Last checked at 9 Mar 2018 09:00
Man Group plc
In compliance with Listing Rule 9.6.1 the following documents have been submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do
1. Annual Report for the year ended 31 December 2017 (the "Annual Report")
2. Notice of 2018 Annual General Meeting (the "AGM Notice")
3. Form of Proxy for the Company's 2018 Annual General Meeting
In compliance with DTR 6.3.5 the following information is extracted from the Annual Report and should be read in conjunction with the Group's final results announcement of 28 February 2018. The information reproduced below and in the final results announcement together constitute the material required by DTR 6.3.5 to be communicated in full, unedited text through a regulatory information service. Page numbers and cross references in the extracted information below refer to page numbers and cross-references in the Annual Report. The Annual Report and the final results announcement can be viewed and downloaded at our website www.man.com together with the AGM Notice.
Principal risks
The trend of the risk in 2017 is shown as; /\ (increased), <> (unchanged) or \/ (decreased).
Risks | Mitigants | Status | Trend |
Business risks
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Investment underperformance Fund underperformance on an absolute basis, relative to a benchmark or relative to peer groups would reduce FUM and may result in lower subscriptions and higher redemptions. This risk is exacerbated at times of volatile markets. This may also result in dissatisfied clients, negative press and reputational damage.
Lower FUM results in lower management fees and underperformance results in lower performance fees, if any.
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Man Group's investment businesses each have clearly defined investment processes designed to target and deliver on the investment mandate of each product. We focus on hiring and retaining highly skilled professionals who are incentivised to perform within the parameters of their mandate.
Man Group's diversified range of products and strategies across the alternatives marketplace limits the risk to the business from underperformance of any particular strategy. |
2017 saw broad based performance across many of Man's funds along with the generation of performance fees. Weaker performance of some strategies highlights the diversification across Man's product offerings which reduces the overall risk.
The discussion of Man Group's performance is on pages 10 to 11. |
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Key person risk A key person to the business leaves or is unable to perform their role.
Retention risk increases in years of poor performance. | Business and investment processes are designed with a view to minimise the impact of losing any key individuals. Diversification of strategies reduces the overall risk to Man.
Succession plans and deferred compensation schemes are in place to support the retention of senior investment professionals and key management. | Man Group has continued to be able to attract and retain an array of talented individuals across the Group. Voluntary staff turnover remains moderate. The departure of a senior credit portfolio manager was managed through a succession plan of internal promotion and resulted in low voluntary redemptions.
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Credit risks
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A counterparty with which the funds or Man Group have financial transactions, directly or indirectly, becomes distressed or defaults. Shareholders and investors in Man funds and products are exposed to credit risk of prime brokers, custodians, clearing houses, depository banks and guarantee providers.
Man Group also provides loans to guaranteed products, and so is subject to counterparty risk to certain investor funds. | Man Group diversifies its deposits across a number of strong financial counterparties, each of which is approved and regularly reviewed for creditworthiness by the Counterparty Monitoring Committee (CMC). The CMC also oversees contingency planning ahead of significant market or political events.
The Group Risk function monitors credit metrics, such as CDS spreads and ratings, of the approved counterparties on a daily basis.
Guaranteed products are closely monitored, and leverage is actively adjusted such that the risk of default on balance sheet loans to funds is small.
| Increased regulatory scrutiny and capital requirements for investment banks has improved the overall stability of Man's counterparties.
There were no periods of heightened concern about individual names in 2017, but European elections were closely monitored by the CMC. |
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Liquidity risks
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Volatile markets can place additional, often short- term, demands on the balance sheet. Man Group is exposed to having insufficient liquidity resources to meet its obligations.
Adverse market moves and high volatility may sharply increase the demands on the liquid resources in Man Group's funds. Market stress and increased redemptions could result in the deterioration of fund liquidity and in the severest cases this could lead to the gating of funds.
| Man Group has access to a revolving credit facility and maintains a liquidity surplus.
Man Group conducts regular liquidity tests on its funds and endeavours to manage resources in such a way as to meet all demands for fund redemptions according to contractual terms.
| A reduced guaranteed products portfolio and illiquid funds/assets within portfolios has reduced potential demands for liquidity.
The asset liquidity distribution across funds has remained broadly unchanged. | \/ |
Market risks |
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Investment book Man Group uses capital to seed new funds to build our fund offering and expand product distribution. Man Group is therefore exposed to a decline in value of the seeding book. | A disciplined framework ensures that each request for seed capital is assessed on how it facilitates its risk and return on capital.
Approvals are granted by the Seed Investment Committee (SIC), which is comprised of senior management, Risk and Treasury. Investments are subject to risk limits, an exit strategy and are hedged to a benchmark where appropriate. The positions are monitored regularly by Group Risk and reviewed by the SIC.
| Seeding book risks reduced in 2017 with net redemptions, particularly from a large concentrated position in a US distressed credit fund. Overall seeding book returns have been strong and the long only funds out-performed their benchmark hedges. | \/
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Pension risk Man Group underwrites the risks related to the UK defined benefit pension plan which closed to new members in 1999 and future accrual in 2011. The plan is well funded, but is exposed to changes in net asset versus liability values. | The UK pension plan has a low net exposure to equities and UK interest rates following asset reallocations by the trustees in 2015/2016. Longevity risk remains, but is uncorrelated to Man Group's other risks. | The plan maintained a stable surplus throughout the year. A trienial valuation of the scheme is underway. The fund will directly own additional assets after the Reservoir Trust maturity in March 2018 (see page 131), and is expected to maintain a low-risk growth portfolio.
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Operational risks |
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External process failures Man Group continues to outsource a number of functions that were previously performed internally as well as managing outsourcing arrangements on behalf of its funds. The risk is that the outsourced service providers do not perform as required, resulting in knock-on implications for our business as a whole.
| Man Group's operations team has implemented a methodology (including ongoing third party due diligence and KPI monitoring) to confirm that outsourced service providers are delivering as required. | The Group has been concentrating its outsourcing into a smaller number of carefully selected and proven outsource providers with which it has established working relationships allowing for greater process consolidation and rationalisation. | \/ |
Information security and cybercrime security The risk of loss resulting from cybercrime, malicious disruption to our networks or from the theft, misplacing, interception, corruption or deletion of information. | We continue to invest and improve the Group's diligence across all IT layers (perimeter, network, endpoint, applications and data). This includes implementing advanced solutions applying artificial intelligence and machine learning to detect vulnerabilities and insider threats monitoring. The Group is also increasing the use of automated remediation to allow for swifter and more effective incident response. The Group has a cyber-risk training programme and has commissioned independent threat and security assessments, including simulated staged attacks on our network to test our detection and response capability.
| Cybercrime attacks are growing in terms of scale and complexity as hackers continuously seek to circumvent software improvements.
The fast pace of innovation by cybercriminals makes it particularly challenging to assess the effectiveness of our defences and deliver protection against this increasing threat.
However, the Group has responded by improving its resilience against these threats. The information security and cybercrime risks remain under scrutiny at board level. | /\ |
Information technology Risk of losses incurred by IT software and hardware failures resulting in system downtime, severely degraded performance or limited system functionality. | The Group recognises the fundamental role of technology in delivering the Group's objectives. The Technology Group is focused on delivering five key themes: improving data management, improving the digital experience across the Group, improving the operating model by consolidating technology, investing in the control and security framework and innovating in the right technology at the right time.
| The technology of the Group has been significantly improved in 2017 with the delivery of new platforms, software, infrastructure and integration of Cloud services. This trend will continue to ensure that the Group can continue to position itself to be able to leverage further advances in technology. | <> |
Integration risk Acquisitions into the Group introduce short-term integration risks. | Our Risk and Compliance teams independently review the businesses risk assessments (including integration risks) and the appropriateness of risk mitigation plans. Internal Audit evaluates the effectiveness of the Group's risk management, control and governance processes.
| There have been no new acquisitions since Aalto. | <>
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Regulatory breach The global nature of Man Group's business, the expansion of its investment businesses and the acquisition of new investment businesses, with corporate and fund entities located in multiple jurisdictions and a diverse investor base makes it subject to a wide range of laws and regulations. Failure to comply with these laws and regulations may put Man Group at risk of fines, lawsuits or reputational damage.
Changes in laws and regulations can materially impact Man Group or the sectors or the market within which it operates.
The FCA in the UK is Man Group's lead regulator.
| Man Group operates a global legal and compliance framework which underpins all aspects of its business and is resourced by experienced teams. These teams are physically located in Man Group's key jurisdictions helping them to understand the context and impact of any requirements.
Emphasis is placed on proactively analysing new legal and regulatory developments to assess likely impacts and mitigate risks.
Man Group continues to liaise directly and indirectly with competent authorities e.g. FCA, IOSCO, ESMA, HMT, NFA, DFSA and CSRC.
| Man is experiencing an increase in the breadth and complexity of regulations globally including Markets in Financial Instruments Directive (MiFID II), the General Data Protection Regulation (GDPR) and the Senior Managers Certification Regime (SMCR). Preparation for MiFID II has been a priority in 2017 and was successfully implemented by 3 January 2018.
These new regulations may result in an increase in regulatory risk in the short-term as the regulator starts to review implementation and understand their effect on investment markets. | /\ |
Reputational risks
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The risk that an incident or negative publicity undermines our reputation as a leading investment manager. Reputational damage could result in significant redemptions from our funds, and could lead to issues with external financing, credit ratings and relations with outsourcing providers.
| Our reputation is dependent on both our operational and fund performance. Our governance and control structure mitigates operational concerns, and our attention to people and investment processes are designed to comply with accepted standards of investment management practice.
| Man continues to enjoy a good reputation and this risk is assessed as stable. | <>
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Related party transactions
Related parties comprise key management personnel, associates and fund entities which Man is deemed to control. All transactions with related parties were carried out on an arm's length basis.
Refer to Note 17 for details of income earned from associates. Management fees earned from fund entities in which Man holds a controlling interest are detailed in Note 13. Contingent consideration payable to Numeric and Aalto management is detailed in Note 25.
The Executive Committee, together with the non-executive directors, are considered to be the Group's key management, being those directors, partners and employees having authority and responsibility for planning, directing and controlling the activities at Man. The average key management headcount for the year ended 31 December 2017 has increased by around 3% from 2016.
Key management compensation | Year ended 31 December 2017 $'000 | Year ended 31 December 2016 $'000 |
Salaries and other short-term employee benefits1 | 42,456 | 24,263 |
Share-based payments | 8,636 | 7,114 |
Fund product based payment charge | 7,743 | 9,589 |
Pension costs (defined contribution) | 577 | 290 |
Total | 59,412 | 41,256 |
Note:
1 Includes salary, benefits and cash bonus.
Man made a charitable donation of £25,500 to Greenhouse Sports Ltd during the year (2016: £50,000), which is considered a related party. In addition, £3,700 (2016: £1,800) was paid to VWA Search Ltd, a recruitment firm, which is considered a related party.
Directors' responsibility statement
Each of the directors, whose names and functions are on pages 45 to 47 confirm that, to the best of each person's knowledge and belief:
- The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
- The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face;
- The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's and Group's performance, business model and strategy; and
- There is no relevant audit information of which the Group's auditor is unaware, and that they have taken all steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that Man's auditor is aware of that information.
Enquiries
Fiona Smart
Head of Investor Relations
+44 (0)20 7144 2030
fiona.smart@man.com
Rosanna Konarzewski
Global Head of Communications and Marketing
+44 (0)20 7144 1000
media@man.com
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