Earnings Call: H1 2015

Jul 29, 2015

Good morning, ladies and gentlemen, and thank you for joining us. As usual, I am going to start today by giving you a brief introduction. Jonathan will then take you through the numbers in detail, and I will then come back to talk about performance, business development and our outlook. We will then throw it open for questions. Our objective is to be a leading provider of high alpha liquid investment strategies across a diversified range of asset classes and geographies. We have made good progress toward this objective during the half by continuing to create a more diversified product offering with a range of attractive option for growth, integrating our recent acquired business and running the group efficiently. The first quarter saw a more stable environment in Financial Markets, which benefited all of our strategies, and in particular, AHL trend following funds. By contrast, the second quarter was characterized by renewed volatility. And as a result, AHL trend following strategies gave back the gain they had made in the first quarter. On the other hand, GLG, numeric and FRM strategies continue to generate solid returns. Flows were negative in the half, skewed by $3,400,000,000 of net outflow from the Japan core ALFA strategies as some clients redeem after a sustained period of strong performance. It is worth noting that over three years, five years and since inception, the fund has outperformed its benchmark by 6.2%, one point nine percent and five point four percent per annum, respectively. We saw solid flows into our quant strategies, including one large institutional mandate into AHL. However, elsewhere, investor appetite remained muted as renew market volatility and the Brexit fiasco tempered investors' willingness to put their money to work. The acquisition of SilverMind, New Smith and BAML Fauna Fund business, together with strong long investment performance drove an 8% increase in funds under management to $78,800,000,000 at the 06/30/2015. Adjusted profit before tax increased by 89% versus the 2014 due to a more than twofold increase in AHL performance fee, the majority of which were earned in the first quarter. Adjusted management fee profit before tax of $108,000,000 was up 30% compared to last year. In line with the dividend policy, we would be paying an interim dividend equating to adjusted net management fee earning per share of $0.54 or $0.03 £47 per share payable in September. I will now hand over to Jonathan to take you through the numbers in more details. Thank you, Manny, and good morning. Let's start off by looking at the movement in funds under management during the 2015. Gross sales were $10,500,000,000 down 15% compared to the 2014, largely as a result of lower GLG sales. As we had commented was likely to be the case this year, sales of GLG's equity long short strategies suffered following negative investment performance in 2014. Moreover, the Japan Core Alpha strategy, which sold very well in the 2014, was soft closed late last year and only reopened for investment towards the end of Q2 this year. As you can see from the box showing the quarterly the breakdown of quarterly sales and redemptions, and as we again have commented before, our flows have become much lumpier in nature and a few mandates continue to skew the quarterly numbers significantly. The larger institutional sales during the half included two mandates totaling $1,600,000,000 into AHL Dimension, two CLO launches totaling $800,000,000 and a $180,000,000 fund to fund mandate from a local U. K. Local authority. Redemptions were $13,100,000,000 in H1, up from $9,600,000,000 in the 2014. This figure was skewed by some $5,300,000,000 of redemptions from Japan Core Alpha. In addition, we had three large redemptions from our fund of funds business totaling $500,000,000 During the 2015, investment performance across our four managers increased funds under management by $3,800,000,000 reflecting strong results across our long only and discretionary alternative strategies. Mani will talk about performance in more detail later on. MAN's functional currency is U. S. Dollars and funds under management are reported in U. S. Dollars. During the first six months of the year, the strengthening of the U. S. Dollar reduced FUM by $1,200,000,000 of which $1,000,000,000 related to the euro, dollars 100,000,000 to the yen and $100,000,000 to the Aussie dollar. The detailed breakdown of our FUM by currency is set out on Page 31 of the appendix. Included in the other category were Pemba and Orehill maturities totaling $600,000,000 partially offset by investment exposure movements of $300,000,000 and net guaranteed product regears of $100,000,000 We've included further detail on the anticipated schedule of Pemba, Orehill and Silvermine maturities in the appendix to the presentation. Recent AHL performance led to a de gear of 100,000,000 on January. 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 $20,000,000 while every one percentage point of negative AHL performance results in a $40,000,000 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. This next slide gives a breakdown of gross and net management fee margins. In aggregate, our total gross margin has decreased from 131 basis points to 107 basis points compared to 2014. Our total net margin has decreased from 114 basis points to 98 basis points over the same period. Now that we have a substantially more diversified business than historically has been the case, to assess meaningfully our margin trends as a business, one needs to look at movements within each product category. The Quants Alternatives gross and net margin reduced by 42 basis points and 33 basis points respectively compared to the year ended thirty one December twenty fourteen. This was due to the impact of including Numeric's alternative fund and the bespoke AHL institutional mandate that we won in Q3 twenty fourteen for the whole period as well as other institutional mandates won in the first half, which were at a lower margin, together with the impact of the continued roll off of the high margin retail back book. The run rate net margin at the 06/30/2015, adjusting for the full year impact of including the AHL institutional mandates won in the first half for a full year is 156 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 alternative category reduced by 32 bps and 24 bps, respectively, compared to 14 bps. This was due to the inclusion of the silver mine assets, which have an average margin of around 44 basis points and due to redemptions out of the European long short strategy, which were at a higher margin than the average for this category. The reduction is lower at a net level due to the release of around $5,000,000 of historical commission provisions, are no longer required. Adjusting for this would give a run rate net margin of around 94 basis points at the 06/30/2015. The gross and net margin in the alternative fund of funds category decreased by six basis points and eight basis points, respectively, in the period due to the inclusion of the acquired VAML fund of funds assets and a continued mix shift towards managed accounts mandates as legacy discretionary mandates have been redeemed. The run rate net margin at the June 30 in this category is 81 basis points. The long only quant gross and net margin remained stable compared to 14% as numeric assets acquired in September have a similar margin to the existing MSS assets. Gross and net margins in the discretionary long only category also remained broadly stable. The guaranteed gross and net margin increased by three basis points and 78 basis points, respectively, compared to the year ended thirty one December fourteen. The increase in margin at the net level was due to placement fee write offs in 2014 that totaled $7,000,000 Let's now look at net revenues in more detail. The main driver of the 7% increase in gross management fee revenue and the 15% increase in net management fee revenue was due to higher average FUM levels following acquisitions, partially offset by the decline in the blended management fee margins. External distribution costs were 41% lower than 2014 due to lower levels of guaranteed products and retail quant alternatives from both of which have higher external distribution costs associated with them and due to the release of the commission's provisions, which I just explained. 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 of $200,000,000 were significantly higher than the first six months of last year, with $162,000,000 coming from AHL, dollars 18,000,000 from GLG, dollars 13,000,000 from Numeric and $7,000,000 from FRM. The majority of AHL's performance fees were earned from the Diversified and Alpha strategies in the first quarter and from Evolution, these performance fees crystallized annually in June. As of the June, 56% of AHL open ended FUM or $6,800,000,000 was at High Water Mark. AHL's weighted average distance from High Water Mark for Open ended FUM was 5.6%. Over half of the GLG performance fees were earned from equity long short strategies with the remainder earned from the multi strat and credit funds. As of the June, 44% of GLG's performance fee eligible assets or $5,300,000,000 were at high watermark and 40% or $4,900,000,000 were within 5% of high watermark. Numeric performance fees were $13,000,000 with the majority being earned from alternatives and large cap strategies. The $7,000,000 of FRM performance fees were from a range of products. We've included additional detail on pages thirty two and thirty three of the appendix to the presentation to assist with the modeling of performance fees. Finally, investment gains were $31,000,000 with around two thirds relating to mark to market gains on our liquid seeding investments, a return of 7.2, and the remainder relating to realized gains on our $27,000,000 residual balance of less liquid assets. Income from associates was $3,000,000 down 40% compared to the 2014 as Nephila are investing heavily in their operational infrastructure, and you should assume this level of run rate income going forward. Moving on to costs. This slide gives a more detailed breakdown of movements year on year. Compensation costs for the 2015 were $231,000,000 compared to $196,000,000 in H1 twenty fourteen, an increase of $35,000,000 Within this, fixed compensation costs were $86,000,000 compared to $78,000,000 in H1 twenty fourteen, with the increase being due to higher fixed compensation costs related to acquisitions and FX. Fixed compensation costs will be higher in the 2015 and more in line with the guidance of $196,000,000 we gave for the full year due to the inclusion of recent acquisitions for a full period and the fact that we continue to invest in Investment Management talent to grow the business. Variable compensation costs, including internal commissions, were up $27,000,000 The $14,000,000 or 18% increase in management related variable compensation was broadly in line with the increase in net management fees. The $13,000,000 or 31 percent increase in performance related variable compensation was due to higher performance fees. The total compensation to net revenue ratio was 37% for the half compared to 36% in 2014. As we said previously, we expect the total compensation to net revenue ratio to be in the range of 40% to 50% depending on the mix 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 and we have material gains on investments, the ratio will be at the lower end of the range and could be off the bottom end of the range where we have a significant level of AHL performance fees and minimal GLG performance fees as has been the case in the first half of this year. Other costs of $89,000,000 were in line with the 2014. Again, you should not take the first half figure as a run rate indicator of where we will end up for the full year due to the inclusion of acquisitions for a full period and the fact that we are investing in certain areas of our operational infrastructure. Using half of the $174,000,000 guidance for other cash costs we gave for the whole of 2015 would be more accurate. As we explained in February, our capital expenditure is increasing and is now expected to be 40,000,000 to $50,000,000 over the next two years as we carry out a number of technology related projects. We've included guidance on CapEx spend and depreciation and amortization for 2015 and 2016 in the appendix of the presentation on page 36. Asset servicing costs for the year were $16,000,000 in line with the comparative period. There are no asset servicing costs associated with Numerics assets because the majority of their business is in managed accounts. For the rest of the business, the cost works out at around five basis points on average fund, albeit this figure can vary depending on transaction volumes, the number of funds and fund NAVs. Finishing the P and L review with earnings. As Manny mentioned, total adjusted profit before tax was $280,000,000 up 89% on last year. Adjusted net management fee income was $108,000,000 up 30% driven by higher management fees and stable costs. Adjusted net performance fee income was $172,000,000 significantly up on the 2014 and driven by a 131% increase in Air Shell performance fees. Adjusting items were $117,000,000 in total, bringing statutory profit before tax to $163,000,000 The adjusting items included $41,000,000 related to the impairment of goodwill in FRM. As a result of lower sales and higher redemptions of fund to fund products, FRM's from at the 06/30/2015 and the budgeted funds under management over the next three year plan period are lower than had been modeled in the value and use calculation performed at the 12/31/2014. Further detail on the other adjusting items is provided on Page 37 of the appendix. Adjusted earnings per share for H1 twenty fifteen were up 96% to $0.01 $39 per share. Adjusted management fee earnings per share, the basis for the dividend, Manny set out earlier, were $0.54 The estimated effective tax rate on adjusted profits was 14% for the half, higher than the effective tax rate for 2014 of 10% as the 2014 tax charge had included $30,000,000 of adjustments in respect of previous periods. The underlying tax rate for the 2014 was also around 14%, lower than the underlying tax rate in 2014 of 17% due to a higher proportion of U. S. Profits against which we're using U. S. Tax losses and a 1% decline in The U. K. Tax rate. As we explained in February, we have $191,000,000 of U. S. Tax losses, which we can offset against the tax on future profits from U. S. Entities. In addition, we have $394,000,000 of goodwill and intangibles predominantly relating to the Numeric acquisition, which will be amortized for tax purposes in The U. S. Over a fifteen year period and which will reduce The U. S. Taxable profit in future periods. And accordingly, we do not expect to pay a material rate of tax in The U. S. For a number of years. To finish off, let's look at our capital position. Our balance sheet remains strong and liquid with net tangible assets of $7.00 $9,000,000 or $0.42 per share at the half year. As we've outlined previously, we've increased the capacity of our seed capital program to help to grow the business as we launch new products over time. The book is sized in accordance with a VAR limit of $75,000,000 and in aggregate stood at $598,000,000 at the 06/30/2015. We expect the aggregate size of the book could reach up to $700,000,000 but will continue to be managed within our limits. The seed book consists of fund investments that will be redeemed as soon as practicable, typically within twelve months as funds are sold to clients and which will be hedged whenever possible, particularly in the case of long only funds. In addition, we include in the seed book loans to structured product funds of 112,000,000 which are made on a discretionary basis and can be called at any time, together with a small residual balance of less liquid assets that remain from the two eight financial crisis totaling $27,000,000 at the June 30. In June, we renegotiated our revolving credit facility reducing its size from $1,500,000,000 to $1,000,000,000 and extending the maturity to 2020 with two one year extension options. The facility remains available and undrawn and the reduction in the size of the facility coupled with an improved credit rating from Fitch has resulted in annual commitment fee savings of $2,600,000 On the 05/12/2015, we completed the $175,000,000 share repurchase announced in February at an average price of 196p, buying back 59,000,000 shares. In total, since March 2014, we have repurchased 128,000,000 shares at an average price of 144p. Surplus capital at the June 30 was $339,000,000 with the decrease from the December 31 position of $419,000,000 being due to the payment of the final dividend, the share repurchase, the capital usage related to acquisitions and an increased regulatory capital requirement related to higher seed investments, partially offset by the inclusion of H2 twenty fourteen post tax profits once they've been verified. Service capital is around $425,000,000 after taking into account the impact of interim profits, which were not included in the thirty June figure until they have been verified and the payment of the interim dividend. Please note that we are due to have a review of our capital requirements with the FCA towards the end of the year, which may or may not lead to a change in our current position. With that, I'll hand over to Manny. Thank you, Jonathan. Let's start by talking about performance. Return across our investment managers were good overall on a relative basis, but more varied on an absolute basis in the 2015. AHL momentum based strategies had a strong start to the year, so the increase in market volatility in the second quarter impacted return with AHL diversified down 6.4% at the end of the first half. That said, AHL non traditional strategies performed better with Evolution up 2.5% and Dimension up 0.5%. Relative returns were robust, especially given the outperformance in 2014. Numeria continued to generate strong returns with asset weighted outperformance of three zero two basis points before fee. The aggregate performance was led by stronger performing strategies, including Global Core and Emerging Market Core, partially offset by weaker performance in U. S. Small Cap. Performance at GLG over the first half was strong and broad based, with almost all strategies delivering positive absolute return. Some of the stronger performing alternative strategies included European Long Short, which was up 5.2%, Market Neutral, which was up 3.9%, and recently acquired New Smith Japan New Horizon strategy, which was up 7.5%. Man GLG Multi Strategy, which allocates across a range of external styles, finished the period up 4.1% compared to the HFRX index, which was up 1.3%. Performance was also very strong within some of our key long runway strategies in both absolute and relative terms. In particular, our Japan core ALFA strategy was up 23, outperforming its benchmark by more than 6%. Our European equity strategies was up 11.7%, outperforming its benchmark by 4.6%. And the undervalued asset strategies was up 10.8%, outperforming its benchmark by 7.8%. FRM Product had mainly positive performance in the first six months of the year, our actively managed diversified portfolio with exposure across strategies, FRM Diversified II, made a positive return of 2.8%, 0.6% ahead of our benchmark. Let me turn to Quant, and let me move on to where we have got into developing this business. At AHL, good progress have been made in building a more diversified quant business with 54% of AHL assets now in nontraditional strategies. The marketing of the multi strategy dimension product continued to progress well with sales of 1,600,000,000 in the 2015, and there is some further capacity in the strategy to sell in the remainder of the year and beyond. The full usage product that we launched have had strong performance at the 2014 and we have seen traction from a sales perspective. AHL research effort continues to focus on adding new markets and models to our existing strategies, as well as developing new strategies to further diversify and broaden the quant product offering. As an example, AHL launched the Evolution Frontier Fund in May. It applies AHL core momentum model to a very innovative set of markets which are less well known to other quantitative as well as discretionary investment managers. These markets, which are typically more likely traded and harder to access, are therefore arguably also more inefficient and therefore present a potentially attractive opportunity for early adopter such as Airtel. Examples include Hungarian and South African cash equity and less liquid soft commodity, such as milk and lumber. Given recent negative performance in the AHL Diversify and ALFA strategies, material retail sales of this product is unlikely in the near term in our view, although we continue to see more reasonable level of interest from institutional investors across a range of strategies. The Numeric business continues to perform well. And since acquisition, Numeric has raised gross assets of 4,100,000,000.0 with total AUM increasing 21% from EUR 15,200,000,000.0 to EUR 18,400,000,000.0 at the 06/30/2015. Good progress has been made during the half to integrate its operation into the main platform. In addition, Numeric has been leveraging the group relationship with institution around the world. And in March, we started marketing the two usage strategies developed towards the 2014 to high net worth and institutional clients around Europe. The outlook for flows into Numeric for the second half is encouraging. Business development, discretionary and fund of fund. At GLG, the acquisition of SilverMine and New Smith were completed in the first half of the year. SilverMine, a Connecticut based leverage loan manager with $3,800,000,000 of assets, further expand our existing credit business and position us to benefit from strong demand for U. S. CLOs and other credit strategies. We launched two new CLO in the second quarter, one in The U. S. And one in Europe, which together raised over $800,000,000 of assets. The new Smith acquisition, which completed in April, added $1,200,000,000 of assets across a range of equity strategies and brings further alternative and long only expertise to the GLG platform and a closer relationship with Sumeetrust. We'll continue to attract talent to broaden both our alternative and long only product offering. On the alternative side, Himanshu Gulati joined our New York office in February from Perry Capital with the whole team. The Select Opportunity strategy launched on the July 1 was $300,000,000 We have also added a number of talented managers to our European Equity Alternatives team, including Monty Sternbach, who is managing our European Mid Cap Equity Fund. In the long only business, we appointed Simon Pickett and Edward Cole from Carmignac to run an unconstrained equity market strategy. Emerging markets strategy. Recent hires continue to make progress. Pierre Henry Flaman value opportunity strategy has performed well since launch in 2014. Henry Dixon's undervalued asset strategy has outperformed the index by 14.8% since launch, is raising assets and now has fund under management of $450,000,000 Rory Powell's Continental European Equity strategies has had very strong performance and we are beginning to market that strategy. Finally, Ben Funnel European Equity Fund now has a three year top decile track record and again, we are beginning to market that strategy. The Japan Core Alpha strategy was reopened for investment in May 2015 after the redemption we referred to earlier created capacity across the strategy. Given the Fund's strong track record of absolute and relative performance, we would expect to see flow back into that strategy. We would not expect to see meaningful flow into our alternative strategies, however, until we have a more sustained period of positive absolute performance. At FRM, we completed the acquisition of the Fund of Fund business of Bank of America Merrill Lynch in May. This adds a $1,100,000,000 portfolio of multi strategy and strategy focused funds, supported by a proven distribution platform to the business. From an asset raising perspective, we continue to make progress in our managed account offering. We recently were awarded a large U. S. State pension plan mandate. And this, together with the other institutional infrastructure mandate won in late twenty fourteen, will fund towards the 2015 and through 2016. In addition, we have won two significant fund of fund mandates from UK local authority, totaling $380,000,000 of fund. To complement this organic growth, we'll continue to look at other possible acquisitions in the fund of funds, long only and private market space, seeking to ensure we remain disciplined on price, structure and cultural fit. That said, the environment for asset management M and A is fairly strong at present, and we are not finding many opportunities at valuation which makes sense to us. Distribution. Let's now have a look from an investor perspective how geographical footprint is developing and what the opportunities are in each region. EMEA continued to be our biggest market with sales in this region comprising 60% of the total in the six months to June 2015. In Continental Europe, opportunities are coming from sales of used product. And as I mentioned earlier, we are seeing some traction with the AHL and numeric product launch at the end of last year and from developing relationship with key pension fund in The Nordics, Benelux, Switzerland and Germany. In The Middle East, our strong relationship with sovereign wealth fund continue to present good opportunities. In The UK, relationship with local authority are developing with the two FRN mandate I've just mentioned, being good evidence of this. And in the retail market, Japan core Alpha has always seen strong demand, and we have a reasonable pipeline of other long haul products with very good track record to sell. Sales from the Asia Pacific region comprised 19% of total sales, including one $1,200,000,000 mandate. The opportunity in this region are mainly in Australia, and we are targeting superannuation and public investment corporation. And in Japan, where we continue to develop our relationship with Semi Trust and are focusing on the top pension fund. 21% or $2,200,000,000 of sales were from The Americas, up from $700,000,000 in the 2014, so some improvement. North America remained a work in progress, but we are continuing to improve our business with 32% of our FUM managed from North America and 22% of fund run from client domiciled there. Recent hires on the investment side and the managed win I just mentioned from key institutional accounts will help to improve our brand recognition in the region. In the wealth management channel, the recent acquisition have been shown we are considered strategic partners by two out of the three major wirehouse. Despite this, there is still a long way to go. As we have said before, meaningful progress in this market will always take time. MAN, a very different business to five years ago. Before I finish, I just want to spend a moment looking at how MAN has changed over the past five years. The business has become more diversified by manager, by product and by geography. Whereas historically, MAN might have been thought as a provider of alternative funds to retail investors sold in structured product format, we are now a much broader based business. We have repositioned MAN as a provider of high alpha investment strategies across a wide range of liquid investment style, asset classes and geographies. 44% of our strategies are quant based, run through AHL and numeric 42% are discretionary, run-in GLG and 14% are run on a multi manager basis through FRN. Some 42% of our assets are long only and 58% in alternative. Geographically, we are looking to diversify away from EMEA, particularly into the critical North American market. As I mentioned, 32% of our fund is now run from North America and 22% of our fund is run on behalf of North American clients. Finally, our business has become much more institutional in nature with 73% of funds run from institution globally. Our third party retail business continues to be extremely important to us, but we hope to be a beneficiary over time of a continuing trend whereby large institutional clients seek to put more money to work with fewer managers. This trend has been seen in our own business over the last two years and presents an opportunity for us in the long run. Conclusion and outlook. In the nearer term, however, markets may remain challenging and accordingly, we are more cautious in our outlook for the remainder of the year. As ever, we remain totally committed to investing in talent, research and technology and building the optimal environment to deliver superior risk adjusted performance for our clients, which will ultimately translate into the delivery of value for our shareholders. With that, let me sit down and we'll move to Q and A. Good morning. It's Tom Mills from Credit Suisse. You've spoken in the text about having reasonable institutional client demand for AHL. I guess, think that's mainly on the kind of nontraditional side. Can you give us an idea how much capacity you have left in those segments? So we have remember, we really have three main products. Trend following, we have Evolution, which is new market, we have Evolution Frontier, who is the baby of Evolution and we have Dimension. Evolution is close to new investor. Evolution Frontier is open. Trend and Dimension have substantial capacity. Good morning. It's Peter Lovartos from RBC. Just a question for you, Manny. You indicated on GLG's performance that it was strong and broad based. But how do you link that with the fact that performance fees at GLG were down a third year on year? Because we're below high watermark. Right. So just on an absolute rate. Thanks. Good morning. Gergit Kambo, JPMorgan. You mentioned the environment for M and A is quite attractive at the moment. Is it particularly in the fund of funds business or just generally across asset management? I think the comment comment on M and A was actually the market is very strong at the moment, which is different to being an attractive environment for M and A. So actually, you're seeing some very aggressive deal making going on in the space right now. And we've continued the pace of looking for opportunities, looked at well over 100 things this year. But it's very, very difficult to find things at the right price. So yes, strong environment in the wrong way for us at the moment. Any particulars or areas you're looking at at the moment? It's really as there has been fund to funds consolidations, long only managers, less so on the direct hedge fund side and certain private strategies, for example, locked up credit as well as the nothing. I also think, I mean, just to state the obvious, which I do very well, it's the end of a bull market. You have intense M and A in all sectors. And by definition, prices are very high. And I'm sure that every single investment banker is very busy trying to cobble together deals. That is not the environment that we're looking at in terms of creating value for shareholders. And I think we try very, very hard to remain intensely disciplined and not to fall in love. We've seen the movie before. Yes, it's Philip Middleton from Merrill's. I'm sure that the investment banks in this room would say there's still value out there. Could you say a little bit about what you've been doing organically to create new investment styles and capacity in those? Because that's one the most interesting things you've doing over the last few years. How has that investment you've been putting into place bearing fruit? And what do you see the prospects are for the next sort of half or two halves from new strategies? So I think I'll give you two answers. So obviously, Philippe, we've talked quite a bit about when we inherited the business, we had one trend following product, AHL. And we have diversified our way significantly by having different quant products with HIFI performing very well. And we have a whole series of other products in AHL, which we are going to be pushing. So from a volatility fund to target risk product to an equity product. And we really see the quant business between AHL and Numeric as a great opportunity where we will build product organically and we'll be able to add alpha to the bottom line. And I think that is one of the key imperative. You heard both of us say that again and again and again, but the growth there will be finding the right ideas, finding the right product, designing them, making sure that makes sense and then selling them. On the GLG side, it's been a good market to hire super talented people. And some of the issue in terms of capital for the banks and what will happen in London should give us plenty of opportunities to add people to the team. And I think we are excited about the opportunities that we have to boost our investment team. And so let me just give you a few example. The performance of Henry Dixon and Rory Power, and I don't want to jinx it, are really great. And if everything hangs in there and the world doesn't come to an end and they keep on performing, I have no doubt they raise money. Himanshu Gulati came with six people. He's going to build for us a great U. S. Distress and event driven business in The U. S. Once again, we're incredibly excited about the team. But as you know, part of it depends on the performance and part of it depends on the environment. And the very frustrating part of this world is that none of us asked for Greece to happen and none of us thought that Greece was going to last long. And obviously, when you have a crisis in Europe, it's not helping. So hopefully, it's behind us, but it's very predictable, political crisis don't help anyone. Morning. It's Paul McGinniss at Shaw Capital. Just following on from Peter's question on GLG performance fees. Just noticed from the appendix just on Slide 33 that you've now got 84% of GLG assets either at peak or very close to peak. Just in terms of how that would bode for the second half, am I right thinking in terms of it wouldn't take an awful lot in H2 for that figure to kind of be quite significantly higher? You've asked a perfectly fair question, but it obviously depends on how performance goes in H2. And hopefully, we've given the disclosure that you need to figure out where those can come out bearing in mind, of course, the compensation ratios on figuring out the profitability of those performance fees. Morning. Daniel Garrett from Barclays. Can I ask a couple of questions on the Japan core alpha product outlook? You mentioned that that was the bulk of the outflows from the GLG long only side because of profit taking. Wondering what sort of visibility your performance has still obviously been very good in that quarter to June in that fund visibility on further institutional or sorry, redemptions out of your clients because of profit taken on that front? And how do you manage capacity on that? You mentioned it was closed 2014, reopened May. What sort of capacity remains there? And how quickly can you presumably, is frowned upon to open and close it so quickly and successively? So let me sort of walk back. First, we had a very big redemption, which kind of came out of nowhere for reasons which have nothing to do with performance. And it is for a client where we made an enormous amount of money. And I'm incredibly proud of the performance that Steve Harker and the team have generated in the Japan Core Alpha product. They do an amazing job and they represent what's best in terms of fund management. And so we obviously don't control the investor appetite for Japan. Japan has had a fabulous run over the past two years. If people are interested into Japan, we have 3,000,000,000 to $4,000,000,000 of capacity at least. And so we'll attract assets, whether people will want to invest into Japan, we'll find out. But clearly, we'll try hard and our performance is absolutely excellent on any length of time with any possible horizon. And how do you manage that sort of the closing of capacity and then the reopening five months later, We that's not an always do what's best for clients. And so if we think that market liquidity changes, if we think that our ability to rebalance the portfolio is affected for any product, we will stop taking money. As I said many, many times in this room, the only way to run an asset management business is to do what's best for investors. And so we are constrained by size. And you'll see at any point in time in the MAN Group, a series of products, which will be closed for new subscription. And the rule would always be the same. Hi. It's Hailey Tam from Citigroup. Two quick questions, please. Firstly, the FOM business, you've flagged some pretty big mandates that you've won that are going to be funded soon. Can I just confirm that the 81 basis point run rate margin actually includes those mandates in the future? The run rate, no. And so I think historically margin has been much lower than 81% on new mandates. Is that Yes, correct. I mean the managed accounts business is fifteen, twenty basis point type business. Thank you. And the second question just on GLG. You've obviously talked about the outperformance in the first half and the benefit of the new hires. Forgive me if I missed this. How quickly do you think that will start to come through really in terms of fund flows for that business? I mean, it seems like most of my job is to try to predict flows, which is always great. The performance is very strong. I Europe has underperformed The U. S. By 50% and the valuation gap is literally 1% to 2%. So I would think that a fair bit of money from The U. S. Is going to go into IFA and various longer lead equity product. And that's true for the industry as a whole. Then the question becomes what's our market share, what's our wallet size, how well are we going to do and whether we'll capture a chunk of the flows. But if Europe managed not to stumble with another Greece situation, this should be an environment for the industry which should be positive for asset manager. And I think from a valuation standpoint, Europe has never looked that good. And the big risk factor, which is obvious to everyone is obviously the political situation. Thank you. Good morning. It's Anil Sharma from Morgan Stanley. Just two questions. I take your point on the kind of diversity over the last five years and what you've done with the business is obviously very impressive. But I'm just trying to understand, if I look at your management fee PBT, could you give us a sense because you're still running the business as essentially separate brands, what percentage of the profits are coming from the different managers? And are you kind of when you're thinking out of the next few years, are you trying to get to effectively an even split, I guess, is the question? And then the second question was just on the GLG alternative side. And again, please correct me if I'm wrong, but I thought there was some capacity constraints in, for example, the credit funds last year. So given I know performance is quite good, is there actually ability to raise some assets in some of these products? Take one, I'll take two. So on the breakdown of the profitability between the business, we just take one step back. In the asset management space, you have these multi boutique models like a Legg Mason or an AMG, where I'm sure they add a lot of value at the top and there are some shared services, but effectively all of those businesses are run entirely separately. If you meet a manager at Legg Mason, for example, they have all of their own back office, all of their own group functions, all of their own sales and marketing. And we're run completely differently. So we have four separate investment engines, but everything else is delivered from the center to all four businesses. So yes, there are some costs, obviously, that are very direct to the four investment engines, the cost of the investment managers, their travel and expenses, etcetera. But the vast, vast majority is at the center. And if you were to ask me to split the finance department expenses or the legal department expenses or any other department expenses between those businesses is an extremely artificial exercise, which is a long way of not answering your question. In terms of where you're trying to get the business to, you move from a position five years ago where clearly our business was very geared to AHL's performance. So 1% movement in AHL through performance magnified by the structured products caused a big impact to the P and L and therefore a big impact to the share price. And maybe a 1% movement led to a 4% or 5% increase of the share price in the share price at the peak. We still have a business that's clearly very dependent on AHL. It's an extremely important part of our business. And if you look at the relationship between our profitability and therefore our share price with short term movements, on the one hand, it's perfectly rational if you're just marking the P and L to market. But perhaps the best way to look is over the longer term. And to your point about where we might like to get to, you go from being very geared to AHL to being pretty correlated to AHL to hopefully then being much less correlated. And then one day you never know you might be uncorrelated. But that is without doing some enormous merger of equals that's not something that's going to happen overnight. So hopefully, doesn't answer your question. So credit product by product, U. S. Distress, plenty of capacity, silver mine, plenty of capacity, CLO in Europe, plenty of capacity, market neutral, which is run by Steve Roth, plenty of capacity Long Term Liquid is plenty of capacity European Distressment capacity. So that's the one which is closed. Thanks. I've noticed that the seed capital program is getting quite large now and potentially going up to $700,000,000 I suppose with the FCA regulatory capital review coming up, do you think there's potentially any change to how they might view that? So the seed capital program is obviously something that the FCA is fully aware of. It's run according to VAR limits, not the total size. So to take an extreme example, if we had $1,000,000,000 of long only seeding all hedged, obviously, the VAL would be relatively low. So the VAL limit is what we're managing it towards. But it does come as a cost in terms of your regulatory capital. You're absolutely right. We're keen to fund that rec cap requirement in the most efficient way possible, which is why we did the lower Tier two issue five and seveneight tax deductible last year. But you're right, it all comes at cap a cost. As to prejudging where our review might come out, it's the usual two year ICAP cycle. Two years ago, we talked to having the same review and the fact that you simply can't prejudge where they're going to come out. Just to make sure we're the same wavelength, right? We have a $61,000,000 to Sigma VaR right now yearly, okay? Yearly. So obviously, we hope that when we see the product, we make money. I mean, this shouldn't be a cost. Well, thank you for everybody. BAML in its magnificence has full plate of croissant and pastry next door, which are very bad for the management of this firm. So thank you for coming. Have a great summer and we're going to stick around.