Earnings Call: H1 2016

Jul 26, 2016

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 and then 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 twenty sixteen has been particularly challenging for the global investment management industry. The volatile markets in the first quarter benefited AFC's 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 $1,000,000,000 with consistent flows quarter on quarter. We saw strong institutional flows into our core strategies, flows from FIM from previously awarded infrastructure mandates and solid flows from Numeric into the emerging market strategy. Investors' appetite remain muted for GLG with net outflows both for alternative and long term. Funds under management decreased by 3% to $76,400,000,000 at the 06/30/2016. Adjusted profit before tax decreased by 65% compared to the 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 $90,000,000 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 $0.45 up 3.43 per share payable in August. I will now hand over to Jonathan to take you through the numbers in more detail. Thank you, Manny, and good morning. Let's start off by looking at the movement in funds under management during the 2016. Net flows were $1,000,000,000 for the half. Gross sales were $9,800,000,000 down 7% compared to the 2015, largely as a result of lower GLG sales. Gross sales for the quant alternative strategies increased by 33% to 3,600,000,000 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 3,900,000,000 in sales from 19 mandates of over $100,000,000 The larger institutional sales during the half included 10 mandates totaling $2,100,000,000 into AHL's range of strategies, dollars 700,000,000.0 from FRM from previously awarded infrastructure managed account mandates, dollars 300,000,000.0 for FRM in bespoke mandates and six mandates totaling $700,000,000 for Numeric. We expect this trend to continue as large institutional clients continue to put more money to work with fewer providers. Redemptions were $8,800,000,000 in H1 twenty sixteen, thirty three percent 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 twenty sixteen, we had an average redemption rate of around 23% for our institutional assets. Retail assets, 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 twenty sixteen was broadly flat. During the 2016, investment performance across our four managers decreased funds under management by $2,200,000,000 reflecting mixed results across our discretionary alternatives and long only strategies. Manny will talk about performance in more detail later on. Mann Group's functional currency is U. S. Dollars and funds under management are reported in dollars. During the first six months of the year, the weakening of the U. S. Dollar increased funds under management by $300,000,000 of which $1,100,000,000 related to the Japanese yen, dollars 100,000,000.0 to the euro and $100,000,000 to the Australian dollar, partially offset by the strengthening of the dollar against sterling of $1,100,000,000 At the 06/30/2016, around 11% or $8,200,000,000 of FUM 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 impact our P and 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 $1,400,000,000 in the other category relate to investment exposure movements for quant and fund of funds alternatives of $700,000,000 where leverage has changed during the period, guaranteed product and CLO maturities of $400,000,000 and $200,000,000 respectively and guaranteed product de gearing of $100,000,000 We have included further detail on the anticipated schedule maturities in the appendix of 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 regear of $12,500,000 while every one percentage point of negative AHL performance results in a $25,000,000 de gear. Please be aware, however, that with guaranteed product farm at such a low level, there are a number of other variables which could impact this. The profile of Guaranty product maturities is detailed on Slide 31 of the appendix. As you'll see, by the 2017, Guaranty products fund under management will stand at around 600,000,000 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 ended the December 31. 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 the lower margin. The run rate net margin at the 06/30/2016, adjusting for the impact of the larger HL 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 and 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 June 30. The growth in net margins in the alternatives fund to 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 06/30/2016 in this category is 70 basis points and we would expect this margin to decline further over time as this mix shift continues. The long anti quant growth in that margin remained reasonably stable The long IV quant gross and net margin remained reasonably stable compared to 2015 at 35 basis points with a run rate gross to net margin of 36 basis points. Gross to net margins in the discretionary long only category also remained broadly stable. Our performance performance fee margins are included on Pages thirty four and thirty five in the appendix to the presentation. AHL earns 18% to 20% in performance fees for earning performance, net of management fees in relation to about 90% of their funds under management. GLG earns 15% to 20% in performance fees on around 39% of their fund and FRM earns 5% to 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 basis points and 45 basis points respectively compared to the year ended the 12/31/2015 due to the maturity of higher margin products during the period. The run rate gross margin has increased to five twenty five basis points, but the net margin has decreased to four eleven basis points due to the full year impact of the maturities for products with a lower gross margin and a higher net margin. Now let's look at net revenues in more detail. Gross management fee revenues has declined by 10% compared to H1 twenty fifteen 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 three forty seven million dollars primarily due to the runoff of the guaranteed product assets. Excluding guaranteed products, net management fees have declined by $19,000,000 or 6%. External distribution costs were reasonably consistent with the prior period despite the decrease in management fee revenues due to the release of $5,000,000 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 $40,000,000 for the period with $35,000,000 coming from AHL, dollars 2,000,000 from Numeric, 2,000,000 from FRM and $1,000,000 from GRG. The majority of AHL's performance fees were earned from Evolution, where performance fees crystallized annually in June. As of the June, 41% of AHL open ended FUM or $6,900,000,000 was a high watermark. AHL's weighted average distance from high watermark for open ended FUM was 4%. For GLG, around 65% or $6,600,000,000 of the performance fee eligible FUM crystallizes semi annually and around 35% or $3,600,000,000 crystallizes annually in December. Due to mixed absolute performance for the half for GLG, dollars 1,000,000 of performance fee revenue was generated in the period. As of the June, 3% of GLG's performance fee eligible assets or $300,000,000 were at high watermark and 44% or $4,500,000,000 were within 5%. Numeric had $2,000,000 of performance fees in the half from their U. S. Large cap and market neutral strategies. The majority of Numeric's performance fees crystallized annually in November. FRM had $2,000,000 of performance fees across a range of products, and we've included additional detail on Pages thirty four and thirty five to assist with modeling performance fees going forward. Finally, investment gains were $2,000,000 for the period, which relate to small gains on our less liquid investments of $21,000,000 and revenue from our ceding investment book of $469,000,000 There was no income from associates in the half as Nephila are investing heavily in their operational infrastructure and 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 2016 were $186,000,000 compared to $231,000,000 in H1 twenty fifteen, a decrease of $45,000,000 Within this, fixed compensation costs were $91,000,000 compared to $86,000,000 in H1 'fifteen, with the increase being due to higher fixed compensation costs from new talent hired to grow the business and salary increases and the impact of a one off pension credit of $3,000,000 in H1 of 'fifteen. This is partially offset by savings from a more favorable sterling FX rate. Fixed compensation costs will be higher in the 2016, bringing the full year costs more in line with the guidance we gave you of $185,000,000 due to the inclusion of new hires as we continue to invest in the business. Variable compensation costs were $95,000,000 for the period, made up of $65,000,000 of management fee related variable compensation and $30,000,000 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 year's by $4,000,000 and the relatively high compensation ratios paid at lower levels of performance fees relative to prior years. The total compensation to net revenue ratio was 48% for the half compared to 43% for the full year 2015. As we have said previously, we expect the total compensation to net revenue ratio to be in the range of 40% to 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 and therefore we are subject to netting risk across different books, we may bear some costs 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 $6,000,000 and you should monitor performance accordingly in the second half. Other cash costs of $76,000,000 were lower than the 2015 due to a more favorable sterling FX rate. Other cash costs will be higher in the 2016 and again more in line with the guidance we gave you for the full year of $160,000,000 as we continue to grow the business and manage regulatory change. As we explained in February, our CapEx is increasing and is expected to be 40,000,000 to $50,000,000 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 $17,000,000 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 depending on transaction. Adjusted earnings per share for H1 'sixteen were down 65% to $0.49 per share. Adjusted management fee earnings per share, the basis of the dividend which Manny set out earlier, were $0.45 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 $14,000,000 of tax provisions in 2015 that are 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 UK 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 12/31/2015, we had around $225,000,000 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 $537,000,000 of tax amortization of goodwill and intangibles, predominantly relating to the New American or Hill acquisitions, which will be amortized in The U. S. Over fifteen 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 $700,000,000 or $0.42 per share as of June 3036. 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 bar limit of 75,000,000 and in total stood at $514,000,000 at the half year. We expect the aggregate size of the book could reach up to around $700,000,000 but will continue to be managed within the bar limits and according to business needs. Primarily due to the length of time we have held them. The reconciliation of how these are presented in the group's balance sheet is included in Page 48 of the appendix. In June, we renegotiated the maturity date of our revolving credit facility of $1,000,000,000 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 plus Service capital at the 06/30/2016 was $479,000,000 with the increase from the December 31 position of $453,000,000 being due to the inclusion of the second half profits once they have 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 REDCap requirement from increased level of ceding investments. Surplus capital is around $470,000,000 pro form a after taking into account the impact of interim profits and reserve movements, which are not included in the thirty June figure until they've been verified and, of course, the payment of the interim dividend. And with that, I will turn over to Manny. Let's start talking about ASL. ASL had a good performance on a relative basis, but more varied on an absolute basis in the 2016. AHL momentum based strategies had a strong start to the year where they were well positioned for the volatility in equity and credit market with long fixed income and short commodity position. Returns were impacted in the second quarter, however, but a subsequent reversal in a variety of asset classes, notably equities and energy markets, causing losses to AHL main program. These losses were partially offset by gains in the June after the Brexit vote with AHL positioned well with long fixed income and gold position. AHL Diversified ended down 0.9% for the first half with ALFA up 0.6% and Dimension up 0.1%. AHL non traditional trend following strategy evolution performed better with 5.4%. AHL U. S. 40x strategy was up 1.9% with inflows of $400,000,000 in the period. AHL continued to make good progress in innovating and building In the 2016, AHL launched the institutional solution offering, which provides bespoke solution for institutional clients, allowing flexible combination of AHL different strategies. During the 2016, dollars 600,000,000 of assets were raised and there continue to be good interest from AHL institutional client base, particularly in The U. S. The HL multi strategy product dimension continue to grow with sales of $400,000,000 in the period. There is still further capacity in the strategy to sell in the remainder of the year and beyond. The HLS business in China is also progressing with asset doubling during the period to $200,000,000 with good interest from clients. Structure and platform. We expect live trading by year end and to open the strategy to external investor during the course of 2017. Evolution Frontier, which was launched in mid-twenty fifteen and apply AHL core momentum model to an innovative set of markets continue to progress well with $200,000,000 of assets as of the 06/30/2016. Numeric, Numeric continued to grow assets during the first six months of the year with total numeric funds of $19,700,000,000 at the 06/30/2016. From a performance perspective, Numeric had a challenging first half with asset weighted underperformance relative to benchmark of around two ten basis points performance of around two thirty basis points after fee. Numeric business is now well integrated into the Mann Group platform as they continue to benefit from the firm's relationship with institution around the world. Numeric continued to launch new commingle vehicles, leveraging Mann's group resource and expertise, including the new emerging market core Cayman based fund launched in the 2016 with $200,000,000 of sales in the 2016 to complement Numeric legacy emerging market fund launched in 2010. The sales during the period bring Numeric's overall emerging market strategies close to capacity. The Numeric UC products launched in June 2015 continue to grow with over $400,000,000 in assets at the 06/30/2016. Additionally, Numeric launched its U. S. Amplified core strategy on the July 1, a new fund based on its existing S and P five hundred-one 100 thirty-thirty 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 the range of alternative and non money strategies. This is in this context of the toughest half for hedge funds since 02/2008. 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 hedge fund index multi strategy index by 3.5%. The European MidCap Equity Fund launched in April 2015 continued to perform well, up 7.7% since inception and up 0.6% for the first six months to the 06/30/2016, outperforming the hedge fund equity index by 4.5% for the period. The Japan Core Alpha strategy run by Steve Harker and the team was reopened for investment in May 2015 due to capacity becoming available, but has underperformed its benchmark by 8% in the 2016. Down 27% and the Russell Nomura Large Cap Value Index by 1.5%, which more closely reflect the fund's investment side. The Japan Core Alpha strategy had net outflows of $1,200,000,000 for the half. Recent hires continue to make progress. The unconstrained emerging market funds strategy has performed well since launch in Q3 twenty fifteen, up 6.1% for the 2016. The undervalued asset strategy continued to raise assets and now has fund of around $600,000,000 at the 06/30/2016, while the Continental Europe equity strategy was up 4.4 and raised $300,000,000 during the first six months of the year. Our better performing long running strategies including the strategic bond strategy, which was up 2.7%. We continue to attract talent to broaden out our discretionary product offering. In January we hired Guillermo assets from HSBC to run an emerging market debt strategy. Guillermo's new funds were launched in May and June, raising $200,000,000 in assets in a period with very good initial interest from clients. Lastly, let's now move on to FIM. FIM product had mixed performance in the first six months of the year. Our actively managed diversified portfolio with exposure across strategy, FI and Diversified number two, 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 twenty fifteen and Q1 twenty sixteen, we raised $2,500,000,000 from the previously awarded large U. S. Pension plan mandate and the large institutional infrastructure mandate we won in late twenty fourteen has started to fund with $300,000,000 received during this period and the remainder expected to fund over the next twelve months to bring the mandate to around $1,000,000,000 In the 2016, we confirmed an additional institutional managed account mandate for around $750,000,000 from an existing client which is expected to come in gradually over the next twelve eighteen months. FI and 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 06/30/2016, 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 need of institutional clients. At the 06/30/2016, FIM had $3,000,000,000 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 3036. 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 fund continue to present good opportunities. In The UK, relationship with local authorities continue to be strong and in Europe, we have good institutional interest for Numeric as well as GHG new 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 3,200,000,000 of sales in the region in the period, up from 21% in the 2015. 15 new institutional client relationships were added in the period and the 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 firm managed from North America and 27% of firm run for clients that we sell 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 $400,000,000 raised in AHL PolyAct strategy during the period. Interest in AHL continued to be strong with around $1,500,000,000 of AHL product sold to U. S. Clients during the period. Sales from the Asia Pacific region comprised 20% of total sales with $2,000,000,000 of sales during the period, up from 19% in the 2015. The opportunity in this region continue to be mainly in Australia, where we are targeting superannuation and public investment operation and in Japan, where we continue to develop our relationship with SMTB and focus on the top fashion front. China is continuing to grow mainly in AHL with $100,000,000 of assets raised in the 2016. Let's now look at cost, our balance sheet and capital and business development. Our focus remains on efficiency and ensuring that our cost base enable us to address both the opportunity and risk in our business. From a capital perspective, our balance sheet is strong and liquid with pro form a surplus capital as Jonathan mentioned of $470,000,000 at the June 2016. We have a revolving credit facility of $1,000,000,000 undrawn and available, which has not 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 set in accordance with a VAR limit of $75,000,000 and in aggregate stood at $514,000,000 at the June. The size of the book would reach up as Jonathan mentioned, dollars 700,000,000 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 and 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 seller's price expectation are high in our view. Let's start off from The UK 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 at The UK lift to 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 funds under management perspective, the recent volatility in markets post 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 environment and responding to changes. On distribution, we manage around $15,000,000,000 of usage products, the majority of which are managed outside of The UK. Under current legislation, this funds should be unaffected by a UK exit. However, any rule changes that could impact this arrangement is currently unclear. From a currency perspective, we earn a profit in US dollars and the weakness of the sterling is not a particular concern for us as we have a higher proportion of cost denominated in the 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. And 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 national to work in The UK 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. It will help us step 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 continues to be quite volatile. Flows are better in places, but invested appetite remain fragile. Our strategies have held up reasonably well given the backdrop. However, we remain cautious in our outlook for 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 vision 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 institution 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 August. It's been a great privilege to have led Mann Group through a period of evolution and progression for the business. It's a superb firm and I'm very sad to be leaving, but 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 and he drinks Diet Coke and I'm pleased that he will be taking over from me to continue to build a diversified and resilient firm focus 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 and A. Merrill. First of Manny, obviously this whole presentation is sponsored by Coca Cola. I look forward to seeing that in the P and L later. Thanks for what we've done for the firm over the years and good luck with PIMCO. I wonder though if maybe Luke might like to spend a couple of minutes to talk about how he sees the direction of the firm over the next year or two in terms of M and 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 twenty 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. And I think in politics that sounds rude, but for me that sounds perfect. So honestly nothing different. 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 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. And we continue to work until we find the right thing. Morning. Paul McGinnis from Shaw Capital. Just with respect to the balance sheet and acquisitions generally, I think in the first half of last year, you paid around 190p in terms of the buyback. Just wondering with the shares where they are at the moment, why are you concentrating so much on M and A unless you feel the value of the firm has fallen so far in that time? We said what is about four months ago that we saw interesting opportunities and that we would continue to look in a disciplined manner. Patients can take more than four months. So I think we want to keep looking at what the opportunities are, but at the same time, we keep everything under review. And certainly evaluating the M and A opportunities against buyback as an option. Morning. It's Arnaud Gebel 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'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 HL? And secondly, M and A, again, are you still targeting equity long shorts and other alternatives even longer? Could you please refresh us on the areas you're looking at? Thank you. So I think I want to add, I think the pricing one is Sam. One of the things which I think has happened is that QuantFund as an industry and trend following has been really well over the past three years. And so 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. And retail to some extent has lagged, but if you notice we raised $400,000,000 in the near term for the active products in The U. S. To American Beacon and if I was a guessing man, think some more would 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. And obviously, we've been successful at selling AIShell in a variety of formats and a variety of fund through large institutions and I think we should feel pretty good about it. I mean, we mentioned 14 new clients, they are whole of them clients, they are whole of them clients that we feel incredibly lucky to have and feel very proud. And that's the mission we sort of said two years ago to sort of break into The U. S. And I think we've done it. I think we really have made tremendous progress in The U. S. So hopefully, we don't feel we'll come back, but it's just harder to predict. And then with respect to M and A targeting, we're looking across the liquid and private markets as we always have done and researching a relatively broad universe. I add one thing to answer your question. In terms of elephant in the room, hedge fund returns hasn't been great for six months and we said this in the presentation and said the first six months weren't great. If a you smaller hedge fund, things are not easy. And so 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 low of supply and demand. And so I think we're all focused on this and this is exciting. Morning. It's Chris Smith 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? And then 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, but 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 think as we mentioned, Guillermo has come with a fantastic track record and he was managing $14,000,000,000 $22,000,000,000 when he was at HSBC. So hopefully there is a wallet size that we're hoping to capture and 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 and forth. But we're optimistic about what he can achieve and he's a fantastic fund manager. The average margin is, I would say, and so as mandate in line with our average for the discretionary long only category or lower if they're large mandates. And the amount of speeding committed to that is actually quite small, dollars 60,000,000 across the strategies. So it's not a big component of the book. It is really I mean, where we make new launches, it sounds a bit trite. But I mean, there's a number of new initiatives going on in a number of different places. Manny mentioned OXXO, which we will put some seed money into that. But actually, we've had demand from other people wanting to put money in it before it even started. So 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 kind of decline over time. Can you give us a feel as to how quickly or how slowly that might sort of flow out? And then equally on the Japan Corel side, it 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 six to twelve months? Or is that going to be, do think, fairly stable? I'll answer two and then you can answer number one. I think number two, Steve Parker has a thirty 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 flu in Japan has a lot to do with how people feel about Japan. So there's a big announcement on Friday, if people hate Japan, everything else being equal, it's more likely that they'll be out for people of Japan, everything else being equal, it's more likely that it will be inflows. And it's not too surprising people do play a directionally in Japan and it's one of those markets where people have strong views either positive or negative. Now in terms of the performance of Steve and the way he invests, nothing has changed and he's just a fabulous manager and I really wouldn't lose people with this. So a lot has to do with what's happened in Metrobank. I think the comment on the funds thing is more of the same. There's a gradual shift from commingled fund of funds to solutions oriented answers and I think we continue to see that happen. 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? 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. We're very focused on pushing out the innovation in AHL. That's one of the areas and I think we'll have to see how it goes. We really have built from a business which used to have one product in a whole variety of products, which perform very well. I mean, we have a target rich product, which is 8% ahead of our biggest competitor in terms of performance. I mean, there's a lot of things happening in the HR, which are pretty exciting. And I think there's a conscious I think you saw the brand today rather than the trend follower. Morning. Daniel Garrard from Barclays. Three questions from me. The first one, the performance fee expense paid away at the $30,000,000 You used to sort of provide guidance around performance fee pay away relative to where 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 fully to 50%. What's the sort of reason for that change? I think you sort of you mentioned when low level of absolute performance fees, it alters the relationship. Is there do you look at it? Do you manage that airway across the entirety? And so should we not think about the sort of the split so much of where it's generated? That's the first question. Second, the flows in Q2 out of AHL alternatives of €1,200,000,000 Any more color you can provide on that? I mean, you sort of said it's institutional bias not going into dimension, but anything over that that you can say would be helpful. And third, just a tiny point there with this FRM mandate that you won in 2014 and it doesn't fund until first half twenty sixteen. Is there any is that exception any reason why your client was so slow to act? Last one quick and easy, clients are always right. Sometimes a lot of those infrastructure type of mandates, process of getting the first piece done is 95% of the work that you do all the way through. And in that case, it took a long time. And for The U. S. Clients, it's a mix of public pension fund, pension fund endowments in The U. S. All coming and they're located over America. So it's all these places that you most likely will never visit. So but it is it's I was actually making a very serious comment. It is a testimony of the just the size of The U. S. And the ability of us if we do a good job to raise substantial assets. And then on the performance fee compensation, think of it as the inverse of what we saw in 'fourteen and 'fifteen where you get operating leverage clearly when very large amounts of performance fees are generated. In other words, you pay out a declining percentage as you generate more performance fees. But 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. So I would think about it as a reverse of what we saw in 'fourteen and 'fifteen. Good morning. It's Peter Launderos 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 is 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. So no elevated levels of anything particularly around Brexit. And 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. Tom Mills from Credit Suisse. It seems like there's been a few transactions in the old space in the last few months, the Petershill assets and the Cantab deal. Is there anything that you kind of take away from that in terms of pricing and your ability to maybe get some deals done? Look, I think it's what Manny said earlier, which is there's 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. So we have to just remain very, very patient and as disciplined as we can be. Anything else? Fantastic. We'll stick around. Bye bye.