our P&L later in the presentation. The detailed breakdown of our fund by currency is set out on page 33 of the appendix. The negative movements of $1.4 billion in the other category relate to investment exposure movements for quant and fund of funds alternatives of $0.7 billion, where leverage has changed during the period. Guaranteed products and CLO maturities of $0.4 billion and $0.2 billion respectively, and guaranteed product de-gearing of $100 million. We have included further detail on the anticipated schedule of Pembroke, Ore Hill, and Silvermine CLO maturities in the appendix to the presentation.
For the gearing of the remaining guaranteed products, the rule of thumb at current levels of market exposure is that every one percentage point of positive AHL performance results in a re-gear of $12.5 million, while every one percentage point of negative AHL performance results in a $25 million de-gear. Please be aware, however, that with guaranteed product fund at such a low level, there are a number of other variables which could impact this. The profile of guaranteed product maturities is detailed on slide 31 of the appendix. As you'll see, by the end of 2017, guaranteed products funds under management will stand at around $600 million before any further redemptions in the course of this year. The next slide gives a breakdown of gross and net management fee margins. In aggregate, our total gross margin has decreased from 106 basis points to 99 basis points compared to 2015.
Our total net margin has decreased from 96 basis points to 89 basis points over the same period. As always, to meaningfully assess our margin trends as a business, it is best to look at movements within each product category. The quant alternatives gross and net margin reduced by 15 basis points and 14 basis points respectively, compared to the year end of the 31st of December 2015. This was due to the full year impact of the large institutional mandates won during 2015, and those won in the first half of this year, which are at a lower margin. The run rate net margin at the 30th of June 2016, adjusting for the impact of the large AHL institutional mandates won in the first half of this year, is 135 basis points.
Looking forward, we would expect the mix shift towards institutional money to continue, hence we would expect the overall margin to decline further. Gross and net margins in the discretionary alternatives category were reasonably consistent, both two basis points lower compared to the prior year. The run rate net margin is also at a consistent level, with a net margin of 95 basis points at the 30th of June 2016. The gross and net margins in the alternatives fund of funds category both decreased by 10 basis points in the period due to the continued mix shift towards managed account mandates. The run rate net margin at the 30th of June 2016 in this category is 70 basis points, we would expect this margin to decline further over time as this mix shift continues. Can't make it up.
management team. We may not be the best, but we are by far the nicest. I'm being pushed on the side. The long-only quant gross and net margin remained reasonably stable compared to 2015 at 35 basis points, with the run rate gross and net margin at 36 basis points. Gross and net margins in the discretionary long-only category also remained broadly stable. Our performance fee margins are included on pages 34 and 35 in the appendix to the presentation. AHL earns 18%-20% in performance fees for any performance net of management fees in relation to about 90% of their funds under management. GLG earns 15%-20% in performance fees on around 39% of their fund, FRM earns 5%-10% on about 17% of their fund.
Numeric earns performance fees on any positive alpha they generate on around 35% of their funds under management at a rate of around 30% for alternatives and 12% over the benchmark for long only. The guaranteed product gross and net margin decreased by 12 basis points and 45 basis points respectively, compared to the year end of the 31st of December 2015, due to the maturity of higher margin products during the period. The run rate gross margin has increased to 525 basis points, but the net margin has decreased to 411 basis points due to the full year impact of the maturities for products with a lower gross margin and a higher net margin. Let's look at net revenues in more detail.
Gross management fee revenues has declined by 10% compared to H1 2015 due to lower average funds under management levels as a result of negative performance, as well as the decline in the blended management fee margins. Net management fee revenue has declined by 12% to $347 million, primarily due to the run-off of the guaranteed product assets. Excluding guaranteed products, net management fees have declined by $19 million or 6%. External distribution costs were reasonably consistent with the prior period, despite the decrease in management fee revenues due to the release of $5 million of commission provisions last half-year, which were no longer required. The best way to model external distribution costs is to model gross and net revenues using the margins we provide, with the difference between the two attributable to external distribution costs.
Gross performance fees were $40 million for the period, with $35 million coming from AHL, $2 million from Numeric, $2 million from FRM, and $1 million from GLG. The majority of AHL's performance fees were earned from Evolution, where performance fees crystallize annually in June. As at the end of June, 41% of AHL open-ended AUM, or $6.9 billion, was at high water mark. AHL's weighted average distance from high water mark for open-ended AUM was 4%. For GLG, around 65% or $6.6 billion of the performance fee eligible AUM crystallizes semi-annually and around 35% or $3.6 billion crystallizes annually in December. Due to mixed absolute performance for the half for GLG, $1 million of performance fee revenue was generated in the period.
As at the end of June, 3% of GLG's performance fee eligible assets or $0.3 billion were at high water mark and 44% or $4.5 billion were within 5%. Numeric had $2 million of performance fees in the half from their US large cap and Market Neutral strategies. The majority of Numeric's performance fees crystallize annually in November. FRM had $2 million of performance fees across a range of products, and we've included additional detail on pages 34 and 35 to assist with modeling performance fees going forward. Finally, investment gains were $2 million for the period, which relate to small gains on our less liquid investments of $21 million and revenue from our seeding investment book of $469 million.
There was no income from associates in the half as Nafila are investing heavily in their operational infrastructure. You should assume a minimal level of run rate income in the near to medium term. Moving on to costs. This slide gives a more detailed breakdown of movements period on period. Compensation costs for the first half of 2016 were $186 million compared to $231 million in H1 2015, a decrease of $45 million. Within this, fixed compensation costs were $91 million compared to $86 million in H1 '15, with the increase being due to higher fixed compensation costs from new talent hired to grow the business and salary increases. The impact of a one-off pension credit of $3 million in H1 of '15. This is partially offset by savings from a more favorable sterling FX rate.
Fixed compensation costs will be higher in the second half of 2016, bringing the full year costs more in line with the guidance we gave you of $185 million due to the inclusion of new hires as we continue to invest in the business. Variable compensation costs were $95 million for the period, made up of $65 million of management fee related variable compensation and $30 million of performance fee related variable compensation. The management and performance fee variable compensation decreased by 34% versus a 38% decrease in overall net revenue, resulting in a higher total compensation ratio. This is primarily driven by the impact of deferrals from prior years, which reduced the prior year charge and increased the current years by $4 million, and the relatively high compensation ratios paid at lower levels of performance fees relative to prior years.
We have said previously, we expect the total compensation to net revenue ratio to be in the range of 40%-50%, depending on the mix and level of revenues. In years where the mix is more skewed towards GLG, the ratio will be at the higher end of the range. In years where the mix of revenues is more skewed towards AHL and we have material gains on investments, the ratio will be at the lower end of the range, as we had in 2014. Likewise, when performance fee revenues are lower, as they are in this period, the ratio will be at the higher end of the range, and vice versa.
With regard to GLG compensation for our trader model where PMs are paid on gross profits, therefore we are subject to netting risk across different books, we may bear some cost at year-end, even in the absence of performance fees, as was the case last year. At the half year, accrued but not crystallized netting risk stood at $6 million, you should monitor performance accordingly in the second half. Other cash costs of $76 million were lower than the first half of 2015 due to a more favorable sterling FX rate. Other cash costs will be higher in the second half of 2016, again, more in line with the guidance we gave you for the full year of $160 million as we continue to grow the business and manage regulatory change.
We explained in February, our CapEx is increasing and is expected to be $40 million to $50 million over the next two to three years as we carry out a number of technology-related projects. We've included guidance on capital spend and depreciation and amortization for the next two years in the appendix on page 38. Asset servicing costs for the year were $17 million, which is slightly higher as a percentage of average fund compared to previous periods due to the reclassification of certain asset servicing-related costs that have historically been included in other costs. There are no asset servicing costs associated with Numeric's assets because the majority of their business is in managed accounts.
For the rest of the business, the costs work out at around five to six basis points on average fund, albeit this figure can vary. Adjusted earnings per share for H1 2016 were down 65% to $0.049 per share. Adjusted management fee earnings per share, the basis for the dividend, which Manny set out earlier, were $0.045. The estimated effective tax rate on adjusted profits was 15% for the half, higher than the effective tax rates for 2015 of 10% due to a change in the geographical mix of our profits and the release of $14 million of tax provisions in 2015 that were no longer required.
As in 2015, the underlying rate in 2016 of 15% is lower than the underlying rate in previous periods, such as 2014, due to a lower U.K. tax rate and a higher proportion of profits earned in the U.S., where we are paying a minimal level of tax. As we have previously explained, as at the 31st of December 2015, we had around $225 million of U.S. tax losses, which we can offset against future profits from U.S. entities. In addition, as of the end of last year, we had around $537 million of tax amortization of goodwill and intangibles, predominantly relating to the Numeric and Ore Hill acquisitions, which will be amortized in the U.S. over 15 years and which will reduce the U.S. taxable profits in future periods. To finish off, let's look at our capital position.
Our balance sheet remains strong and liquid with net tangible assets of around $700 million or $0.42 per share as of the 30th of June 2016. As we have previously explained, we have increased the capacity of our seed capital program to help grow the business as we launch new products over time. The book is sized in accordance with a VaR limit of $75 million and in total stood at $514 million at the half year. We expect the aggregate size of the book could reach up to around $700 million but will continue to be managed within the VaR limits and according to business needs. Primarily due to the length of time we've held them. The reconciliation of how these are presented in the group's balance sheet is included on page 48 of the appendix.
In June, we renegotiated the maturity date of our revolving credit facility of $1 billion, extending the maturity to 2021 with one further one-year extension option. The facility remains available and undrawn. The group's credit rating from Fitch was also maintained in the period at BBB+. Surplus capital at the 30th of June 2016 was $479 million, with the increase from the 31st of December position of $453 million being due to the inclusion of the second-half profits once they had been verified and the receipt of year-end performance fees. This was partially offset by the payment of the year-end dividend and an increase in the reg cap requirement from increased levels of seeding investments.
Surplus capital is around $470 million pro forma after taking into account the impact of interim profits and reserve movements, which are not included in the 30th of June figure until they've been verified, of course, the payment of the interim dividend. With that, I will turn over to Manny.
Let's start talking about AHL. AHL had a good performance on a relative basis, but more varied on an absolute basis in the first half of 2016. AHL momentum-based strategies had a strong start to the year, where they were well-positioned for the volatility in equity and credit markets, with long fixed income and short commodity position. Returns were impacted in the second quarter, however, by the subsequent reversal in a variety of asset classes, notably equities and energy markets, causing losses to AHL Diversified Programme. These losses were partially offset by gains in the final week of June after the Brexit vote, with AHL positioned well with long-term income and good position. AHL Diversified ended down 0.9% for the first half, with alpha up 0.6% and Dimension up 0.1%. AHL non-traditional trend following strategy, Evolution performed better with 5.4%.
AHL US 40 Act strategy was up 1.9%, with inflows of GBP 400 million in the period. AHL continued to make good progress in innovating and building a more diversified business. In the first half of 2016, AHL launched the AHL Institutional Solutions offering, which provides bespoke solutions for institutional clients, allowing flexible combination of AHL different strategies. During the first half of 2016, GBP 600 million of assets were raised, there continued to be good interest from AHL institutional client base, particularly in the U.S. AHL multi-strategy product Dimension continued to grow, with sales of GBP 400 million in the period. There is still further capacity in the strategy to sell in the remainder of the year and beyond. AHL's business in China is also progressing, with assets doubling during the period to GBP 200 million, with good interest from clients.
We expect live trading by year-end, to open the strategy to external investors during the course of 2017. Evolution Frontier, which was launched in mid-2015 and applied AHL core momentum model to an innovative set of markets, continued to progress well, with GBP 200 million in assets as of the 30th of June 2016. Numeric continued to grow assets during the first six months of the year, with total Numeric funds of GBP 19.7 billion as of the 30th of June 2016. From a performance perspective, Numeric had a challenging first half, with asset-weighted underperformance relative to benchmark of around 210 basis points, performance of around 230 basis points after fee. Numeric business is now well integrated into the Man Group platform, they continue to benefit from the firm's relationship with institutions around the world.
Numeric continued to launch new commingled vehicles, leveraging Man Group resource and expertise, including the new emerging market core Cayman-based fund, launched in the first quarter of 2016, with $200 million of sales in the first half of 2016 to complement Numeric legacy emerging market funds launched in 2010. The sales during the period bring Numeric's overall emerging market strategies close to capacity. The Numeric UCITS products launched in June 2015 continue to grow, with over $400 million in assets as of the 30th of June 2016. Additionally, Numeric launched its US Amplified Core strategy on the 1st of July, a new fund based on its existing S&P 500 130/30 strategy, which had good initial interest from clients. Let's now move on to GLG. GLG had a challenging first half with mixed performance and net outflows across a range of alternative and long-only strategies.
This is in the context of the toughest half for hedge funds since 2008. In alternative, the European long-short strategy was down 5% for the period, in a difficult period for equity market neutral strategies generally. The stronger performing funds include Market Neutral, which was up 1%, outperforming the HFRX RV: Multi-Strategy Index by 3.5%. The Man GLG European Mid-Cap Equity Alternative, launched in April 2015, continued to perform well, up 7.7% since inception and up 0.6% for the first six months to the 30th of June 2016, outperforming the HFRX Equity Hedge Index by 4.5% for the period. The Man GLG Japan CoreAlpha Fund, run by Steve Harker and the team, was reopened for investment in May 2015 due to capacity becoming available.
That has underperformed its benchmark by 8% in the first half of 2016, Down 27%, and the Russell/Nomura large-cap value index by 1.5%, which more closely reflects the fund's investment style. The Man GLG Japan CoreAlpha Fund had net outflows of $1.2 billion for the half. Recent hires continue to make progress. The unconstrained emerging market funds strategy has performed well since launch in Q3 2015, up 6.1% for the first half of 2016. The undervalue asset strategy continued to raise assets and now has funds of around $600 million as of 30th of June 2016. The continental Europe equity strategy was up 4.4% and raised $300 million during the first six months of the year. Our better-performing long-only strategies, including the strategic bond strategy, which was up 2.7%. We continue to attract talent to broaden out our discretionary product offerings.
In January, we hired Guillermo Osorio from HSBC to run an emerging market debt strategy. Guillermo's new funds were launched in May and June, raising $200 million in assets in the period, with very good initial interest from clients. Lastly, let us now move on to FRM. FRM products had mixed performance in the first six months of the year. Our actively managed diversified portfolio, with exposure across strategies, FRM Diversified II, had negative performance of 4.8%, underperforming its benchmark by 3.2%. As you can see from the charts showing the split of assets, we continue to raise assets and make progress in our infrastructure and direct access managed account offering.
In Q4 2015 and Q1 2016, we raised $2.5 billion from the previously awarded large U.S. state pension plan mandate, and the large institutional infrastructure mandate we won in late 2014 has started to fund, with $300 million received during this period and the remainder expected to fund over the next 12 months to bring the mandate to around $1 billion. In the first half of 2016, we confirmed an additional institutional managed account mandate for around $750 million from an existing client, which is expected to come in gradually over the next 12 to 18 months. FRM traditional fund of fund assets are continuing to decline over time as investor appetite for this product become more subdued, particularly in Japan. At the 30th of June 2016, around 65% of FRM assets were in traditional fund of funds, and this is expected to decline further over time.
FRM, first and foremost, continues to focus on being a solution provider to investors, providing bespoke mandates to suit the needs of institutional clients. At the 30th of June 2016, FRM had $3 billion of assets for segregated portfolio for the institutional client base. Let's now look at distribution. EMEA continued to be our biggest market, with sales from this region comprising 47% of the total in the six months to June 30th, 2016. The Americas now accounts for a greater percentage of our sales, with a 33% contribution in the first half. In the Middle East, our strong relationship with sovereign wealth funds continue to present good opportunities. In the U.K., relationship with local authorities continued to be strong, and in Europe, we have good institutional interest for AHL Numeric as well as GLG Emerging Market Debt Fund launched in June, I just mentioned.
The Americas continue to be an area of growth from an asset raising perspective, with 33% of $3.2 billion of sales in the region in the period, up from 21% in the first half of 2015. 15 new institutional client relationships were added in the period, and a number of existing clients invested into new strategies. North America remains a key area of focus for us given the size of the opportunity there, and we now have 37% of our fund managed from North America and 27% of fund run for clients domiciled there. Recent hires on the investment side and the launch of GLG Emerging Market Debt Fund in particular will continue to help grow assets and improve our brand recognition in the region. In the wealth management area, our strategic relationship are developing, with $400 million raised in AHL US 40 Act strategy during the period.
Interest in AHL continued to be strong, with around $1.5 billion of AHL product sold to U.S. clients during the period. Sales in the Asia Pacific region comprise 20% of total sales, with $2 billion of sales during the period, up from 19% in the first half of 2015. The opportunity in this region continued to be mainly in Australia, where we are targeting superannuation and public investment corporation, and in Japan, where we continue to develop our relationship with SMTB and focus on the top pension fund. China is continuing to grow, mainly in AHL, with $100 million of assets raised in the first half of 2016. Let's now look at cost of balance sheet and capital and business development. Our focus remains on efficiency and ensuring that our cost base enable us to utilize both the opportunity and risk in our business.
From a capital perspective, our balance sheet is strong and liquid with pro forma surplus capital, as Jonathan mentioned, of $470 million at the end of June 2016. We have a revolving credit facility of $1 billion undrawn and available, which has now been extended until 2021 with one further one-year extension option. As we have explained, we have a seed capital program to help to grow the business as we launch new products over time. The book is sized in accordance with the VaR limit of $75 million, and in aggregate stood at $514 million at the end of June. The size of the book could reach up, as Jonathan mentioned, $700 million if the VaR limit allows it. We are well-positioned as a consolidator within the asset management industry and have a proven ability to integrate business quickly and efficiently, both from an operational and cultural perspective.
We are happy with the deals we have done, and they have worked very well culturally. We remain committed to growing the business organically and by acquisition, and continue to explore M&A opportunities. We will continue to be patient in pursuing acquisition, as maintaining our discipline on structuring and pricing is crucial, particularly as competition for deals remain relatively strong and sellers' price expectation are high in our view. Let's start off on the U.K. Brexit vote and the key risk for us. The EU referendum result came as a surprise to many in the industry, and without knowing the specific details of the changes that will be put in place as the U.K. leaves the EU, it is difficult to comment in detail on the impact. However, it is safe to say that we will experience a period of uncertainty and transition.
From a fund under management perspective, the recent volatility in markets post the Brexit vote created a difficult environment for discretionary strategies, but benefited AHL, which demonstrates how the ongoing diversification of our business has enhanced our resilience as a firm. As far as regulation is concerned, we feel we are well-positioned to manage any subsequent regulatory change and plan to proceed with the investment to comply with MiFID II. We currently operate in 18 different jurisdictions with a global client base and are experienced in operating in different regulatory environments and responding to changes. On distribution, we manage around $15 billion of listed products, the majority of which are managed outside of the U.K. Under current legislation, this fund should be unaffected by a U.K. exit. However, any rule changes that could impact its arrangement is currently unclear.
From a currency perspective, we earn a profit in U.S. dollars, and the weakness of the sterling is not a particular concern for us as we have a higher proportion of costs denominated in sterling in comparison to revenues. The weakness of the sterling will create a net benefit for us in 2017 onwards due to us hedging our sterling cost base on a quarterly basis one year in advance. Our dividend will be higher in sterling terms. The people impact is particularly important to us as we have an international workforce. Any adverse changes to the right of EU nationals working in the U.K. would be a concern for us. However, we are not alone in this, and the final outcome of the terms of Britain's exit from the EU remains unclear. We will help our staff, however, and how we can through this process.
Let me conclude and finish with an outlook for the remainder of the year. As we have seen in the first half of this year, the overall operating environment continued to be quite volatile. Flows are better in places, but investors' appetite remain fragile. Our strategies have held up reasonably well given the backdrop. We remain cautious in our outlook for the second half of the year given the heightened uncertainty. Our key area of focus will be to continue to work on the U.S. as a region for growth, both from a distribution and acquisition perspective, hiring additional high caliber talent in private and public credit, researching new markets in our quant business, and building both new and existing relationship with key institutions to grow assets.
In addition to this, as ever, if we are able to deliver superior risk-adjusted returns for our clients, we will be able to grow assets steadily by leveraging our distribution. Doing so will further enable us to continue to attract the best investment talent through hiring and acquisition. As we continue to manage our business and balance sheet efficiently, we can in turn provide attractive returns for our shareholders. As you know, I will be stepping down as CEO at the end of August. It's been a great privilege to have led Man Group through a period of evolution and progression for the business. It's a superb firm, and I'm very sad to be leaving. I have decided to accept the new outstanding opportunity at PIMCO and move back to the U.S., where my daughters are based.
Luke is a superb leader for the business, managing Diet Coke, and I'm pleased that he will be taking over from me to continue to build a diversified and resilient firm focused on performance and serving our clients. I will be working along Luke and Jonathan over the coming weeks to enable a seamless transition. With that, let's move to Q&A.
He uses cans. I use bottles. That's the biggest change.
[audio distortion] First of all, Manny, obviously this whole presentation is sponsored by Coca-Cola, so I look forward to seeing that in the P&L later. Thanks for all you've done for the firm over the years, and good luck with PIMCO. I wondered, though, if maybe Luke might like to spend a couple minutes to talk about how he sees the direction of the firm over the next year or two in terms of M&A and in terms of the continuation of the strategy we've seen over the last couple of years.
Sure. Thank you, Philip. I guess the answer might be a little bit boring, but Manny, John and I have built the strategy together. We've worked very closely over the last few years. Manny and I have been friends for 20 something years, so the strategy we had is a joint one, and so the strategy going forward will be very much the same as it was before. Somebody, one of you put me in one of the research reports as a continuity candidate. I think in politics that sounds rude, but for me, that sounds perfect. Honestly, nothing different. Sure. Manny used two words in the presentation there, which were patient and disciplined. I think we will remain patient and disciplined. Patient. One of the things of patience is it means that it takes time to find the right thing.
We only want to do the right things, but the type of businesses that we'd be interested in integrating are exactly the same as they were a month ago. We continue to work until we find the right thing.
Good morning. Paul McGinnis from Shore Capital. Just with respect to the balance sheet and acquisitions generally, I think it was the first half of last year, you paid around GBP 1.90 in terms of the buyback. Just wondering with the shares where they are at the moment, why are you concentrating so much on M&A, unless you feel the value of the firm has fallen so far in that time?
We said, what is it, about four months ago that we saw interesting opportunities and that we would continue to look in a disciplined manner. Patience can take more than four months. I think we want to keep looking at what the opportunities are, but at the same time, we keep everything under review.
Certainly evaluating the M&A opportunities against buyback as an option.
Yeah. Good morning. Arnaud Giblat from Exane. A couple of questions, please. First on AHL. Could you confirm that you're still selling institutional at around 100 basis points? I think that that's what you said previously. Secondly, on AHL, you seem to have emphasized an awful lot in the presentation that you were focusing a lot on the institutional side. I'm wondering if retail sales are still an option, whether you still have the same distribution capabilities into retail as you used to have for AHL. Yeah, secondly on M&A. Again, are you still targeting equity long-short, other alternatives, even long only? Could you please refresh us on the areas you're looking at? Thank you.
I think on AHL, I think the pricing will make sense. One of the things which I think has happened, is that quant fund as an industry, and trend following has done really well over the past three years. When you look at the numbers and the money which has been raised and how well AHL has done in the U.S., it tells you something. Retail to some extent has lagged. If you notice, we raised $400 million in an AHL for the 40 Act products in the U.S. to American Beacon. If I was a guessing man, I think some more will come. I think that the one thing about retail is that when it comes, it comes in size, but it's a little bit unpredictable.
Obviously, we've been successful at selling AHL in a variety of formats, in a variety of fund through large institutions, and I think we should feel pretty good about it. We mentioned 14 new clients. They are all the same clients. They are all the same clients that we feel incredibly lucky to have and feel very proud. That's the mission we set up said two years ago to break into the U.S., I think we've done it. I think we really have made tremendous progress in the U.S. Hopefully retail could come back, but it's just harder to predict.
With respect to M&A targeting, we're looking across liquid and private markets as we always have done, and researching a relatively broad universe.
I would add one thing to answer your question. In terms of the elephant in the room, the hedge fund return hasn't been great for six months, and we said it in the presentation and said the first six months weren't great. If you're a smaller hedge fund, things are not easy. I think what we're going to focus on is having great people, and if the environment remains difficult, we should be in a position to keep on adding fantastic talent by the law of supply and demand. I think we'll all focus on this, and this is exciting.
Good morning. It's Chris Mann from Goldman Sachs. You detailed some quite strong flows into your EM debt funds, despite the fact they only launched in June. Was that one-off inflows just around the launch, or should we expect those to continue into July and hopefully onwards? Secondly, can you give us a feel for the margins on those EM debt funds are, please? Finally, if I look at slide 47, right at the back, it looks as if quite a large part of your seed portfolio is accounted for by these EM debt funds. Presumably, you'll be able to run those seeds down fairly quickly, given the inflows. At the same time, you're increasing the size of your seed book or planning to. Where are you planning to make those additional seed investments, please?
I'll take that first.
Well, I think as we mentioned, Guillermo Osses comes with a fantastic track record, and he was managing GBP 14 billion.
Twenty-two.
GBP 22 billion when he was at HSBC. Hopefully, there's a wallet size that we're hoping to capture. We'll work very hard to try to do so. Obviously, the most important thing is that he performs and he has the right team and so on, so forth. We're optimistic about what he can achieve. He's a fantastic fund manager. The average margin is, I would say, and size mandate in line with our average for the discretionary long-only category or lower if they're larger mandates.
The amount of seeding committed to that is actually quite small. GBP 60 million across the strategies, it's not a big component of the book.
Where you plan to grow maybe more broadly in terms of the GLG and
It is really where we make new launches. Sounds a bit trite, but there's a number of new initiatives going on in a number of different places. Manny mentioned Axiom, which we will put some seed money into that. Actually, we've had demand from other people wanting to put money in it before it's even started. We can't predict exactly where they're going to be today.
Good morning. It's Anil Sharma from Morgan Stanley. Just two questions, please. If I look at the FRM business, I think you said 65% of the assets are in fund of funds that you expect to decline over time. Can you give us a feel as to how quickly or how slowly that might sort of flow out? Equally on the Japan CoreAlpha, I know that can be quite volatile. Again, given the underperformance there, would you expect a lot of the AUM there to be at risk over the next 6 to 12 months, or is that going to be fairly stable?
Move from answer number 1. I think on number 2, Stephen Harker has a 30-year track record, and he has an amazing track record, and there's no one else managing money like him. What we have observed is that flow in Japan has a lot to do with how people feel about Japan. There's a big announcement on Friday. If people hate Japan, everything else being equal, it's more likely that they be outflow. If people love Japan, everything else being equal, it's more likely that it will be inflows. It's not too surprising. People do play directionally in Japan, and it's one of those markets where people have strong views, either positive or negative. In terms of the performance of Steve and the way he invests, nothing has changed, and he's just a fabulous manager. I really wouldn't lose sleep over this.
A lot has to do with what's happening in Japan.
I think the comment on the fund of funds thing is more of the same. There's a gradual shift from commingled fund of funds to solutions-oriented offers. I think we continue to see that happening.
The multi-portfolio launch that's coming next year, how should we be thinking about that? Is that quite a substantial, sizable new business, or is that going to be quite small scale or?
I think when you launch any of these initiatives, it's very dependent on how the early stages of the process go in order to get to building it. We're very focused on pushing out the innovation in AHL. That's one of the areas. I think we'll have to see how it goes.
We really have built from a business which used to have one product, a whole variety of products which perform all very well. We have a target risk product which is 8% ahead of our biggest competitor in terms of performance. There's a lot of things happening in AHL which are pretty exciting. I think there's a conscious design-
Yeah, I think you should think of AHL as a brand today rather than as a trend follower.
Good morning. Daniel Garrod from Barclays. Three questions from me. The first one, the performance fee expense paid away at the $30 million. You used to sort of provide guidance around performance fee pay away relative to whether the performance fees were generated as the pay away was very low if the performance fees were generated in AHL as opposed to GLG. It's now shifted to sort of thinking about the entirety of the comp ratio in that range, 40%-50%. What's the sort of reason for that change? I think you mentioned when low level of absolute performance fees, it alters the relationship. Do you look at it, do you manage that pay away across the entirety? Should we not think about the sort of split so much of where it's generated? That's the first question.
Second, the flows in Q2 out of AHL alternatives of $1.2 billion, any more color you can provide on that? I think you said it's institutional buyers. I'm not going into dimensions. Anything over that you can say that would be helpful. Third, just a tiny point. There was this FRM mandate that you won in 2014, and it doesn't fund till first half 2016. Is that an exception? Any reason why your client was so slow to act, so to speak?
The last one, quick and easy. Clients are always right. Sometimes, a lot of those infrastructure types of mandates, the process of getting the first piece done is 95% of the work that you do all the way through. In that case, it took a long time.
Same with the U.S. clients. It's a mix of public pension fund, pension fund endowments in the U.S., Oregon. They're located all over America. Those places that you most likely will never visit. What?
I do get lost.
No, no. I was actually making a very serious comment. It is a testimony of just the size of the U.S. and the ability of us, if we do a good job, to raise substantial assets.
On the performance fee compensation, I think of it as the inverse of what we saw in 2014 and 2015, where you get operating leverage clearly when very large amounts of performance fees are generated. In other words, you pay out a declining % as you generate more performance fees. Unfortunately, the inverse is true when you have low levels of performance fees, you will end up paying out a higher proportion of those lower level of performance fees. I would think about it as a reverse of what we saw in 2014 and 2015.
Good morning. It's Peter Lenardos from RBC. Just a question on funding so far in Q2, your fund profile. Sales and redemptions were both elevated. Did sales come at the beginning of the quarter and redemptions at the end, or was it pretty smooth throughout? Just trying to gauge if there was any elevated redemptions around Brexit and if any of that's continued into July. Thanks.
No elevated levels of anything, particularly around Brexit. I think redemptions and sales come in relatively evenly through a quarter, possibly a weighting of sales towards the first of each month, but that's about it.
Thanks. Tom Mills from Credit Suisse. It seems like there's been a few transactions in the alt space in the last few months, the Petershill assets and the Cantab deal. Is there anything that you take away from that in terms of pricing and your ability to maybe get some deals done?
I think it's what Manny said earlier, which is there's a lot of people out there looking for deals, and they're paying prices which, without commenting on individual transactions, we're not comfortable getting to. We have to just remain very patient and as disciplined as we can be.
Anything else? Fantastic. We'll stick around.
Thanks.
Bye-bye.