Last checked at 14 Mar 2014 14:33
Man Group plc
In compliance with Listing Rule 9.6.1 the following documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do
1. Annual Report for the year ended 31 December 2013 (the "Annual Report")
2. Notice of 2014 Annual General Meeting (the "AGM Notice")
3. Form of Proxy for the Company's 2014 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 27 February 2014. 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 and mitigants
Risk | Mitigant |
1. Investment underperformance risks Fund underperformance on an absolute basis, relative to a benchmark or relative to peer groups would reduce funds under management (FUM) and may result in lower subscriptions and higher redemptions. This may also result in dissatisfied clients, negative press and reputational damage.
Lower FUM results in lower management fee revenue and underperformance results in lower performance fees, if any.
The breakdown of Man's FUM and revenue margins by product line is shown on page 16. |
This is the key risk Man has to accept if it is to undertake its business.
Man's investment businesses each have clearly defined investment processes designed to target and deliver on the investment mandate of each product.
Fund and manager performance is closely monitored, and we focus on hiring and retaining highly skilled professionals who are incentivised to perform within the parameters of their mandate.
Man's diversified range of products and strategies across the alternatives marketplace mitigates the risk to the business from underperformance of any particular strategy.
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2. Regulatory risks Man offers a wide range of investment products from a global network of offices in 19 jurisdictions. This results in Man being subject to a matrix of regulations both at a supra national and individual jurisdiction level, coupled with a rapidly changing regulatory environment.
Man is regulated by 20 regulators and lead regulated by the UK Financial Conduct Authority.
Notable recent regulatory developments include the implementation of the EU Alternative Investment Fund Managers Directive, the implementation of CRD IV, preparations for EMIR and Dodd Frank Chapter VII and the emergence of detail on UCITS V, MiFID/MiFIR, Market Abuse Directive II and Financial Transaction Tax.
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Man supports proportionate and thoughtful global regulation and initiatives that develop the regulatory environment.
Man continuously assesses whether the products it markets comply with new regulations as they emerge and change. In this respect, the company conducts an independent review process for all products.
Man continues to liaise directly with competent authorities e.g. IOSCO, ESMA, NFA, HMT, FCA, DFSA and CSRC through its Compliance department which consists of approximately 28 FTE (or equivalents) specialists functionally split between Corporate, Investment Management, Sales and Marketing and Financial Crime. Compliance is located across eight jurisdictions.
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3. Operational risks Operational risk is defined by Man as the risk resulting from inadequate or failed internal processes, people, systems or from external events.
Man continues to outsource a number of functions that were previously performed internally. The risks are that the outsourced service providers do not perform as required, resulting in knock-on implications for our business as a whole. |
Man's Operational Risk Policy provides an overview of the responsibilities that all staff have to identify, assess, monitor and manage operational risk within the Group.
The aim is to ensure that operational risks are identified, understood, assessed and mitigated in such a way that their financial impact is managed in accordance with a defined risk appetite.
Risk and Control Self-Assessment (RCSA) is at the core of our assessment of operational risks. Key risk indicators and operational risk events are also analysed to ensure that our assessment of operational risks in RCSA is up-to-date and correctly reflects the Group's operational risk profile.
Man's operations team have extensive experience of running an outsourcing process, and have implemented a robust methodology (including extensive KPI monitoring) to ensure that service providers are able to deliver as required - this is in turn monitored by Risk Assurance Committee (RAC) and ARCom.
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4. Credit/counterparty risks The risk that a counterparty with which the funds or Man have financial transactions fails to deliver back investor or shareholder assets.
Shareholders and investors in Man funds and products are exposed to credit risk of prime brokers, clearing houses, futures clearers, depository banks and guarantee providers, if any.
Man also provides loans to guaranteed products, and so is subject to counterparty risk to certain investor funds. |
Man diversifies its deposits across a number of the strongest financial counterparties, each of which are approved by the Finance Committee and have maximum exposure limits set, in line with Man's risk appetite.
Man monitors credit spreads and ratings of our main trading counterparties and banks as forward indicators of their credit quality. During 2013 the average CDS spreads for banks have remained tight as central banks have maintained strong liquidity provision policies.
Guaranteed products are closely monitored, and leverage is actively adjusted such that the risk of default related to balance sheet loans to funds is small.
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5. Discretionary trading risk The risk that fund managers place inappropriate trades outside of mandate and regulatory boundaries. Man may need to compensate for any losses arising for such trades, as well as face the possibility of fines, lawsuits and reputational damage.
Such risks include insider dealing, valuation, mis-allocation between funds and market abuse.
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Front office systems provide automated checks and controls at portfolio and trade level. Each investment management business has dedicated risk management personnel who monitor portfolio profiles and provide independent challenge.
In addition all fund managers are required to undertake regular mandatory training to ensure they are aware of due processes and their responsibilities related to the placing of trades.
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6. Key staff retention The risk that a key person to the business leaves or is unable to perform their role.
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Man has been able to attract and retain an array of talented individuals across the Group. Business and investment processes are designed with a view to continue this trend and minimise the impact of losing any particular key individuals. In addition, there is an established succession planning process at senior levels of the business.
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7. Legal risks The global nature of Man's business, with corporate and fund entities collectively located in 19 jurisdictions, makes it subject to a wide range of laws.
Failure to comply with these laws may put Man at risk of fines, lawsuits or reputational damage. |
Man operates a robust legal framework which underpins all aspects of its business and is resourced by experienced legal teams.
These teams are physically located in Man's key jurisdictions helping them to understand the context and impact of any legal requirements.
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8. Reputational risks The risk that an incident or negative publicity undermines our reputation as a leading alternative 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 our outsourcing providers. |
Our reputation is dependent on both our operational performance and fund performance. Integrity is fundamental to ensuring Man is able to attract investment in funds. Our strong governance and control structure outlined above helps mitigate operational concerns, and our attention to people and robust investment processes aim to ensure we comply with very high standards of investment management practice. The Board regularly reviews evidence of whether the right tone from the top is being maintained.
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Related party transactions
Related parties comprise key management personnel and associates. Transactions with related parties include seeding and liquidity investments, loans to fund products, external re-financing guarantees, asset management performance, management and other fees, brokerage commissions, and interest and dividend income.
Total revenue earned from fund entities deemed to be associates included in the Group income statement during the year was $137 million (2012:$169 million) and at 31 December 2013 total fee receivables and loan balances with fund entities deemed to be associates totalled $40 million (2012:$15 million). In addition, at 31 December 2013 Man had entered into committed purchase agreements totalling $1 million (2012: $6 million), and has payables of $1 million (2012: nil) with fund entities deemed to be associates. All transactions with related parties were carried out on an arm's length basis.
The Executive Committee, together with the non-executive directors, are considered to be the Company's key management, being those directors, partners and employees having authority and responsibility for planning, directing and controlling the activities at Man. Key management compensation is reported in the table below.
Key management compensation (a) | Year ended 31 December 2013 $'000 | Year ended 31 December 2012 $'000 |
Salaries and other short-term employee benefits (b) Post-employment benefits (c) Share-based payments (d) Other long-term benefits (d) Termination benefits | 23,191 347 10,270 8,362 1,281 | 8,274 263 16,001 3,154 - |
Total | 43,451 | 27,692 |
Notes:
(a) Key management includes non-executive directors and the Executive Committee including executive directors of the Board.
(b) Salary, benefits (including cash pension allowance) and cash bonus.
(c) Money purchase pension.
(d) Other long-term benefits relate to fund product deferrals. Refer to Note 20 for further explanation of share-based and fund product-based deferred compensation arrangements.
Investments in associates
$m | Year ended 31 December 2013 | Year ended 31 December 2012
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At beginning of the year Additions Share of post-tax profit Dividends received Disposals | 38 2 12 (11) (10) | 41 - 10 (13) - |
At year end | 31 | 38 |
The carrying value of investments in associates primarily relates to the Group's interest in Nephila Capital Limited, an alternative investment manager specialising in the management in funds which underwrite natural catastrophe reinsurance and invest in insurance-linked securities and weather derivatives. In January 2013, Man reduced its holding in Nephila from 25% to 18.75%, realising a gain on disposal of $10 million, which is included as an adjusting item.
Additions of $2 million in the year relate to the acquisition of a 20% holding in OFI MGA (a French asset manager).
Associates are entities in which Man holds an interest and over which it has significant influence but not control. Investments in associates are accounted for using the equity method at cost plus (or minus) our share of cumulative post-acquisition movements in undistributed profits (or losses).
Gains and losses on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the entities. At each reporting date it is determined whether there is any objective evidence that an investment in the associate is impaired. Impairment is calculated as the difference between the recoverable amount of the associate and its carrying value and expensed in the Group income statement.
Where Man has investments in certain fund entities over which it is able to exert significant influence but not control, these are classified as associates. Man has applied the scope exclusion within IAS 28 'Investments in Associates' for mutual funds, unit trusts and similar entities and has classified such holdings as investments and measured them at fair value through profit or loss.
Details of associates will be annexed in the Company's annual return.
Directors' responsibility statement
Each of the directors confirm that, to the best of each person's knowledge and belief:
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and results of the Group;
• the strategic and other reports include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal
risks and uncertainties that it faces; and
• there is no relevant audit information of which the Group's auditors are 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 auditors are aware of that information.
ENQUIRIES
Fiona Smart
Head of Investor Relations
+44 20 7144 2030
fiona.smart@man.com