Man Group plc
Annual Report for the
year ended 31 December 2017
M
a
n
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
7
2017 was a year of very positive progress for Man Group with
record net inflows, strong and broad based performance
across our funds and a material increase in profits.
FUM
$109.1bn
2016
2017
$80.9bn
$109.1bn
Revenue
$1,068m
2016
2017
$746m
$81m
$827m
$781m
$287m
$1,068m
Management fees
Performance fees
Adjusted earnings per share
20.3¢
2016
2017
9.0¢ 1.4¢
10.8¢
Management fees
Performance fees
Statutory earnings per share
15.3¢
2016
2017
-15.8¢
10.4¢
9.5¢
20.3¢
15.3¢
Highlights
– Funds under management (FUM) up
35% to $109.1 billion mainly driven by
positive investment performance and
net inflows
– 1.9%1 of net asset weighted
outperformance relative to peers
in 2017
– Positive investment performance
increased FUM by $10.7 billion
– Record net inflows of $12.8 billion,
16% of opening FUM
– 11 basis point reduction in Group net
management fee margin compared to
2016 mainly reflecting strong FUM
growth in lower margin strategies
– Statutory profit before tax of
$272 million
– Adjusted profit before tax of
$384 million, up 87% compared
to 2016 driven by a strong rebound
in performance fees
– Regulatory capital surplus of
$256 million as at 31 December 2017
– Recommended dividend equal to
adjusted management fee earnings for
the year of 10.8 cents per share, with
a recommended final dividend of 5.8
cents per share, payable at a rate of
4.18 pence per share, with total
dividend up 13% in Sterling. Our
dividend policy and availability of
dividend resources is discussed
further on page 29.
i Alternative performance measures
We assess the performance of the Group
using a variety of alternative performance
measures, which are explained on pages
147 to 150.
1 This performance figure does not represent actual performance of
any product.
Man Group is a global investment
management firm, focused on generating
outperformance for clients. This is achieved
through a diverse spectrum of specialist
active investment disciplines, empowered
by the latest technology.
Contents
Strategic report
A description of our business model,
markets and strategy.
Highlights 2017
Our business model
Group at a glance
Chairman’s statement
Strategic framework
Chief Executive Officer’s review
Diverse Investment strategies
Innovative solutions
Strong client relationships
Technology empowered
Key performance indicators
Chief Financial Officer’s review
Risk management
People and culture
Corporate responsibility
Responsible investment
Charitable trust
Man Group’s literary sponsorships
Corporate governance
How our Board of Directors sets
strategic direction and provides
oversight and control.
Corporate Governance report
Board of Directors
Audit and Risk Committee report
Nomination Committee report
Directors’ Remuneration report
Directors’ report
Directors’ Responsibility Statement
1
2
4
6
8
10
14
16
18
20
22
24
30
36
40
41
42
43
44
45
56
62
65
95
97
The Strategic report was approved by the
Board and signed off on its behalf by:
Luke Ellis
Chief Executive Officer
Financial statements
Financial statements for the Group
including a report from the
independent auditor.
99
105
Independent auditors’ report
Group income statement
Group statement of
105
comprehensive income
106
Group balance sheet
107
Group cash flow statement
Group statement of changes in equity 108
Notes to the Group
financial statements
Parent Company
financial information
Notes to the Parent Company
financial statements
Five year record
142
144
141
110
Shareholder information
Supporting information for investors.
Shareholder information
Alternative performance measures
Glossary
145
147
151
01
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report OUR BUSINESS MODEL
Market trends
A number of key trends are driving
change in the asset management
industry. Our commercial differentiators
and client focused business model
mean we are well positioned
to address these trends.
Active versus passive
There are two trends impacting
flows in our industry. At one end of
the spectrum, a move to ‘passive’
investments such as index trackers
for investors wanting to just follow the
market at low cost. At the other, a move
to highly active products that provide
genuine alpha and manage portfolio
risk by seeking returns uncorrelated
with general market movements.
As an active investment manager
focused on high alpha strategies, the
increased demand for actively managed
assets creates a real opportunity
for future growth within our firm.
Fee pressure
There has been increased pressure
on fees across the industry, partially
due to the low yield environment. While
this has impacted certain areas of our
business where price competition is
more intense, most of the reduction
in fee margin at the Group level over
recent years has been due to a change
in business mix from retail focused
guaranteed products to diversified
alternative and long only strategies sold
to institutions. Our clients continue to
pay full fees for innovative products with
a strong track record. We also believe
there are a number of opportunities to
work profitably for our clients on larger
scale business, at a lower basis point fee,
which is still attractive to shareholders
such as the infrastructure mandates
within Man FRM or collateralised loan
obligations (CLOs) within Man GLG.
Regulatory environment
Regulators play an important role in
our industry and we have been faced
with the biggest regulatory change in
recent years with the requirements of the
MiFID II Directive effective from January
2018. 2017 implementation costs were
a headwind for many in the industry
as will be the ongoing costs from 2018
onwards. Although this new regulation
adds complexity and cost to our business,
it does enhance the advantages of
scale and will affect the competitiveness
of smaller firms disproportionately.
02
Our commercial differentiators
In addition to the strength of our people, robust risk
management, a central infrastructure and a strong financial
and capital base, we have four key commercial differentiators:
Diverse investment strategies:
Innovative solutions:
Our business has five specialist
investment units, or engines, which
represent our capabilities: Man AHL,
Man Numeric, Man GLG, Man FRM
and Man GPM. These engines house
numerous investment teams, working
both independently and collaboratively
within the framework of Man Group and
the firm’s single operating platform.
i More on page 14
We seek to develop the very best investment
opportunities for our clients, tailored to their
particular needs and constraints. Our breadth
of capabilities and infrastructure allows
us to design customised solutions to best
serve our clients’ unique requirements.
i More on page 16
Strong client relationships:
Our Sales team provides our clients with
one point of contact across Man Group
and our five investment engines. This one
key contact understands their investment
needs and can present the diverse
range of options available to them.
i More on page 18
Technology empowered:
We use innovative financial technology and
quantitative techniques across our business,
and believe this enables us to deliver results
for clients. We are committed to being a leader
in this area, and we continually invest in talent,
technology and research as we strive to be at
the forefront of the industry.
i More on page 20
Man Group plc Annual Report 2017Strategic report strengthen our business model and enable us
to deliver stakeholder value
Man is focused on delivering high quality active management
solutions for our clients. Each client has one point of contact whose
role is to be an expert in that clients’ needs and wants and who can
deliver the Man organisation to the client.
ATIVE
N
R
E
LT
A
O R K I N
B
W
M
U
L
T
I
-
R
M
A
A
N
D I S C RETIONARY
G T O G ETHER TO D
T E R SOLUTIO
T
E
N
S
E
L
I
V
E
R
1 POINT
OF CONTACT
FOR CLIENT
A
G
C
R
E OF OPTIO N S W E O F FER
OSS THE D I V
S E
E
R
P
R
I
V
A
T
E
M
A
R
K
E
T
S
E
TIV
U A NTITA
Q
LONG- O N L Y
N
A
G
E
R
Key
Asset class
Investment style
Investment strategy
Our investment teams offer a broad range of products and
services to address clients’ investment needs covering
quantitative, discretionary and multi-manager. We are active
across equity, multi-asset, real estate, commodities, currency,
credit and volatility markets. We offer long only, alternative and
private markets strategies and we are able to leverage the diverse
expertise from across the firm into Man solutions, which provides
innovative tailored portfolio solutions for our clients. Each of our
investment teams benefit from the strength of the firm’s single
operating platform, enabling their primary focus to be on
delivering outperformance for clients.
Underpinned by governance and oversight
i More on page 44
Clients
Our clients are at the heart of everything we do.
Superior, risk-
adjusted returns
Servicing clients’
needs
1.9%
net outperformance
relative to peers in 2017
56%
of FUM from clients
invested in four products
or more
Net Inflows
$12.8bn
in 2017
Broad range of
strategies
72
strategies and service
solutions run across the
Group at 31 December
2017
Shareholders
We aim to maximise shareholder returns by focusing
on delivering outperformance for clients and by
operating and allocating capital efficiently.
Shareholder returns
Dividend
$1.4bn
over the last five years.
$0.9bn in dividends paid
and $0.5bn in four share
repurchases
10.8c
for the year ended 31
December 2017
Employees
We operate a workplace focused on meritocracy,
fairness and equal opportunities, while developing
and retaining talent through continuing education
and constructive feedback loops.
Internal transfers
Nationalities
92
during 2017
59
working at Man Group as
at 31 December 2017
Community
We are conscious of the impact of our organisation
on the communities in which we operate and have
taken steps to ensure we are contributing positively
to those around us.
Charitable trust
Volunteering
$500k
donated in 2017
10%
increase in volunteering
in 2017
03
Man Group plc Annual Report 2017REAL ESTATEMULTI-ASSETEQUITYCREDITVOLATILITYCURRENCYCOMMODITIESFinancial statementsCorporate governanceStrategic report
GROUP AT A GLANCE
Over the last five years Man has changed significantly. We have transitioned the
business away from its pre-crisis focus on guaranteed products with one central
strategy to a much larger, more diversified provider of active investment strategies,
with a greater focus on research, innovation and technology to serve clients.
Sales
Our global sales team are committed
to delivering all of Man Group’s
strategies to our clients through
one point of contact.
People in sales and marketing
Strong client relationships
172
at 31 December 2017
56%
of FUM from clients invested in four
products or more
Institutional focus
Net inflows
82%
of FUM from institutional
clients at 31 December 2017
16%
of opening FUM in 2017
Strategies
We focus on generating alpha for
clients through a diverse spectrum of
specialist disciplines, investing in liquid
and private markets around the world.
Investment engines
Our five investment management units
leverage our world class infrastructure
to provide a diverse range of strategies
across investment approaches, styles,
and asset classes.
L
H
A
n
a
M
Infrastructure
We firmly believe our infrastructure
and our technological capabilities are
key commercial differentiators, enabling
us to maintain our position at the
forefront of the asset management
industry and allowing us to evolve and
adapt with our clients’ needs.
i More on page 20
04
c
i
r
e
m
u
N
n
a
M
Man Group plc Annual Report 2017Strategic report
FUM by client domicile
2012
2017
EMEA
Asia
Americas
FUM by strategy
2012
2017
FUM by investment engine
2012
2017
G
L
G
n
a
M
M
R
F
n
a
M
M
P
G
n
a
M
Regulatory jurisdictions
Global headcount
FUM by product
14
jurisdictions in which we are
regulated
1,325
at 31 December 2017
Surplus regulatory capital
Offices
$256m
at 31 December 2017
16
located around the world
2012
2017
Multi-Asset
Currency/volatility
Equity
Credit
Real Estate
Man AHL
Man Numeric
Man GLG
Man FRM
Man GPM
Alternative
Long only
Guaranteed
05
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
CHAIRMAN’S STATEMENT
2017 was a year of not
only delivering excellent
results, but also of
building for the long
term future growth and
success of the business
Lord Livingston of Parkhead
Chairman
Board focus during 2017
The focus of the Board during the year centred
on delivery of the significant improvements in
the quality and effectiveness of our organisation,
the review of risk and the substantial new
compliance requirements of the industry
including MiFID II.
The Board spent time reviewing the
progress that has been made in improving
the consistency of performance in our
discretionary alternative strategies, looking
at research activity within our quant teams
to develop new products and the continued
development of innovative client focused
solutions across the firm. In addition,
significant time was spent discussing people
and the culture of the business, encouraging
the promotion of diversity and talent
development at all levels of the organisation.
The acquisition of Aalto was completed at the
beginning of the year and the Board spent time
reviewing the progress and performance of this
business and how well it was being integrated
onto the Man platform. Potential acquisitions
were also reviewed, with time spent evaluating
potential opportunities that could add to the
Group’s growth and long term profitability.
We have continued to monitor the potential
impact of Brexit and seek to ensure
we are well positioned to deal with any
outcome the negotiations may bring.
Overview of the year
2017 was a year of strong performance across
our business. We delivered absolute returns for
clients across our investment strategies with the
majority of these strategies outperforming their
peers. In addition, the record net inflows in the
year of $12.8 billion reflected not just the strong
investment performance but the quality of our
investment propositions, our approach to deep
client relationships and the excellent work done
over the past 12 months to strengthen our sales
organisation. This combination of strong
performance and record net inflows led to a
35% increase in funds under management.
The growth in assets and strong relative
investment performance, combined with our
continued focus on running the business in
an efficient and effective manner, have led to
excellent profit growth, with a 87% increase in
adjusted profits for the year to $384 million.
Our statutory profit before tax was $272 million.
The strong profit growth reflected a significant
increase in performance fees, with material
contributions from a wide range of strategies.
We have achieved this growth despite 2017
being a year where the trend following industry
largely had negative performance. Our
management fee profits have also grown
strongly, driven by the increase in assets during
the year albeit at a steadier pace than the asset
growth as some of the largest inflows were into
our lowest margin products. We continue to
return our management fee earnings to
shareholders as a dividend. As a result of this
growth in management fee profitability and also
the impact of a reduced share count due to our
ongoing share buyback programme, our total
proposed dividend per share for the year is up
20% in US Dollars.
06
Man Group plc Annual Report 2017Strategic report
Funds under management
35%
increase from 2016
Adjusted profit before tax
$384m
up from $205m in 2016
Proposed dividend per share
20%
increase from 2016 in $
At Man, we recognise that
our long term future is
shaped by the contribution
to the communities in which
we operate
Board changes
We were pleased to welcome Dame Kate Barker
to the Board in April and to appoint Richard
Berliand as Senior Independent Director in May.
In September, Phillip Colebatch retired from the
Board. Phillip was on the Board for ten years
and during that time served as Chairman of
the Remuneration Committee for eight years
and Senior Independent Director for four years.
On behalf of the Board, I would like to thank
Phillip for his dedication to the firm and for his
leadership and contribution throughout his
many roles.
Outlook
2017 was a year of not only delivering
excellent results, but also of building for the
long term future growth and success of the
business. I would like to pay tribute to the
management team led by Luke Ellis and all
our people for what has been achieved.
We will continue to build on this good base by
investing in our people, our technology and
developing innovative investment strategies to
deliver value both to our clients and the millions
of pensioners and investors they represent and
to our shareholders.
Lord Livingston of Parkhead
Chairman
Remuneration
The exceptional performance of the business
is reflected in a high level of bonus payment
across the firm, as it is in strong returns for
our clients, higher dividends and one of
the best share price performances in the
FTSE 250. This is an appropriate alignment
of the interests of our key stakeholders.
Maintaining this alignment of experience was
at the core of our review of our Directors’
Remuneration policy, which shareholders will
be asked to approve at the AGM in May 2018.
This review included extensive consultation
with a majority of our shareholders, and their
representative bodies, on the most appropriate
approach for executive remuneration in our
business. We have been well aware of the
need to address the legacy concerns on
remuneration raised by some shareholders.
In proposing the new policy, under which
the maximum variable opportunity is
substantially reduced, the Remuneration
Committee has sought to demonstrate that
it will act responsibly in the interests of both
the Company and its shareholders. Our
approach to the new policy is explained fully
in the Directors’ Remuneration report.
Community
At Man, we recognise that our long term future is
shaped by the contribution to the communities
in which we operate. Our employees are
actively involved in charitable initiatives and
volunteering opportunities local to the firm’s
offices through the ManKind Programme.
ManKind gives employees the opportunity to
take two additional days paid leave per annum
to volunteer with charities supported by the Man
Charitable Trust or with a charity of their choice.
We have also set up a separate US based
Charitable Trust to benefit the communities and
employee volunteering activities in our local US
regions. Furthermore, we have a worldwide
commitment to promoting education and
literacy, underscored through our sponsorship
of the Man Booker Prizes and the charitable
activities of the Booker Prize Foundation.
Return of capital
During 2017 we completed the share buyback
programme announced in 2016. In October, we
announced the return of a further $100 million to
shareholders through a share buyback
programme. Across the two programmes we
repurchased $92 million worth of shares in total
in 2017. In line with our dividend policy, the
Board has announced a recommended final
dividend of 5.8 cents per share, subject to
approval by shareholders at the 2018 AGM.
07
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report STRATEGIC FRAMEWORK
We aim to generate outperformance for our clients
and therefore grow our business. We achieve this
through the quality of our research and innovation,
our ability to understand and meet the needs of
our clients and operating the business efficiently
to generate long term value for our shareholders.
Key reads
Business model
Key performance indicators
Risk management
Directors’ Remuneration report
2
22
30
65
Our strategic
priorities
Innovative investment
strategies
Generating outperformance for clients
through high quality research, developing
our people, and the strength of
our technology.
i More on page 11
Returns to shareholders
Generate excess capital to either
return or re-invest to maximise long term
returns to shareholders.
i More on page 29
Efficient and
effective operations
Building institutional quality technology
and infrastructure, providing scalable
options for growth, whilst operating
the business efficiently.
i More on page 12
08
Strong client
relationships
Building long term partnerships with
clients, through a single point of contact,
to understand their needs and offer
solutions across our range of strategies.
i More on page 12
Man Group plc Annual Report 2017Strategic report Key performance indicators
(KPIs)
Our four financial KPIs as listed below
illustrate and measure the relationship
between the investment experience of our
clients, our financial performance and the
creation of shareholder value over time.
Risks
Man Group identifies the principal risks
across the firm and assesses their likely
impact. We measure and monitor the size
of our risks and implement controls and
transactions to reduce and hedge exposure
in order to ensure that they stay within our
risk appetite framework.
Investment performance of key funds
against relevant benchmarks and
reference indices:
Related
strategic
priority
Man AHL – met
Man FRM – met
Man GLG – met
Man Numeric – met
Net FUM flows for the period as
a percentage of opening FUM
Related
strategic
priority
15.8% Target range
0%–10%
met
Adjusted management fee EBITDA
margin
Related
strategic
priority
25%–40%
27.7% Target range
met
Adjusted management fee EPS growth
Related
strategic
priority
20.0% Target range
0%–20% + RPI
met
Business risk
The key risks of investment
underperformance, people, and regulatory
change are all risks Man Group has to
accept if it is to undertake its business.
Related
strategic
priority
Credit risk
The risk whereby a counterparty with which
the funds or Man Group have financial
transactions fails to deliver back investor or
shareholder assets.
Related
strategic
priority
Liquidity risk
The risk of Man Group losing capital due to
the Group having insufficient liquidity
resources to meet its obligations in volatile
market conditions.
Related
strategic
priority
Market risk
The risk of Man Group losing capital due to a
decline in the value of the seeding book or
UK pension fund.
Related
strategic
priority
Operational risk
Resulting from human error, inadequate or
failed internal processes and systems or from
external events.
Related
strategic
priority
Reputational risk
The risk that an incident or negative publicity
undermines our reputation as a leading active
investment manager.
Related
strategic
priority
Remuneration
Executive director remuneration is directly
linked to strategy and performance, with
particular emphasis on matching rewards
to results over the long term. In developing
our new Remuneration Policy in 2017, for
approval by shareholders at the 2018
AGM, maintaining this link has been
centre of our thinking.
Linked to strategy
A substantial portion of executive director
remuneration is linked to success in
implementing the Group’s strategy.
Progress against the Group’s strategic
priorities and KPIs provide key metrics
for determining the short and long term
variable pay.
i See page 67 of the Directors’
Remuneration report for how
the proposed new policy links
to our KPIs
Performance related
The variable components of total
remuneration are linked to performance and
deliveries for our clients and shareholders.
High pay requires high performance.
Achieving the maximum pay requires
sustained high performance across
all businesses over several years.
i More on pages 74 to 77
Long term shareholder alignment
The structure of pay is designed to
reflect the long term nature of the Group’s
business. Alignment with shareholders has
been further enhanced in the new policy
with a new Long Term Incentive Plan with
a three year performance and subsequent
two year post-vesting holding period and
increased shareholding requirements to
be retained after departure.
i More on pages 88 to 90
Shareholder engagement
The Remuneration Committee actively
seeks to understand shareholder
preferences and be transparent in
explaining its policy and practice. As
part of the review of the Directors’
Remuneration policy in 2017, the
Remuneration Committee Chairman spoke
to a majority of our shareholders and their
representative bodies to obtain views
on the most appropriate approach for
executive remuneration in our business.
i More on pages 54 and 86
09
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
CHIEF EXECUTIVE OFFICER’S REVIEW
Investment performance
was strong and we
are pleased to have
outperformed peers by
1.9% on average across
our strategies
The strong outperformance coupled with
positive momentum in markets during 2017
led to an investment performance related
increase in FUM of $10.7 billion. Strong client
demand for Emerging Market debt, FRM
managed accounts and quant strategies led
to net inflows of $12.8 billion for the year, albeit
the flows were typically lower margin. The
combination of these two factors as well as an
FX tailwind and the acquisition of Aalto led to a
35% increase in funds under management to
$109.1 billion. The growth was broad based,
with our alternative and long only strategies,
quant and discretionary approaches, and
all of our investment engines growing their
funds under management during the year.
Adjusted profit before tax increased to
$384 million, compared to $205 million in
2016, principally due to a strong rebound in
performance fees. We are particularly pleased
to see this rebound in fees in a year which was
not a favourable environment for traditional
trend following strategies. This highlights the
benefit of the diversified set of performance
fee earning strategies both within Man AHL
and across the Group. Adjusted management
fee profit before tax was up 14%, growing
at a steadier pace than the increase in FUM
as our revenue margin compressed due to
strong asset growth in lower margin strategies.
Statutory profit before tax was $272 million,
compared to a loss of $272 million in 2016 when
we had the impairment of Man GLG and Man
FRM’s goodwill and intangibles. Our business
continues to be strongly cash generative with
adjusted profit after tax (a good proxy for
operating cash flow) of $337 million in 2017.
Performance
Market overview
2017 was characterised by a bull market for risk
assets. US equities ended the year at record
highs, spurred by the positive sentiment from the
passage of US tax reforms. The TOPIX was up
22% and despite the UK election result and the
uncertainty surrounding Brexit, the FTSE 100
ended the year up 12%. Emerging markets
trends were also positive with the MSCI emerging
markets index up 37% for the year. Fixed income
markets had a volatile year selling off substantially
during the last week of June only to recover in the
second half of the year with world bonds and
corporate bonds ending the year up 2% and 12%
respectively. Traditional energy markets such as
oil and natural gas saw numerous peaks and
troughs but oil prices rallied towards the end
of the year.
2017 marked a year of
excellent operating and
financial performance
for Man
Luke Ellis
Chief Executive Officer
Overview
During the year we made significant progress
in respect of our key strategic objectives
which has laid firm foundations for the longer
term growth of the business. Investment
performance was strong and we are pleased to
have outperformed peers by 1.9% on average
across our strategies. This performance has
been recognised by our clients with record
inflows, but more importantly we are developing
better and deeper relationships with the world’s
largest and most sophisticated asset owners.
This resulted in us adding a significant number
of new relationships with strategically important
asset owners during the year. We continue to
add further innovative investment capabilities,
for instance in Alternative Risk Premia and
Private Markets, and to invest in research and
innovation, whether that be machine learning
techniques across our quant strategies or new
discretionary teams in GLG. From a regulatory
perspective an enormous amount of hard work
went into ensuring we were ready to meet all
MiFID II obligations at the start of 2018 with the
whole firm working together to achieve this.
10
Man Group plc Annual Report 2017Strategic report Alternatives
Against this backdrop returns in many trend
following strategies were limited, with the
Barclays BTOP ending the year down 0.6%. Man
AHL’s traditional trend following programmes,
AHL alpha and AHL diversified fared noticeably
better finishing the year up 5.3% and 5.0%
respectively. AHL evolution, our trend following
strategy in non-traditional markets, continued
its very strong track record and ended the year
up 17.9%. AHL dimension, with its allocation
to a range of Man AHL’s strategies, ended the
year up 3.9%. In contrast to the strong overall
performance of Numeric, its alternative strategies
had weaker performance with the largest market
neutral strategy down 1.7% for the year.
Towards the end of 2016 we took steps to
improve the consistency of discretionary
alternatives performance through the
appointment of a GLG CIO, a restructure of the
risk team and efforts to bring best practices in
risk management and technology to bear from
across the Group. Good progress has been
made with strong performance generated in
2017 and Man GLG’s Alternative Strategies
Dollar Weighted Composite delivering returns of
8.3%, versus the HFRX return of 6.0%. Credit
strategies followed up a strong 2016 with
another year of excellent performance, and Man
GLG’s equity strategies also had a strong year
with the firm’s flagship European Long-Short
strategy generating returns of 6.5% in 2017,
outperforming the HFRX Equity Market Neutral
Hedge Index and many direct competitors.
Across our total return strategies, Alternative
Risk Premia, which combines liquid strategies
from Man AHL and Man Numeric, continued its
strong performance since launch, ending up
10.1% for the year. The Emerging Market debt
total return strategy which launched in 2016
ended the year up 2.3%, underperforming its
competitors due to its bearish positioning.
Man FRM’s strategies also had strong
investment performance throughout the
year. FRM Diversified II was up 6.2% and
outperformed the HFRI Fund of Funds
Conservative Index by 2.3%.
Long only
Man Numeric had another strong year
generating overall net asset weighted
outperformance versus benchmark of 2.1%3.
Positive alpha generation in international
strategies including Emerging Markets Core and
Global Core was partially offset by weaker alpha
in US stocks resulting in negative performance
for US strategies including Small Cap Core and
Large Cap Core.
Most of Man’s discretionary long only strategies
had good absolute and relative performance in
2017. However the largest individual strategy,
Japan CoreAlpha with its strong value approach
underperformed the TOPIX by 5.5%, as value
underperformed as a style in Japan, which
resulted in Man GLG’s long only strategies
underperforming their benchmarks by 2.5%
on an asset weighted basis. The Continental
European Equity strategy outperformed its
reference index by 1.2% and the UK
Undervalued Assets strategy outperformed
its benchmark by 17.2%.
Progress against strategic priorities
Innovative investment strategies
Research and innovation is a key priority
across our business. Markets do not stand
still; we need to keep innovating to perform
for our clients and we invest a huge amount
of time and energy in research. Given our
focus on maintaining outperformance, we
monitor capacity across our strategies and
we will regularly have various products
that hit their capacity and we soft close to
ensure we maintain client returns. However,
the constant research and innovation effort
across the firm means we will also have
new strategies we have developed to help
clients address their investment needs.
We added some exciting
new capabilities during
2017 including Risk Premia
and Private Markets
Man Alternative Risk Premia is a good example
of the collective expertise across the firm
helping to solve problems for our clients. Man
FRM’s own portfolio construction process had
made clear the benefit of a liquid, cash efficient
strategy uncorrelated to traditional assets, as
part of an overall alternatives portfolio. They
worked with Man AHL and Man Numeric to
develop a multi-premia, multi-strategy, multi-
asset approach allocating across four broad
alternative risk factors. These systematic trading
strategies have multi-level risk management
and leverage Man’s entire range of investment
expertise. Man FRM then worked with Sales
and Product Structuring to provide a suite
of flexible solutions to meet individual client
requirements. The strategy is up 20.9% since
inception in 2015; we started marketing to
clients around the world during the year and are
seeing strong interest with $4.0 billion of assets
raised to date and a decent sales pipeline.
We have expanded the focus of our research
across the firm in machine learning and data
analytics, to provide growth opportunities from
utilising new research techniques and forms of
data. This initiative continues to develop, and a
number of new machine learning-based signals
have been added to several of our quant
programmes at Man AHL and Man Numeric this
year. Man GLG added a machine learning team
during the year in order to use this already well
known cutting edge research from quant and
introduce it into its discretionary offerings. We
believe technology allows discretionary fund
management to materially improve individual
investment decisions, the implementation of
those ideas and the risk management of overall
portfolios. Man is particularly well positioned to
bring the benefits of technology to bear on
discretionary investment processes.
Another focus during 2017 was on trading and
execution. We have appointed a director of
trading to manage this effort across Man,
bringing together traders, trading technologists
and researchers. We believe this initiative will
deliver superior execution results for all of our
investment engines to the benefit of our clients
and increasing our capacity. In many asset
classes, electronic market makers are
increasingly replacing traditional brokers as the
principal source of liquidity and as a result a
globally coordinated central execution team
will allow us to better adapt to today’s market
structures. We have made significant efforts this
year to reduce trading costs which translates
directly into improved performance for clients.
We added a new private markets capability
through the acquisition of Aalto Invest in
January 2017, with Man Global Private Markets
(Man GPM) launched at the same time.
Within Man GPM, we have funded several
new mandates within our global real estate
debt and US residential equity strategies as
well as launched a new US direct lending
fund. We are encouraged by the additional
commitments from longstanding clients and
the initial interest shown by our clients for
this new asset class within Man. In line with
our overall strategy, we continue to look at
other possible acquisitions, including in the
private markets space to complement Aalto,
continuing to ensure we remain disciplined
on price, structure and cultural fit.
1 Performance figures shown net of representative
management and performance fees. Past performance is
not indicative of future performance.
2 Where a strategy has a formal benchmark, performance is
compared to this. Where no formal benchmark has been
set, “benchmark” should be taken to refer to a relative
index. Relative performance is provided for illustrative
purposes to provide market information and is not meant to
be an accurate comparison. The strategy is managed
significantly differently than the benchmark or index.
3 Numeric’s net asset weighted alpha for the year to
31 December 2017 is calculated using the asset weighted
average of the performance relative to the benchmark for
all strategy composites available net of the highest
management fees and, as applicable, performance fees
that can be charged.
11
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
We are developing better
and deeper relationships
with the world’s largest and
most sophisticated asset
owners, adding a significant
number of new strategic
relationships during the year
From a geographical perspective, whilst
EMEA continues to be our biggest market, the
business is now better balanced as we have
seen strong growth in the US market over the
last five years. Gross sales from the Americas
accounted for 32% of the total sales in 2017
compared to 29% in 2016. At 31 December
2017, 27% of FUM was from clients domiciled
in the Americas compared to 8% in 2012.
Gross sales from the Americas have grown
from $1.1 billion in 2012 to $10.8 billion in 2017.
Strong client relationships
2017 saw excellent engagement with our
existing and targeted clients across the globe,
as reflected in record net inflows for the year
of $12.8 billion. We continued to make good
progress in building long term relationships
with clients and during the year we added a
significant number of new relationships with
strategically important asset allocators and
distributors. Seeing many of our key targeted
clients make their first investments with Man,
and our existing clients entrusting us with
further allocations is one of the best signs of
the progress we have made and the strength
of our business today. The trend of clients
investing across the firm is also continuing with
a number of existing clients investing in new
products in 2017. 73% of FUM is now sourced
from clients investing in two products or more
and 56% of FUM from clients investing in
four products or more. Furthermore, 59% of
FUM is sourced from clients investing across
more than one of our investment engines.
There has also been a significant amount of
work done to strengthen our sales organisation
which has translated into an improvement in
the effectiveness of the function. The focus
of the team has been on attracting and
developing talent, targeting resources and
building the strongest client relationships
possible. 2017 saw a 55% increase in gross
sales to $33.7 billion driven by strong flows into
FRM managed accounts, Man’s Alternative
Risk Premia offering, and Emerging Market
Debt strategies in particular. As highlighted
previously it is important to note that the
margins on these sales were lower than the
average for the Group. Redemptions of $20.9
billion were across a range of strategies and
in line with the redemption rate in 2016.
Efficient and effective operations
We continually assess our cost base across
the firm in comparison to our revenue earning
capabilities to ensure we are running the
business as efficiently as possible while
investing for growth. We completed the
restructuring initiatives that were started in 2016
with the costs of the restructuring in line with
expectations. From a regulatory perspective the
whole firm worked together to ensure we were
ready to meet all MiFID II obligations at the start
of 2018. The ongoing costs associated with
MiFID II will add around $10-15 million to our
cost base from 2018 onwards.
In November we moved all our London
teams to the same location in the City
of London. We are already seeing the
significant advantages this generates for
the Group and our clients, with enhanced
opportunities to collaborate and to further
leverage our collective investment expertise.
Our balance sheet remains strong and liquid,
and we continue to support the growth
of new products through our seed capital
programme. We continually assess whether
seeding positions support the business
and a large position in a US distressed
credit strategy has been redeemed as a
result of a lack of investor subscriptions.
We completed our previously announced $100
million buyback in September and announced
a further $100 million buyback in October. Our
surplus capital at 31 December 2017 was $256
million. The proforma surplus capital including
the impact of second half profits, the proposed
final dividend and receipt of year end
performance fees and proceeds from the
redemption from the US distressed credit
strategy is $460 million.
People
When I took over as CEO in 2016 I created a
Senior Management Executive Committee
comprising: Jonathan Sorrell, who is the
President of the Group and responsible for our
Sales and Marketing teams, Man GPM and Man
FRM; Sandy Rattray, who is the Chief Investment
Officer for the Group and responsible for Man
AHL, Man Numeric and Man GLG; Robyn
Grew, our Chief Administrative Officer who is
responsible for Man Group’s infrastructure,
operations, technology, compliance, legal,
human resources and facilities functions; and
Mark Jones, our Chief Financial Officer, who
is responsible for Finance, Investor Relations,
Internal Audit and Risk for the Group. The
team have provided huge support throughout
this year and I would like to thank them, and
more importantly everyone within Man for their
contribution to the significant operating and
financial progress we have made during 2017.
Outlook
In common with others, the recent moves
in markets have impacted our investment
performance in some areas, particularly for
our momentum strategies. However, looking
forward Man is well positioned, with strong
fundamentals, investment in innovative
strategies and a continuing pipeline of interest
from clients. As ever, we remain focused on
delivering long term investment performance
and the highest quality service to our clients.
Luke Ellis
Chief Executive Officer
12
Man Group plc Annual Report 2017Strategic report PROGRESS AGAINST OUR STRATEGY
In 2017, we have made significant progress against our
strategic priorities. During 2018 we will continue to focus
on research and innovation and build on new and existing
client relationships, whilst running the business efficiently
and investing for growth.
Innovative investment strategies
Strong client relationships
How we performed in 2017
– GLG added a machine learning team during the year and are using
quant techniques in their discretionary management processes.
Improvement in performance at GLG with asset weighted
performance for GLG alternatives of 8.3% in 2017
– A number of machine learning-based signals added to several
of our quant programmes at Man AHL and Man Numeric during
the year
– Seven new strategies developed at Numeric
– Started marketing Alternative Risk Premia strategies which has
raised $4.0 billion since launch
How we performed in 2017
– Continued growth in clients investing across our products, with
73% of FUM from clients invested in two or more products and 56%
from clients invested in four or more products
– Continued growth in the US with $4.6 billion of net inflows from
clients in the Americas in 2017, up from $2.2 billion in 2016
– Added a significant number of new relationships with strategically
important asset owners during the year
Objectives for 2018
– Maintain the consistency of performance within Man GLG
– Focus on the deployment of machine learning techniques to aid
investment decision making across the Group
– Generate incremental high value add capacity in AHL
– Develop new strategies particularly through collaboration between
the capabilities of Man AHL, Man FRM, Man GLG and Man
Numeric to develop innovative products
Objectives for 2018
– Attract and develop talent in sales, focusing on hiring required
additional people and providing relevant training and development
across all levels
– Target resources effectively, balancing near-term sales and asset
retention, with the need to build the business longer-term from a
product and client perspective
– Broaden and deepen existing client relationships and continue to
– Continue the work started in 2017 on reducing execution and
develop relationships with key target clients
trading costs
Efficient and effective operations
Returns to shareholders
How we performed in 2017
– Completed restructuring plan implemented in 2016 to reduce
our fixed cost base by $20 million. 2017 fixed cash costs down 4%
to $321 million
– Continued investment in technology with a new Client Relationship
management system implemented in 2017 and a new Finance and
HR system planned for implementation in 2018
How we performed in 2017
– Completed $100 million buyback in September 2017 and
announced a further $100 million buyback in October 2017
– $181 million of adjusted performance fee profits generated in 2017
– Identified and reviewed around 100 potential acquisition
opportunities during the year
Objectives for 2018
– Continued focus on our cost base to ensure we run the business
Objectives for 2018
– Maintain focus on balance sheet efficiency and active management
efficiently whilst addressing all risks and opportunities
of capital
– Selective investment in certain areas of the Group, particularly in
quant and technology to ensure we remain at the forefront of our
industry
– Continue to actively foster a diverse and inclusive culture across
the business through the DRIVE programme and over broader
D&I agenda
– Continuously review processes around MIFID II to ensure we are
being as efficient as possible
– Generate additional surplus capital through performance fee profits
– Assess capital returns alongside any potential acquisition
opportunities to ensure the best risk adjusted investment of capital
1 Performance figures shown net of representative management and performance fees.
Past performance is not indicative of future performance.
13
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIVERSE INVESTMENT STRATEGIES
Independent
yet collaborative
investment teams
Our different investment
styles have significant
synergies
Sandy Rattray
Chief Investment Officer
Our teams invest across a diverse range of
strategies with highly specialised approaches,
from quantitative to discretionary and alternative
to long-only, accessing a broad spectrum of
asset classes. Within their specialist areas,
portfolio managers operate with a high degree
of autonomy over their investment decisions
and strategy.
Man Numeric
Man Numeric is a quantitative equity manager
invested in almost every equity market in the
world. The investment engine employs
disciplined and systematic investment
processes, underpinned by a robust
fundamental approach.
Man AHL
Man AHL employs diversified quantitative
techniques to offer a range of strategies
which encompass traditional momentum,
non-traditional momentum, multi-strategy and
sector-based approaches. Man AHL applies
scientific rigour and cutting-edge technology
and execution to a diverse range of data in order
to build systematic investment strategies, trading
continuously over hundreds of global markets.
Man FRM
Man FRM is an alternatives investment
specialist, deploying investment and advisory
services within institutional portfolios. Man FRM
provides a full service offering to clients, ranging
from advisory work to customised and
commingled portfolio solutions, as well as a
leading, technologically innovative managed
account platform.
Man GLG
Man GLG is a discretionary investment
engine, offering a diverse range of alternative
and long only investment strategies across
equities, credit and multi-asset approaches.
Man GLG’s investment teams are encouraged
to think independently, while sharing
and debating ideas, unconstrained by a
house view. They are supported by robust
infrastructure, technology and research to
ensure that fund managers can focus on
generating attractive performance for clients.
Man GPM
Man GPM focuses on investments in private
markets, including real and corporate assets
across the capital structure. Launched with the
acquisition of Aalto Invest in 2017, Man GPM is
focused on sourcing investment opportunities
offering attractive risk adjusted returns. The
investment engine aims to broaden Man
Group’s offering into illiquid assets such as real
estate, private credit and infrastructure, further
diversifying the Group and offering our clients
more comprehensive investment opportunities.
People by investment engine
Man AHL
Man GLG
Man Numeric
Man FRM
Man GPM
167
160
91
55
36
14
Man Group plc Annual Report 2017Strategic report Our business has five specialist investment
units, or engines, which represent our capabilities:
Man AHL, Man Numeric, Man GLG, Man FRM
and Man GPM. These engines house numerous
investment teams, working both independently and
collaboratively within the framework of Man Group.
Each team benefits from the strength and resources
of the firm’s single operating platform, enabling their
focus to be on delivering outperformance for clients.
Worldwide markets
650
different markets that Man AHL
operates in at 31 December 2017
Investment strategies
72
different investment strategies and
solutions run across the Group at
December 2017
15
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report INNOVATIVE SOLUTIONS
Creative and
tailored solutions
for our clients
Managed Accounts
Initially launched in 1998, Man FRM’s Managed
Accounts platform is an alternative way of
investing in hedge funds that allows our clients to
have increased transparency and control over
their investment while also decreasing costs and
gaining access to differentiated and high quality
hedge fund return streams. We currently have
$16.4 billion FUM in 66 actively managed
accounts. Our custom developed reporting tool,
Clarus, allows investors to easily survey their
investments and chart their returns against
comparisons as well as within different time
frames. This platform has grown by 15% in 2017,
largely due to the growing demand for more
transparent and accessible hedge fund investing.
Research and innovation
are a priority across all
our investment engines
as we seek to generate
superior risk adjusted
returns for our clients
and develop innovative
new strategies over time
Luke Ellis
Chief Executive Officer
EM Debt sales
$4.2bn
in 2017
Risk Premia performance
10.1%
in 2017
16
Alternative Risk Premia
Developed over the last couple of years using
expertise from across the Group, our Alternative
Risk Premia strategies aim to offer uncorrelated
returns within very liquid markets. Man has
a long history of researching, implementing
and executing alternative risk factors and this
strategy leverages one of the world’s largest
quantitative R&D groups into alternative factor
investing. We started marketing the strategy in
early 2017 and it has proved of growing interest
to clients due to its liquidity and uncorrelated
return profile. $4.0 billion has been raised in the
strategy to date and there is a good pipeline
of interest from clients. Performance of this
strategy has also been strong, it was up 10.1%
in 2017 and is up 20.9% since inception in 2015.
EM Debt
GLG’s Emerging Markets Debt strategies provide
our clients access to the complex offerings of
Emerging Markets debt through local currency
rates, hard currency debt, and debt total return.
The strategies are run by a team headed up by
Guillermo Osses, who joined Man in 2015 and
has broad experience across all aspects of
emerging markets debt investing including credit
analysis, currency and rates trading. The
investment team working on this strategy
combine deep fundamental research with top
down and quantitative screening. Launched in
April 2016, we have raised $5.3 billion into the
strategies to date and we continue to see
ongoing interest from clients.
1 Performance figures shown net of representative
management and performance fees. Past performance is
not indicative of future performance.
Man Group plc Annual Report 2017Strategic report Man Group is a diverse firm that benefits from a
variety of investment opportunities and strategies. As
there is rarely a single ‘right’ answer to the question
of how to invest, we engage in close dialogue with
clients as partners, to understand their particular
needs and constraints. Our breadth of capabilities
and infrastructure allows us to design customised
solutions to meet the specific requirements of
clients, and best serve their unique situations.
17
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report STRONG CLIENT RELATIONSHIPS
One point of
contact across
the Group
The sales team
Investor requirements vary significantly across
investor types, geography and regulatory
jurisdiction. With a well established network of
offices in key locations and developed regulatory
relationships in all of the markets in which we
operate, Man has a powerful level of insight into
investor preferences as well as regulatory
requirements. Our sales offices are
predominantly staffed with local people such
that investors and distributors can interact with
specialists who speak their language and
understand the culture and particular nuances
of doing business in that region. We have 95
sales and marketing people covering the EMEA
region, 29 covering the Americas and 48
covering the Asia Pacific region who learn
extensively about each of our investment
engines and have a broad knowledge of the
product set available to clients.
Building deeper client
relationships
Our priority is to build long term partnerships
with our clients, through one key point of
contact, who understands the clients’ needs
and is able to offer answers from across the
broad range of our strategies. We have made
significant progress in building relationships with
strategically important asset owners over the
past few years. We continue to see our clients
investing in a number of different strategies
across the Group, with 56% of FUM coming
from clients invested in more than two products.
Clients are also increasingly investing across our
different investment engines, with 59% of FUM
from clients invested in more than one
investment engine. We believe this theme will
continue as institutional investors look to work
with fewer providers.
Geographic coverage
Our business is well balanced geographically.
EMEA is our biggest market with 55% of FUM
from clients in this region. The US has been our
main geographical focus for growth for a
number of years and we have seen growth in
this region accelerate over the last five years
with 27% of FUM from clients in the Americas in
2017 compared to 8% in 2012. 18% of FUM
comes from clients in the Asia Pacific region.
Our clients have a single
point of contact within
our sales team, who
understands them
and their needs
Jonathan Sorrell
President
Global Sales and Marketing
people
172
at 31 December 2017
Net flows
$12.8bn
in 2017
18
Man Group plc Annual Report 2017Strategic report Building long term relationships with our clients
is key to growing organically, particularly as an
institutionally focused business. The breadth of
our investment strategies and the strength of our
structuring capabilities mean that we have the
resources and experience necessary to support
a wide range of clients.
19
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report TECHNOLOGY EMPOWERED
At the forefront
of quantitative
innovation
Machine learning
Simply defined, machine learning is a process
in which a range of applied algorithms identify
repeatable patterns and relationships within
observed data. The combined fields of
computer science, information engineering and
mathematics all contribute to machine learning
making it a hybrid discipline that encompasses
many schools of thought. We do not generally
view it as a replacement for human ability, but
as a tool to enable investors to benefit from
areas where the amount of data or subtlety
of patterns are best handled by a machine.
Machine learning techniques have been
researched at Man for over 6 years and it is a
part of what we do. At the Oxford Man Institute
of Quantitative Finance (OMI), we have moved
away from researching techniques in general
quantitative finance and have focused our
efforts in on the autonomous machine learning
process. We have already implemented these
autonomous algorithms in both our quantitative
and discretionary investment engines as well
as in execution, and we expect it to play a
role in everything we do in the next decade.
Data
At Man we use data in a comprehensive way
across all of our investment engines. Within
Man AHL, we use hundreds of data sources
to develop and improve our strategies, with
each dataset bringing a unique insight into
how markets trade. We have dedicated teams,
such as the Data Innovation team in Man AHL,
which seek out exciting new datasets and
bring them into our investing strategies. We
recognise that to transform data into knowledge,
we need market acumen, technology and
mathematics. We rely on our thirty years of
trading experience to provide us with business
intuition and invest in a sophisticated data
infrastructure and in advanced machine
learning techniques to utilise data both
within Man AHL and across the Group.
Infrastructure
Investing in our infrastructure is key to staying
ahead of the curve. We have worked hard to
enhance our operating systems to meet MiFID
II requirements and our changing regulatory
environment. We have appointed a Director
of Trading and are implementing advanced
trading systems in order to build a centre of
excellence across trading in all areas of the
Group. This year we have delivered a new
Client Relationship Management system in
sales and we use technology to help our
clients understand their portfolios through the
Clarus platform. We also intend to upgrade our
Finance and HR software in order to maintain
our competitive advantage and to continue
attracting top people across the industry.
We go out of our way
to create an excellent
environment for the
very best technologists
Robyn Grew
Chief Administrative Officer
20
Man Group plc Annual Report 2017Strategic report At Man, we use innovative financial technology and
quantitative techniques across our business, and believe
this enables us to deliver results for clients. We are
committed to being a leader in this area, and continually
invest in talent, technology and research as we strive to
be at the forefront of the industry. We have a unique
partnership with the University of Oxford, the Oxford Man
Institute, conducting field-leading research into machine
learning and data analytics, which can be applied to
investment management across our investment engines.
Quantitative investment
management experience
30
Man AHL was established in
1987 and Man Numeric was
established in 1989
Quants and technologists
458
In Man Group at 31 December 2017
21
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report KEY PERFORMANCE INDICATORS
Our financial KPIs illustrate and measure the
relationship between the investment experience
of our clients, our financial performance and the
creation of shareholder value over time. As
indicated in the Directors’ Remuneration report on
page 70 our KPIs are a key determinant of the
remuneration of the executive directors and are
used to regularly evaluate progress against our
key strategic priorities of research and innovation,
strong client relationships, and efficient and
effective operations, which together drive returns
to shareholders. Our alternative performance
measures are discussed on pages 147-150.
The results of our KPIs this year reflect the
increase in our FUM base as a result of strong
organic growth due to good performance and
flows. We had strong outperformance for Numeric
and GLG, and good relative performance for AHL,
although absolute performance was more
moderate, and FRM fund of funds. We achieved
record net inflows, largely driven by strong asset
raising in total return and multi-manager solutions
strategies. Management fee revenue and
profitability increased in 2017, despite margin
compression as a result of growth in lower margin
strategies, due to higher average FUM and a
reduction in our fixed costs base.
Investment performance1
Target: Fund vs Benchmark
Actual
Benchmark
2017
AHL
Numeric3
GLG
FRM
Link to strategy
2016
met
5.0
7.9
5.02
1.8
met
2.1
0.0
met
8.3
6.0
met
6.2
4.0
met
-7.6
-3.0
-9.2
-11.0
met
1.4
0.0
not met
0.3
2.5
not met
-3.8
1.9
The performance of the key strategies compared
to the benchmarks gives an indication of the
competitiveness of our investment performance
against similar alternative investment styles
offered by other investment managers.
The investment performance KPI measures the net
investment performance for our managers (AHL,
Numeric, GLG and FRM), excluding GPM which
was established as a result of the acquisition of
Aalto during the year. For AHL, GLG and FRM,
investment performance is represented by key
strategies against relevant external benchmarks/
reference indices. For Numeric, investment
performance is monitored by the net asset weighted
outperformance or underperformance (alpha)3
based on a predetermined benchmark by strategy.
The target for the investment performance KPI is
to exceed the relevant benchmarks.
The key strategies and the relevant benchmarks
are AHL Diversified versus three key peer asset
managers for AHL (the target being to beat two
of the three peers), the GLG Alternative Strategies
Dollar-Weighted Composite versus HFRX for GLG
and FRM Diversified II versus HFRI Fund of Funds
Conservative Index for FRM. For Numeric, net asset
weighted outperformance is based on a benchmark
against reference indices by Numeric strategy.
Comments
We achieved all four of the performance targets,
with the performance of AHL’s diversified strategy
exceeding two out of three of the relevant peer
benchmarks, GLG and FRM’s metrics exceeding
their relevant benchmarks, and Numeric achieving
positive net alpha³ in 2017. Further investment
performance information is provided on page 11.
From 2018, in order to ensure the relative
investment performance KPI reflects the continued
diversification of our business, this KPI will change
to a measure of asset weighted outperformance of
strategies versus benchmark. This will provide a
more complete and balanced view across Man’s
product base as it will include all strategies against
which relevant peer benchmarks are available, as
opposed to certain identified key strategies as
outlined above, and be weighted based on FUM.
This measure will be more dynamic as this will
change as the business continues to evolve,
in line with Man’s strategic priorities.
Where funds have a formal benchmark, performance is compared to this. Where no formal benchmark has been set, ‘benchmark’ should be taken to refer to a relative index.
On an unrounded basis the AHL Diversified performance was above the benchmark.
Numeric’s net asset weighted alpha for the periods stated is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of
the highest rate of management fees charged and, as applicable, performance fees that can be charged.
1
2
3
22
Man Group plc Annual Report 2017Strategic report
We have made some changes to our KPIs which
will be effective from the 2018 financial year.
These changes have been made in order to
ensure our KPIs continue to reflect best practice
in alignment with the Group’s business strategy
and delivery of shareholder value, which also
aligns with proposed changes to the Directors’
Remuneration Policy (see page 67). The
changes are outlined in the sections below.
Measure against our strategy
We clearly link each of our KPIs to our four strategic priorities
Innovative
investment
strategies
Strong client
relationships
Efficient and
effective
operations
Returns to
shareholders
Net flows (%)
Target
0%–10%
2016
2017
Link to strategy
Adjusted management
fee EBITDA margin (%)
Target
25%–40%
2016
2017
Link to strategy
Adjusted management
fee EPS growth
Target
0%–20% + RPI of 4.1%
2016
2017
Link to strategy
met
2.4
15.8
met
26.1
27.7
met
-11.8
20.0
This KPI measures net FUM flows for the period
as a percentage of opening FUM, with net flows
defined as gross sales less gross redemptions.
Net flows are the measure of our ability to attract
and retain investor capital. FUM drives our
financial performance in terms of our ability
to earn management fees.
Comments
Net flows of 15.8% in 2017 were at record levels
and above the target range, which is indicative
of the strong net inflows into our total return and
multi-manager solutions strategies, as well as
inflows into discretionary long only and absolute
return strategies, partially offset by smaller net
outflows from systematic long only strategies
and guaranteed products.
This KPI measures adjusted management fee
EBITDA as a percentage of net revenues (gross
management fee revenue and income from
associates less cash distribution costs). Our
adjusted management fee EBITDA margin is
a measure of our underlying profitability.
Comments
The adjusted management fee EBITDA margin
of 27.7% was within the target range for the year
ended 31 December 2017, compared to 26.1%
for the year ended 31 December 2016. The
margin increased in 2017, reflecting the lower
compensation ratio and a reduction in fixed
costs due to a more favourable hedged US
Dollar to Sterling rate and continued efforts on
achieving efficiencies within our cost base.
For further information see page 27.
Effective from the 2018 financial year, the
adjusted management fee EBITDA margin
KPI will be removed. Profit margin and overall
profitability remain key priorities for the Board.
These are reflected in adjusted profit before
tax which has been added as a new KPI.
Adjusted profit before tax is a measure of
overall profitability and also reflects the fact that
performance fees, although volatile in nature, are
a key revenue stream for Man and a significant
component of value creation for shareholders.
This KPI measures our adjusted management fee
EPS growth, where adjusted management fee
EPS is calculated using post-tax profits excluding
net performance fees and adjusting items,
divided by the weighted average diluted number
of shares. Adjusted management fee EPS growth
measures the overall effectiveness of our
business model, and drives both our dividend
policy and the value generated for shareholders.
Comments
The adjusted management fee EPS growth
of 20.0%, from 9.0 cents to 10.8 cents, was
within the target range for 2017. Adjusted
management fee EPS growth is largely
driven by the higher net management fee
revenues, a reduction in our fixed costs base
despite growth in the business, a slightly
lower tax rate and higher profits per share
due to the impact of share repurchases
which reduce the number of shares. For
further information on EPS, see page 149.
23
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CHIEF FINANCIAL OFFICER’S REVIEW
We achieved positive
absolute and relative
performance and flows
across the business,
despite a challenging
year for many trend
followers. The continued
diversification of our
business and strong
organic growth has
provided a solid basis on
which we have improved
both our management
and performance fee
profitability
Mark Jones
Chief Financial Officer
Overview
We are pleased to report strong growth in funds
under management (FUM), up 35% to $109.1
billion. The increase was driven by positive
investment performance of $10.7 billion in a
generally supportive market environment for
asset managers, largely from our long only
strategies, and record net inflows of $12.8
billion which were driven by demand for
our emerging market debt, FRM managed
accounts, risk premia and quant absolute
return strategies. The acquisition of Aalto in
January 2017 added $1.8 billion of FUM. In
addition, FUM increased due to FX movements
of $3.1 billion primarily as a result of the US
Dollar weakening against the Euro, Sterling
and Australian Dollar during the year. We have
continued to see attrition of our management
fee margins which is primarily driven by mix
effects, as well as the continued roll-off of
guaranteed product FUM. As a result, the
growth in net management fees has been more
gradual in relation to the movements in FUM.
Net management fee revenue was $736 million
for the year, an increase of 7% from prior year
as a result of the increase in FUM, partially offset
by margin compression as outlined above.
We have continued to diversify our business,
with net management fees from guaranteed
products falling from $31 million to $12 million
in 2017 as this legacy business runs off.
Performance fee revenues increased to
$289 million from $81 million in 2016, with
positive performance across a diverse range
of strategies.
1 Refer to pages 147-150 for details of the Group’s alternative performance measures.
24
We continue to focus our efforts on operating
the business efficiently while investing in
research to build innovative strategies for clients.
Continued focus on cost control, as well as a
more favourable hedged US Dollar to Sterling
rate, have achieved a reduction in our fixed
cash costs despite growth in the business.
Statutory profit before tax was $272 million,
which has increased from the 2016 statutory
loss before tax of $272 million largely as a
result of the non-cash impairment of goodwill
and intangible assets of $379 million in 2016.
Statutory earnings per share were 15.3 cents
(2016: loss of 15.8 cents per share). Our
adjusted profit before tax was $384 million, up
from $205 million in the prior year, and adjusted
earnings per share were 20.3 cents (2016:
10.4 cents). The majority of this improvement
was caused by the adjusted performance fee
profit before tax increasing to $181 million, up
from $27 million in 2016, which reflects solid
performance across our strategies. Adjusted
management fee profit before tax was $203
million, up from $178 million in 2016, as a result
of higher net management fees and a lower
compensation ratio, as well as the reduction in
fixed cash costs. Core management fee profit
before tax¹, which excludes net management
fees relating to guaranteed products, sales
commission income from Nephila and share
of post-tax profits of associates, increased
to $178 million from $132 million in 2016.
Our balance sheet remains strong and liquid,
with net tangible assets of $669 million or 41
cents per share at 31 December 2017. Our
regulatory surplus capital is $256 million at
31 December 2017, and our proforma surplus
capital is $460 million. We expect the change in
the lease accounting standard, which is
applicable from 1 January 2019, to reduce our
surplus capital from 2019 by approximately $120
million (£90 million), primarily due to our property
lease at Riverbank House. This accounting
change has no impact on our lease payments or
our cash flows (see further discussion on page
112). We have a net cash position of $206 million
and we continue to be strongly cash generative
with operating cash flows, excluding movements
in working capital, of $431 million (2016: $245
million). Adjusted management fee earnings per
share, the basis for our dividend payments, has
increased to 10.8 cents from 9.0 cents in 2016.
Our focus remains on ensuring the business
continues to generate strong cash flows to either
return to shareholders or invest to generate
improved cash flows in the future. In line with
this approach, in 2017 we announced a further
$100 million share repurchase, and completed
the acquisition of Aalto.
Man Group plc Annual Report 2017Strategic report
Funds under management (FUM)
$bn
FUM at 31 December 2016
Sales
Redemptions
Net inflows/(outflows)
Investment movement
Foreign currency movement
Other movements
Acquisition of Aalto
Alternative
Long only
Absolute return
Total return
Multi-manager
solutions
Systematic
Discretionary
Total excluding
Guaranteed
Guaranteed
25.4
6.9
(6.3)
0.6
2.1
0.8
0.3
–
6.6
9.2
(1.0)
8.2
0.1
0.4
(0.6)
1.8
11.8
5.8
(2.9)
2.9
0.5
0.4
0.4
–
21.4
4.2
(4.8)
(0.6)
5.8
0.2
–
–
26.8
15.3
7.6
(5.8)
1.8
2.2
1.3
(0.2)
–
80.5
33.7
(20.8)
12.9
10.7
3.1
(0.1)
1.8
20.4
108.9
0.4
–
(0.1)
(0.1)
–
–
(0.1)
–
0.2
Total
80.9
33.7
(20.9)
12.8
10.7
3.1
(0.2)
1.8
109.1
FUM at 31 December 2017
29.2
16.5
16.0
As our business has evolved, we have changed
the categorisation of our FUM such that it better
represents strategies with similar characteristics,
as detailed below.
Absolute return
Absolute return FUM relates to alternative
strategies where clients expect the strategy may
have net long, short or neutral exposure, and
that may make use of leverage to achieve those
exposures. This includes trend following and
discretionary long-short strategies. Absolute
return FUM increased by 15% during the year,
driven by strong investment performance across
the range of strategies in this category. Net
inflows were $0.6 billion, which included $1.3
billion into institutional solutions, $0.5 billion into
Numeric market neutral and $0.3 billion into AHL
evolution strategies, partially offset by outflows
of $0.5 billion from GLG market neutral, $0.5
billion from our GLG equity long short strategies
and $0.6 billion from traditional trend following
strategies AHL diversified and alpha. The
positive investment movement of $2.1 billion was
a result of very strong performance for AHL
evolution, and good broad-based performance
across both quant and discretionary absolute
return strategies. Positive foreign exchange
movements related to the US Dollar weakening
against the Euro, Australian Dollar and Sterling.
Other movements primarily relate to leverage
changes in quant products.
Total return
Total return FUM relates to alternative strategies
where clients expect the strategy to have some
positive exposure to particular risk factors over
the course of a market cycle although the level
of exposure may vary over time. This includes
EM debt total return, GPM, risk premia, and
CLO strategies. Total return FUM increased by
$9.9 billion during the year to $16.5 billion. Net
inflows of $8.2 billion were primarily driven by
strong interest in the risk premia and EM debt
total return strategies. Investment movement
was $0.1 billion for the year, largely due to muted
performance for EM debt total return. Positive
foreign exchange movements related primarily to
the weakening of the US Dollar against the Euro
and Sterling. The negative other movements
relate to CLO maturities during the year. In 2017
we acquired Aalto, a US and Europe based real
asset focused investment manager with $1.8
billion of FUM at acquisition, which has enabled
us to further diversify our client offering.
Multi-manager solutions
Multi-manager solutions FUM includes
traditional fund of fund and infrastructure and
segregated mandates. Multi-manager solutions
FUM increased by $4.2 billion, primarily as a
result of strong net inflows during the year. Net
inflows of $2.9 billion included $2.1 billion of
infrastructure mandates and $2.2 billion into
segregated portfolios, partially offset by net
outflows of $1.3 billion from traditional fund of
fund strategies. The investment movement of
$0.5 billion was largely driven by infrastructure
mandates, where investment decisions
are made by the investors. Positive foreign
exchange movements were primarily due to
the weakening of the US Dollar against the
Australian Dollar, Sterling and Japanese Yen.
Systematic long only
Systematic long only FUM relates to the previous
quant long only category. Systematic long only
FUM increased by $5.4 billion during the year,
as a result of strong investment performance,
partially offset by $0.6 billion of net outflows.
These outflows were concentrated in the fourth
quarter and were driven by client rebalancing
following the strong equity market moves
during the year. Net outflows largely related to
redemptions from the small cap growth and all
cap core strategies. Investment performance
of $5.8 million was largely driven by market
moves and strong relative performance in
international strategies, with Numeric’s overall
net asset weighted outperformance against
applicable benchmarks of 2.1%1 for the year.
Discretionary long only
Discretionary long only FUM increased by
33%, driven by strong performance, positive
net inflows and foreign exchange movements.
Net inflows of $1.8 billion were largely driven
by flows into Japan core alpha, continental
European equity and EM fixed income
strategies. The positive investment movement
of $2.2 billion was driven by performance
from our Japan core alpha, UK undervalued
assets, continental Europe and European
equities strategies. Positive foreign exchange
movements related to the weakening of the
US Dollar against Sterling and the Euro.
Guaranteed products
Guaranteed product FUM reduced by $200
million during the year. There were no sales and
redemptions totalled $100 million. Investment
performance for guaranteed products was
broadly flat during the year. Other negative
movements relate to maturities and de-gearing.
1 Numeric’s net asset weighted alpha for the year to 31 December 2017 is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites
available net of the highest management fees and, as applicable, performance fees that can be charged.
25
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Summary income statement
$m
Gross management and other fees1
Share of post-tax profit of associates
Distribution costs
Net management fee revenue
Performance fees1
Gains on investments2
Net revenue
Asset servicing
Fixed compensation3
Variable compensation
Other costs1,3
Total costs
Net finance expense3
Adjusted profit before tax3
Adjusting items3 (see page 148)
Statutory profit/(loss) before tax
Adjusted management fee profit before tax3
Adjusted performance fee profit before tax3
Year ended
31 December
2017
Year ended
31 December
2016
784
8
(56)
736
289
44
1,069
(37)
(174)
(300)
(165)
(676)
(9)
384
(112)
272
203
181
750
2
(61)
691
81
31
803
(33)
(182)
(206)
(166)
(587)
(11)
205
(477)
(272)
178
27
Statutory diluted EPS profit/(loss)
15.3 cents
(15.8) cents
Adjusted management fee EPS3
10.8 cents
9.0 cents
Adjusted EPS3
20.3 cents
10.4 cents
1 Management and other fees also includes $3 million (2016: $4 million) of management fee
revenue, performance fees include $2 million (2016: $nil) of performance fee revenue, and
other costs includes a $1 million (2016: $2 million) deduction of costs relating to line-by-line
consolidated fund entities for the third-party share (per Group financial statements Note 13.2
on page 124).
2 Gains on investments includes income or gains on investments and other financial
instruments of $64 million (2016: $52 million), less $14 million (2016: $15 million) of third party
share of gains relating to line-by-line consolidated fund entities, less the reclassification of
management fee revenue of $3 million (2016: $4 million), performance fee revenue of
$2 million (2016: $nil) and other costs of $1 million (2016: $2 million) as above.
3 We separately identify adjusting items to our statutory Group income statement and related
metrics in order to give a better understanding of the underlying profitability of the business.
Details of these alternative performance measures and reconciliations to their statutory
equivalents are provided on pages 147-150.
Net management fee revenue and margins
Net management fees revenue, excluding share of post-tax profit of
associates, grew by 6% to $728 million in 2017. The increase is driven
by growth in FUM from core activities during the year, partially offset by
continued margin compression and the roll off of guaranteed product
FUM. There is $200 million of guaranteed product FUM remaining at
31 December 2017 and therefore there will be less of an impact of
declining revenue from these assets going forward.
The Group’s total net management fee margin1 decreased by 11 basis
points during the year to 76 basis points, compared to 87 basis points in
2016. The decline in the overall net margin continue to be driven by mix
effects. Around half of the move is the mix effects from the net inflows
in the year, particularly the infrastructure mandates in FRM. Better
performance and FX gains from our lower margin strategies further
lower the Group’s net margin, with the remainder of the move
from the continued run off of guaranteed products and from small
pricing adjustments or the mix of clients within individual funds.
Excluding guaranteed products, the overall net margin decreased by 8
basis points to 75 basis points.
1 Refer to pages 147-150 for details of the Group’s alternative performance measures.
26
Absolute return
Total return
Multi-manager
solutions
Systematic long only
Discretionary long only
Core net management
fee revenue1
Guaranteed
Other income2
Net management fee
revenue before share
of after tax profit of
associates
Share of post-tax profit
of associates
Net management fee
revenue3,4
Year ended
31 December 2017
Year ended
31 December 2016
$m Net margin
$m
Net margin
370
68
65
89
119
711
12
5
1.38%
0.56%
0.45%
0.36%
0.67%
0.75%
5.04%
374
27
72
70
102
645
31
13
1.47%
0.47%
0.63%
0.36%
0.67%
0.83%
4.28%
728
0.76%
689
0.87%
8
736
2
691
1 Details of these alternative performance measures are included on page 147.
2 Other income primarily relates to a distribution agreement for Nephila products, which ceased
in April 2017 (Note 17 to the Group financial statements).
3 Net management fee revenue also includes $3 million (2016: $4 million) of management fee
4
revenue relating to line-by-line consolidated fund entities for the third-party share.
Includes $56 million (2016: $61 million) of distribution costs which have been deducted from
gross management and other fees of $784 million (2016: $750 million).
During the year, the absolute return net management fee margin
decreased by 9 basis points as a result of the continued mix shift towards
institutional assets which are at a lower margin. We expect the absolute
return margin will continue to gradually decline as the shift towards
institutional assets continues.
The total return net management fee margin has increased by 9 basis
points as result of the growth in emerging market debt and risk premia
strategies as well as the acquisition of Aalto during the year. In 2016 the
total return category largely comprised CLO strategies which are at a
lower margin.
The multi-manager solutions net management fee margin decreased to 45
basis points in 2017 from 63 basis points in 2016 as a result of the shift in
FRM’s business from traditional fund of funds to that of solutions provider,
with significant inflows into infrastructure mandates and segregated
portfolios over the year where margins are materially lower. The multi-
manager solutions margin is expected to decline further as the shift
towards lower margin services continues.
The systematic long only net management fee margins were stable during
the year. Discretionary long only net management fee margins also
remained stable during the year at 67 basis points.
Core net management fee revenue¹, which excludes legacy guaranteed
product net management fee revenues, other income and share of
post-tax profit of associates, have increased by 10% as a result of strong
growth in FUM partially offset by margin compression as detailed above.
The guaranteed product net management fee margin increased by
76 basis points compared to 2016 due to maturities from lower margin
products during the year.
The Group run rate net management fee margin¹ at 31 December 2017
was 72 basis points, and the run rate net management fee revenue¹ was
$789 million.
Man Group plc Annual Report 2017Strategic report
Performance fees
Gross performance fees for the year were $289 million compared to $81
million in 2016, which included $145 million from AHL (2016: $50 million),
$85 million from GLG (2016: $9 million), $52 million from Numeric (2016:
$19 million), $5 million from GPM (2016: nil) and $2 million from FRM (2016:
$3 million), with performance fee generation across a range of strategies
as a result of the continued diversification of our business.
At 31 December 2017, around 65% of AHL FUM ($13.1 billion) were
above performance fee high water mark and 21% ($4.2 billion) were
within 5% of high water mark. Of the $11.1 billion performance fee eligible
Numeric strategies, 85% were outperforming the relevant benchmark
at 31 December 2017. Around 48% of eligible GLG assets ($5.3 billion)
were above high water mark and a further 44% ($4.9 billion) were within
5% of high water mark at year end. Fund of fund performance fee eligible
products were on average approximately 2% below high water mark
at 31 December 2017.
The Group benefits from a diversified portfolio of performance fee
streams across a variety of strategies that are charged on a regular
basis at different points in the year. 85% of AHL FUM is performance
fee eligible, of which 83% have performance fees that crystallise
annually (mainly in June and December), 13% daily or weekly, and 4%
monthly. The majority of performance fees from GLG crystallise semi-
annually in June or December. Around 40% of our systematic long
only performance fee eligible FUM crystallises annually in November,
with the remainder crystallising at various points during the year.
Investment gains
Investment gains of $44 million (2016: $31 million) primarily relate to gains
on seeding investments on a year end seeding book of $480 million
(2016: $642 million).
Asset servicing
Asset servicing costs include custodial, valuation, fund accounting and
registrar functions, and vary depending on transaction volumes, the
number of funds, and fund NAVs. Asset servicing costs were $37 million
(2016: $33 million), which equates to around 5.5 basis points of average
FUM, excluding systematic long only and GPM strategies, in line with prior
year. In 2018, asset servicing costs are expected to increase to around 7
basis points on FUM, excluding systematic long only and GPM strategies,
due to the inclusion of MiFID II related research and administration costs.
Compensation costs
Compensation costs comprise fixed base salaries, benefits, variable
bonus compensation (cash and amortisation of deferred compensation
arrangements) and associated social security costs. In addition, during
2017 we completed the restructuring plan which commenced in
2016, with the final $4 million of the $21 million planned restructuring
compensation costs recognised in 2017 (an adjusting item per page 148).
Total compensation costs, excluding adjusting items, were $474 million
for the year, up by 22% compared to $388 million in 2016. Overall
compensation costs increased as a result of higher management
and performance fee revenues. Fixed compensation decreased by
4% despite growth in net management fee revenues, which largely
reflects the more favourable hedged US Dollar to Sterling rate in 2017
as well as cost efficiencies. Variable compensation increased by 46%,
which is above the 33% increase in net revenue due to the increase in
performance fee revenue earned. The overall compensation ratio1 in 2017
was 44%, a decrease from 48% in 2016, as a result of the significant
increase in performance fee revenue. The Group’s compensation
ratio is generally between 40% and 50% of net revenues, depending
on the mix and level of revenue. We expect to be at the higher end
of the range in years when absolute performance fees are low and
the proportion from Numeric and GLG is higher, and conversely we
expect to be at the lower end of the range when absolute performance
fees are high and the proportion from AHL and FRM is higher.
Included within variable compensation is a $4 million expense relating to
the pay-out of performance fee related carry from Aalto, which crystallised
post-acquisition.
Other costs
Other costs, excluding adjusting items as outlined on page 148, were $165
million for the year (2016: $166 million). These comprise cash costs, including
occupancy, technology, consultancy and professional fees, of $147 million
(2016: $152 million) and depreciation and amortisation of $18 million (2016:
$14 million). Similar levels of cash costs were incurred in 2017 despite
increased net management fee revenues compared to 2016, which reflects a
more favourable hedged rate in 2017 as well as continued discipline on costs.
Depreciation and amortisation has increased by $4 million this year due to
higher levels of capital expenditure in 2016 and 2017, which is largely due to
software development projects across our operating platforms. Depreciation
and amortisation are expected to continue to increase over the next few
years as a result of increased investment in our infrastructure.
We incurred $7 million of other costs during the year which largely relate to
the associated onerous property leases arising (an adjusting item per page
148) following the centralisation of our London resources into one location.
Net finance expense
Net finance expense, excluding the unwind of discount on contingent
consideration which is classified as an adjusting item as outlined on page
148, was $9 million for the year (2016: $11 million) and includes interest
payable on borrowings as well as the ongoing costs for the Group’s
revolving credit facility, which was renegotiated from $1,000 million to
$500 million in October 2016.
Adjusted profit before tax
Adjusted profit before tax, as further detailed on page 148, is $384 million
compared to $205 million for the previous year. The adjusting items in the
year of $112 million (pre-tax) are summarised in the table below, and are
detailed on page 148. The directors consider that the Group’s profit is
most meaningful when considered on a basis which excludes acquisition
and disposal related items (including non-cash items such as amortisation
of purchased intangible assets and deferred tax movements relating to the
recognition of tax assets in the US), impairment of assets, costs relating to
substantial restructuring plans, and certain significant event driven gains
or losses, which therefore reflects the revenues and costs that drive the
Group’s cash flows and inform the base on which the Group’s variable
compensation is assessed.
Adjusting items $m
Revaluation of contingent consideration creditors
Unwind of contingent consideration discount
Compensation restructuring costs
Other restructuring costs
Reassessment of litigation provision
Amortisation of acquired intangible assets
Total adjusting items (excluding tax)
Recognition of deferred tax asset (refer to page 28)
Year ended
31 December
2017
(15)
(26)
(4)
(7)
24
(84)
(112)
17
Adjusted management fee, Core management fee, and
Performance fee profit before tax
Adjusted management fee profit before tax was $203 million compared
to $178 million in 2016, an increase of 14% as a result of the increase in
management fees and a lower increase in related costs. Adjusted
performance fee profit before tax of $181 million (2016: $27 million) for the
year reflects the higher performance fees generated across the business.
Core management fee profit before tax has increased by 35% from $132
million to $178 million, reflecting strong growth in management fees
excluding income from legacy business.
1 Refer to pages 147-150 for details of the Group’s alternative performance measures.
Details and reconciliation of these measures are provided on page 149.
27
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Taxation
The tax charge on the statutory profit for the year was $17 million (2016:
tax credit of $6 million on statutory loss), which equates to an effective
tax rate of 6%. The majority of Man’s profits are earned in the UK, with
significant profits also arising in the US, where our tax rate is effectively nil
as a result of available tax assets, and in Switzerland, which has a lower
rate than the UK.
The underlying rate on adjusted profit of 14% (2016: 13%) represents the
statutory tax rates in each jurisdiction in which we operate applied to our
geographical mix of profits. The effective tax rate on adjusted profit was
12% (2016: 14%), which is lower than the underlying rate principally as a
result of the reassessment of tax exposures globally during the year.
In the US, we have $174 million of accumulated federal tax losses
which we can offset against future profits from US entities and will
therefore reduce taxable profits. In addition, we have $493 million of
tax deductible goodwill and intangibles, largely relating to the Numeric
(2014) and Ore Hill (2008) acquisitions, which are amortised for tax
purposes in the US over 15 years and which reduce US taxable profits
in future periods. We therefore expect not to pay federal tax in the US
for a number of years. Effective from 1 January 2018 the US federal tax
rate has decreased from 35% to 21%, which we have incorporated into
assessment of our US deferred tax balances at 31 December 2017.
As a result of our available US federal tax assets, we do not expect
this change to have an impact on our effective tax rate for a number
of years. Based on forecast US taxable profits and consistent with
the methodology applied in prior years, the Group has a deferred tax
asset on the balance sheet of $42 million (2016: $25 million) which
represents probable tax savings over a three year forecast period due
to the utilisation of these losses and future amortisation of intangibles.
This has resulted in a $17 million net credit to the tax expense in the year
(2016: $6 million credit), which is included as an adjusting item (page
148). The increase represents projected year on year growth in our
US business, partially offset by the reduction in the US federal tax rate
from 35% to 21% from 1 January 2018. Further details on this deferred
tax asset are given in Note 7 to the Group financial statements.
Should the earnings profile of the Group in the US increase significantly
this could result in the earlier recognition of the US deferred tax asset in
full and as a result the tax rate for the Group would change in line with the
prevailing corporation tax rate in the US and the proportion of the Group’s
profits at that time.
The principal factors that we expect to influence our future underlying
tax rate are the mix of profits by tax jurisdiction, changes to applicable
statutory tax rates and the consumption of US tax assets. The underlying
tax rate in 2018 is currently expected to remain consistent with 2017,
dependent on the factors outlined above.
Capital management
Our business has a strong record of cash generation. Our policy is to
return our adjusted management fee profits to shareholders each year
through our regular dividend. Our adjusted performance fee profits grow
our surplus capital position over time. We then actively manage Man’s
surplus capital to seek to maximise value to shareholders by either
investing that capital into acquisitions to improve shareholder returns
in future, or to return it to shareholders through share buybacks or
special dividends.
We have maintained prudent surplus capital, in compliance with the FCA’s
capital standards, and available liquidity throughout the year. Details of
the Group’s syndicated revolving loan facility, which provides additional
liquidity, are provided in Note 12 to the Group financial statements on
page 121.
28
We have a capital and liquidity framework which allows us to invest in the
growth of our business. We utilise capital to support the operation of the
investment management process and the launch of new fund products.
We monitor our capital requirements through continuous review of our
regulatory and economic capital, including monthly reporting to the
Risk and Finance Committee and the Board.
At 31 December 2017, surplus regulatory capital over the regulatory capital
requirements was $256 million.
$m
Permitted share capital and reserves
Less deductions (primarily goodwill and
other intangibles)
Available Tier 1 Group capital
Lower Tier 2 capital – subordinated debt
Other Tier 2 capital, including deductions
Group financial resources
Less financial resources requirement
Surplus capital
31 December
2017
31 December
2016
1,437
1,530
(1,052)
385
149
(2)
532
(276)
256
(995)
535
149
2
686
(294)
392
The decrease in the Group financial resources of $154 million in the year
primarily relates to the $100 million share repurchase programme, which
commenced in October 2017, and goodwill and acquired intangible assets
of $79 million arising on the Aalto acquisition, partially offset by the receipt
of the first half performance fees. The decrease in the Group financial
resources requirement of $18 million primarily relates to a lower capital
requirement on seeding investments and securitisation positions, partially
offset by a higher capital requirement on performance fee receivables
balances. As at 31 December 2017 there has been no change to the
Internal Capital Guidance scalar that is applied as part of the calculation
of the financial resources requirement.
The Group’s proforma surplus capital is $460 million, which incorporates:
the second half earnings; our final dividend; and receipt of cash for year
end performance fees and redemption of our largest seeding investment
(see next page). As a result of the impact of adoption of the new leases
accounting standard, as outlined below, we expect that our surplus capital
will decrease by up to $120 million (£90 million) from 1 January 2019.
Adoption of the new leases accounting standard, which is mandatory
for the Group from 1 January 2019 as outlined per Note 1 to the Group
financial statements (page 112), is expected to result in a reduction of our
capital surplus from that date of up to $120 million (at the 31 December
2017 Sterling exchange rate of 0.74). The reduction is due to the new
requirement to bring operating leases onto the Group’s balance sheet and
an earlier expense recognition profile of the associated rental costs, which
therefore impacts our financial resources requirement and Tier 1 capital at
1 January 2019.
Cash earnings and liquidity
We continue to generate strong cash flows. Given the strong cash
conversion of our business we believe our adjusted profit after tax is a
good measure of our underlying cash flow generation, although the timing
of cash conversion is impacted by the seasonal movements in our working
capital position through the year and the size of our seeding book over
time. Operating cash flows, excluding working capital movements, were
$431 million during the year and cash balances at year end were $356
million, excluding cash relating to consolidated fund entities.
Man Group plc Annual Report 2017Strategic report Seeding investments
Man uses capital to invest in products to assist in the growth of the
business. At 31 December 2017, the Group’s seeding investments were
$480 million (refer to Note 13 to the Group financial statements), which
have decreased from $642 million at 31 December 2016 principally as
a result of the redemption of the US distressed credit strategy, our
largest seeding position, following the decision to exit the strategy
in December 2017.
Dividends and share repurchases
Man’s dividend policy is to pay out at least 100% of adjusted management
fee EPS in each financial year by way of ordinary dividend. In addition,
Man expects to generate significant surplus capital over time, primarily
from net performance fee earnings. Available capital surpluses will
be distributed to shareholders over time, by way of higher dividend
payments and/or share repurchases, while maintaining a prudent balance
sheet, after taking into account required capital (including liabilities
for future earn-out payments) and potential strategic opportunities.
In October 2017 we commenced a $100 million share repurchase
programme, which was 27% complete at 31 December 2017,
as detailed in Note 20 to the Group financial statements on
page 129. As a result of recent share repurchases which lower
the number of shares, our EPS and dividend per share growth
exceeds the growth in the profitability of the business.
Adjusted management fee EPS is considered the most appropriate basis
on which to routinely pay ordinary dividends as this represents the most
stable earnings base of the business, and enables the Board to utilise
performance fee earnings over time in the most advantageous manner to
support the Group’s strategy. The reconciliation of adjusted management
fee EPS to statutory EPS is provided within Alternative Performance
Measures on page 149.
The Board is proposing a final dividend for 2017 of 5.8 cents per share,
which together with the interim dividend of 5.0 cents per share, equates to
a total dividend for 2017 of 10.8 cents per share, growth of 20% from 2016.
The proposed final dividend equates to around $94 million, which is more
than covered by the Group’s available liquidity and regulatory capital
resources. As at 31 December 2017, the Group’s cash, less those
balances ring-fenced for regulatory purposes, amounted to $319 million
and the undrawn committed revolving credit facility was $500 million, as
set out in Note 12 to the Group financial statements. The Group regulatory
capital surplus was $256 million at the year-end, as shown on page 28.
Man Group plc’s distributable reserves were $1.9 billion before payment
of the proposed final dividend, which are sufficient to pay dividends for
a number of years. Furthermore, as profits are earned in the future the
Company can receive dividends from its subsidiaries to further increase
distributable reserves.
Key dates relating to the proposed final dividend are: ex-dividend date
26 April 2018; record date 27 April 2018; AGM to approve the final
dividend 11 May 2018; and payment date 18 May 2018. Further details on
the Group’s dividend can be found in the Shareholder Information section
on page 145.
Mark Jones
Chief Financial Officer
$m
Cash at 31 December 2016¹
Operating cash flows before working capital
movements
Working capital movements (including seeding)¹
Payment of dividends
Share repurchase (including costs)
Payment of acquisition related contingent
consideration, net of cash acquired
Other movements
Cash at 31 December 2017¹
Year
ended 31
December
2017
Year ended
31 December
2016
389
431
(186)
(158)
(92)
(9)
(19)
356
586
245
(177)
(158)
(35)
(25)
(47)
389
1 Excludes cash relating to consolidated fund entities (Note 13.2 to the Group financial
statements).
Working capital movements principally relate to the increase in
performance fee receivables at the year-end partially offset by an increase
in the related variable compensation payable. The total net decrease in our
seeding investment portfolio is not reflected in cash inflows given the
timing of redemptions, with amounts receivable included within working
capital (including seeding) at 31 December 2017 and subsequently
receipted in cash post year-end.
The $500 million revolving credit facility, which remains available and
undrawn, matures in 2022. The management of liquidity is explained
in Note 12 to the Group financial statements.
Balance sheet
The Group’s balance sheet is strong and liquid. Cash has decreased
during the year as a result of the movements outlined above. Fees
and other receivables have increased as a result of the higher level of
performance fees earned in December, along with an increase in payables
for associated compensation accruals. The decrease in investments in
funds is driven by a decrease in seeding investments, as outlined below.
Goodwill and other intangibles have increased marginally in 2017 due
to the acquisition of Aalto, partially offset by the amortisation charge
for the year.
$m
Cash and cash equivalents1
Fee and other receivables1
Total liquid assets
Payables1
Net liquid assets
Net investments in fund products and other
investments1
Pension asset
Investments in associates
Leasehold improvements and equipment
Total tangible assets
Borrowings
Net deferred tax asset/(liability)
Net tangible assets²
Goodwill and other intangibles
Shareholders’ equity
31 December
2017
31 December
2016
356
614
970
(848)
122
559
32
29
44
786
(150)
33
669
1,047
1,716
389
257
646
(702)
(56)
720
27
31
44
766
(149)
16
633
1,041
1,674
1 Cash and cash equivalents, fees and other receivables and payables balances excludes
amounts relating to line-by-line consolidated fund entities. These are presented net within net
investments in fund products and other investments, together with third-party interest in
consolidated funds and non-current assets and liabilities held-for-sale (per Group financial
statements Note 13.2 on pages 123-124).
2 Equates to net tangible assets per share of 41 cents (2016: 38 cents).
29
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report RISK MANAGEMENT
An integrated
approach
Risk management is an essential component of our
approach, both to the management of investment funds on
behalf of investors, and the management of Man Group’s
business on behalf of shareholders.
Ultimate responsibility for risk management
rests with Man Group’s Board, however,
accountability is embedded throughout the
business. Our risk management framework
requires that the business operates within
acceptable risk tolerances, as defined by
the Board’s risk appetite. Our governance
structure provides a foundation for ongoing
oversight in a dynamic environment.
Independent fund boards are responsible for
protecting the interests of fund investors.
Developments in 2017
Investment underperformance continues to
be the biggest risk facing the Group. This
is mitigated by diversification of product
offerings, including the integration in 2017 of
Aalto within Man. Performance fees rose by
257% compared to 2016, as described on
page 27. The Group has continued to bolster
its range of investment styles and products in
key markets. Funds under management (FUM)
grew by 35% in 2017, as described on page 25.
The expansion of our product offering is
supported by our balance sheet, which we have
utilised to continue the Group’s seeding
programme. 2017 saw the launch of several new
quantitative and discretionary funds. Whilst the
Group is exposed to a decline in the value of
seed investments, supporting the development
of new products is an important way to increase
and diversify revenues. Senior management
assess whether seeding positions continue to
support the business - a large position in a US
distressed credit strategy is being redeemed
because strong performance since inception
has not resulted in investor subscriptions.
Markets in 2017 were characterised by low
volatility and growth across most asset classes
and several potentially disruptive political events
in Europe were avoided.
30
Our counterparty risk exposures at corporate
and fund level are closely monitored. The risk to
the Group’s balance sheet from counterparty
defaults remains low. We are conscious,
however, of the continued risk of individual
events or downturns in market sentiment and
continue to take a conservative approach to
counterparty selection.
Man Group is regulated globally; the
Group focuses on ensuring our operational
and risk management frameworks are
appropriate for our evolving global business.
In the ‘Principal risks’ section on pages 33
to 35 we have noted a number of regulatory
developments. Regulation continues to
evolve at different paces across the world.
Our operating model is reliant on technology
therefore the heightened threat from cybercrime
requires increased focus for the Group.
Our ICAAP was submitted in August and the
Financial Conduct Authority (FCA) informed us
it will not be reviewed at this time. We continue
to seek the most efficient ways to fund our
regulatory capital and liquidity requirements.
In September we completed the share
repurchase programme announced in 2016.
In October, we began a new share repurchase
programme which will return $100 million of
capital to shareholders. As at 31 December
2017, the programme was 27% complete.
Man Group’s governance
The committees below have been given a mandate by the Board and the CEO to oversee the risk
management framework. These committees provide assurance to the Board that risk has been
managed according to the risk appetite statements.
Board
CEO
Audit and Risk Committee
Senior Management
Executive Committee
The Senior Management Executive Committee is
accountable for all risks assumed in the business
and is responsible for the execution of appropriate
risk management discipline.
The Audit and Risk Committee (ARCom) is a
committee of the Board which has oversight
of the assurance functions (see page 56 for
further detail).
Risk and Finance Committee
The Risk and Finance Committee (RAF) oversees the operational, regulatory and reputational risks faced by
the Group and the internal control environment. It also monitors the adequacy of economic capital and
liquidity buffers. The RAF is chaired by the Chief Financial Officer (CFO).
Man Group plc Annual Report 2017Strategic report Brexit
The UK’s decision to invoke Article 50 of
the Treaty on European Union in March
2017 triggered a withdrawal process
which is expected to result in the UK
leaving the European Union (‘EU’) by
April 2019. This withdrawal process has
political, legal and tax implications for
the UK and may impact general
economic conditions in the UK and
other European countries.
The EU has mandated a three-phase
approach to Brexit negotiations
(Withdrawal, Future Relationship and
Transition), with the second phase
having begun in early 2018. Whilst it is
anticipated that the second phase will
provide more certainty on the future
regulations pertaining to UK investment
managers, it is not yet clear the extent
to which Brexit may impact their ability
to access markets, make investments
or enter into legal agreements within
the EU. It is also uncertain whether the
UK and the EU will agree a transition
arrangement from April 2019 and if so,
for how long and on what terms.
Man will continue to take the necessary
steps to ensure that, post-Brexit, it
remains able to service its existing
European clients and to access new
business in the EU. Man has a number
of licensed entities in the EU, based in
Ireland and the Netherlands, as well as
in Liechtenstein (European Economic
Area). However, Man may need to
enhance its EU footprint as regulations
become clearer.
Man’s risk appetite statements
The risk appetite statements are set by the
Board and cover all significant risk categories.
They apply to both the investment management
functions and Man Group itself. The statements
express the Board’s appetite for risk, promote a
risk aware culture and set out objectives and
boundaries for Man Group’s business.
The primary goal of risk management is to
support the achievement of the Group’s
objectives by encouraging an appropriate
balance between risk and benefit, in a controlled
and regulatory compliant context.
The governance framework and control
environment within the Group have been
designed to manage risks in accordance with
risk appetite. The Board and ARCom receive
regular reporting on the Group’s risk profile and
adherence with risk appetite. In the event that
breaches to risk appetite occur, these would be
resolved in line with the Group’s procedures and
processes. The statements are reviewed
periodically by the Board.
The risk appetite statements were reviewed
during the year. There were no material changes
to the risk tolerances of the business resulting
from this. A summary of the risk appetite
statements is available at www.man.com
Viability statement
The directors believe that there continues to be
robust global demand for asset management
firms, such as Man Group, to provide fund
management services and make investment
decisions on behalf of their clients in order to
manage their capital. Man’s value-adding services
form the basis of a sustainable business model.
A failure to deliver superior performance is the
main risk to the Group’s ability to maintain a
capital and liquidity surplus, but is mitigated
through its diversified offerings.
The directors confirm that they have a
reasonable expectation that the Group will
continue to operate and meet its liabilities, as
they fall due, for the next three years. A three
year period was selected as this is consistent
with the Group’s business planning horizon.
The directors’ assessment has been made with
reference to the Group’s current position and
prospects, the Group’s strategy, the Board’s risk
appetite and the Group’s principal risks and how
these are managed, as described later on in this
section of the Annual Report. The principal risks
are linked to each of the Group’s strategic
priorities, as shown on page 9.
The strategy and associated principal risks form
the basis of the Group’s Medium-Term Plan.
This covers a three year period, and includes
downside scenario testing.
The Group’s Medium-Term Plan is built
by aggregating the expected business
performance across the Group, and then
stressing key business assumptions (particularly
those regarding investment performance and
fund flows).
The plan is also stress tested in a number of
downside scenarios as part of the Group’s
Internal Adequacy Assessment Process
(ICAAP). The Board receives regular updates
throughout the year of the internally assessed
level of economic capital requirement, relative
to available capital supply.
The Medium-Term Plan and ICAAP
assessments are augmented throughout
the year by regular briefings at the Audit
and Risk Committee on strategy, risk and
controls, as well as dashboards across
risk, compliance, finance and internal audit.
The principal risks are considered within
the Board’s risk appetite framework.
Three lines of defence
1st
2nd
3rd
Business
Management
Compliance
‘In Business’ Risk
Management
Internal
Audit
External
Audit
Operational
Management1
Risk
1 Includes the Group’s financial controls framework
The overall risk management framework at Man Group is based on
the three lines of defence model, and is overseen by the Audit and
Risk Committee as delegated by the Board.
The framework instils the principles of direct responsibility for risk
management in each business unit. Embedding accountability at
the business level is the ‘first line of defence’.
The business units are monitored by the Risk and Compliance control
functions which form the ‘second line of defence’.
The independent review and oversight provided by Internal Audit is
the ‘third line of defence’, which independently evaluates the
adequacy and effectiveness of the Group’s risk management,
control and governance processes.
Although Man Group and the investors in its products are
susceptible to losses, we believe our risk management framework
supports long term value through the process of risk-aware
decision making.
31
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report RISK MANAGEMENT CONTINUED
Assessment of principal risks
Our comprehensive risk framework includes
business, credit, liquidity, market, operational
and reputational risks to both Man Group and
our funds.
The Group’s risk profile has not changed
materially in 2017. Business risks continue to
represent the biggest risks to the Group, of
these investment underperformance, is the
single biggest risk facing the Group.
Given its increasingly wide range of investment
products and strategies the Group has to
manage a wide array of operational risks.
The breadth and complexity of the regulations
that Man and its funds are subject to across
multiple jurisdictions represent significant
operational risks should the Group fail to
comply with these regulations. Man Group
supports proportionate and thoughtful
regulation and initiatives that develop the
regulatory environment. However, regulatory
change can also result in increased
operational complexity and costs.
The directors confirm that they have carried out
a robust assessment of the principal risks facing
the Company, including those that would
threaten its business model, future performance,
solvency or liquidity.
The directors have described and assessed
these principal risks on pages 33 to 35 and
explained how they are being managed
or mitigated.
Board oversight of risk management and
internal controls
The Board oversees and monitors the Group’s
risk management and internal control systems
on an ongoing basis and, at least annually,
carries out a review of their effectiveness. A
summary of the Group’s risk management and
internal control systems, including those relating
to the financial reporting process is given below.
Objectives and governance framework
The Group’s risk management framework and
internal control systems aim to safeguard
assets, maintain proper accounting records and
provide assurance that the financial information
used in the business and published externally is
robust and reliable. The framework is designed
to manage key risks, but cannot eliminate the
risk of failure to achieve business objectives, and
can only provide reasonable and not absolute
assurance against material misstatement or
loss. The risk management framework and
internal control systems, which have been in
place throughout the year and up to the date of
this Annual Report, comply with the FRC’s
Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting.
During the year the Board reviewed and
approved the output from the annual refresh
of Man’s Risk Governance and Appetite
Framework. This included changes to
the quantitative tolerances and qualitative
statements and the adoption of a new
assessment grid for operational and other
risks to reflect the development of the risk
control environment. There was no material
change to the Board risk appetite.
Whilst the Board retains overall responsibility
for the Group’s risk management and internal
control systems, it has delegated oversight to
the Audit and Risk Committee (‘ARCom’). The
report from the Chairman of the ARCom on
pages 56 to 61 provides further information
on how the ARCom has discharged its risk
oversight responsibilities during the year.
Financial reporting controls
The Group’s financial controls framework is
designed to provide assurance that proper
accounting records are adequately maintained
and that financial information used within the
business and for external publication is reliable
and free from material misstatement, thereby
safeguarding the Group’s assets. This
framework is managed through a process
whereby control owners certify that key
preventative and detective controls have been
performed and are operating effectively. These
include balance sheet reconciliations and the
financial statements preparation process. During
the year senior management monitored the
results of the certification process and a sample
of the certifications was independently spot
checked each month to provide assurance
that they had been correctly certified.
Ongoing risk reporting
The Board receives regular reports from
the Chairman of the ARCom, business
management and Group Risk on the risks to
the achievement of the Group’s operational and
financial objectives, together with assurance
that the level of risk taken is consistent with and
being managed in accordance with the Board’s
risk appetite and with business planning. These
reports include a summary ‘risk dashboard’
and current and forward looking assessments
of capital and liquidity adequacy. The Board
also discussed a list of specific commercial
risks relating to Man’s current business mix and
model, along with relative revenue impacts,
that could have a material impact at Group
level. The Board also noted and considered an
analysis of trends in underlying risk drivers which
had been identified through the Group’s Risk
& Control Self-Assessment (RCSA) process.
Specific annual review of risk management
and internal controls
In addition to its ongoing monitoring of the
Group’s risk management and internal controls,
the Board has conducted a specific annual
review of their effectiveness in respect of 2017
and up to the date of this Annual Report. This
review included a robust assessment of the
Group’s principal risks (see details on pages 33 to
35) and all significant operational risk events and
Internal Audit findings raised during the period.
The Board also considered the potential impact
of certain risks identified by the business, the
outcome of the RCSA process performed by
business management and the quality of the
controls in place to mitigate these risks. Following
this review, the Board concluded that the Group’s
risk management processes were effective and
that there were no significant weaknesses or
failings in the system of internal controls.
32
Man Group plc Annual Report 2017Strategic report PRINCIPAL RISKS
The trend of the risk in 2017 is shown as;
(increased),
(unchanged) or
(decreased).
Risks
Business risks
Mitigants
Status and Trend
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.
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.
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.
Credit risks
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.
Liquidity risks
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.
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.
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.
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.
33
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
PRINCIPAL RISKS CONTINUED
The trend of the risk in 2017 is shown as;
(increased),
(unchanged) or
(decreased).
Risks
Market risks
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.
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.
Operational risks
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.
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.
Information technology
Risk of losses incurred by IT software and
hardware failures resulting in system downtime,
severely degraded performance or limited system
functionality.
34
Mitigants
Status and Trend
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.
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.
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.
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.
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.
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.
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.
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.
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.
Man Group plc Annual Report 2017Strategic report The trend of the risk in 2017 is shown as;
(increased),
(unchanged) or
(decreased).
Risks
Mitigants
Status and Trend
Operational risks continued
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.
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
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.
35
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report PEOPLE AND CULTURE
Talent and collaborative
thinking
At Man Group, we believe in the importance of a meritocratic workplace, where
success is based on talent, commitment, diligence and teamwork. By celebrating
diversity, we seek to challenge consensus and foster healthy debate, which we
believe makes us a better and more innovative business for our clients. Above all, we
seek to attract and retain the best people, and to ensure everyone at Man Group has
the opportunity to reach their full potential; nothing should get in the way of that.
Recruitment and retention
Entry level hiring, conducted through our
graduate (analyst) and internship programmes,
enables us to identify promising employees
at the start of their careers, and to nurture
talent within the firm over time. The continued
success of our investment management
analyst and internship programmes, which
have been running for a number of years,
has led us to expand the breadth of our entry
level hiring programmes. In 2017, alongside
the seven analysts who joined our investment
management graduate programme, we took
on four analysts as the initial cohort for our
finance and operations analyst programme.
We have also launched a sales associate
programme, targeting the appointment of junior
sales executives in both London and Pfäffikon.
We continue to be committed to promoting
talented individuals within the firm, offering
progressive and varied career paths for
our people. In 2017, we made a number of
significant internal promotions, specifically
the appointment of co-CEOs and COO
of Man AHL, COO of Communications &
Marketing, and CEO and COO of Man FRM.
We also operate a global mobility programme,
which enables us to meet specific business
needs within given markets or business areas,
while offering international placements and
transfers to our staff. In 2017, a number of
individuals participated in the programme,
which provides our people with the opportunity
to broaden their international experience as well
as enhancing collaboration across the firm.
Key strategic external hires for the year,
complementing the talent within our business,
included the appointments of a director of
trading and several senior sales staff in the
UK, the US, and Asia. At the start of 2017,
the completion of the acquisition of Aalto Invest
(now Man GPM) and subsequent successful
on-boarding process additionally enabled us to
integrate new private markets expertise in the
UK, Switzerland and the US.
Employees
Internal transfers
1,325
92
Nationalities
working at Man
Employee
turnover
59
7.8%
Focus on talent and
commitment to diversity
Hiring, developing and retaining talent
at all levels is a long term business goal
and therefore is a key focus area for
our executive team.
We also believe that by celebrating
diversity and building an inclusive
working environment, we encourage
original and collaborative thinking with
multiple and differing perspectives
which position us to deliver results for
our clients. Encouraging diversity and
inclusion is therefore fundamental to
achieving our business strategy.
36
Man Group plc Annual Report 2017Strategic report In the context of Britain’s withdrawal from the
European Union, we are committed to ensuring
that we provide every support to those of our
workforce who are EU nationals working in the
UK. During the year, we ran advisory sessions at
both individual and group levels for EU citizens,
and we will continue to offer assistance to our
EU national employees and their families. Hiring
the best talent from around the world, including
the EU, is fundamental to our business and we
remain committed to continuing to do so. We
are active participants in various industry
forums, liaising with the UK Government and
closely monitoring immigration updates in
relation to their potential impact on our
workforce. We support the UK Government’s
stated goals of allowing EU citizens and their
families to remain in the UK when the UK leaves
the EU, and ensuring that it is straightforward for
them to apply for settled status in the UK.
Voluntary turnover remains low across the firm,
supported by our ongoing retention-focused
activities, including regular performance
evaluations, succession planning processes,
and a commitment to promoting career
development and internal transfers and
promotions. We seek to make Man Group a
progressive place to work, where talented staff
are continually learning and developing in their
areas of expertise with access to opportunities
across the firm.
Some organic growth means Man Group total
headcount, including contractors and
consultants, has increased from 1,257 at
31 December 2016 to 1,325 at 31 December
2017. The ratio of support function employees to
front office employees remains approximately
one to one, which we believe is in line with
industry best practice.
Staff
Survey
2017
– Positive engagement score of 7.5 out of 10
– Increased response rate to 83% (from 77%
for previous survey in 2015)
– Improvement in low scoring areas from
2015 survey (reward, recognition, growth)
Our remuneration policies and practices are
designed to enable us to remain competitive
in the increasingly global markets in which
we operate and are benchmarked annually.
Remuneration includes combinations of salary,
annual performance bonus and deferred
share or fund awards, alongside non-cash
benefits. The bonus deferral arrangement is
a key mechanism for aligning our employees
with Man Group’s long term performance,
and so aligning their interests with those of
our clients and shareholders. During 2017 we
once again offered our UK-based employees
the opportunity to participate in the Man
Group Sharesave Scheme at the maximum
limit and discount allowed by HMRC.
Development
Alongside the annual review process, which
is a valuable opportunity for the exchange
of feedback on performance and career
progression, our ongoing succession planning
process is also critical. Succession planning
facilitates the identification of key talent
throughout the business, enabling us to focus
resources on supporting and developing
our people and mitigating continuity risk.
Talent management within the firm is supported
by a dedicated resource, focused on developing
our workforce to be the best they can be. In
addition to our global mobility programme,
development activity during 2017 included a
range of technical, professional and soft-skills
training programmes. Our bite size soft skills
modules continue to be popular, with over 100
people attending at least one module during
2017. We have also provided one-on-one
executive coaching to several key individuals
within the firm, and run various mentoring
programmes, including tailored mentoring for
apprentices and returners who have taken a
career break.
Employees are empowered to take ownership
of their own development, including selecting
appropriate training opportunities, with an
allocated annual budget, as well as taking
up opportunities to gain broader experience
outside of their Man Group roles. For example,
we actively encourage staff members to speak
at relevant industry conferences and seminars,
or accept invitations to participate in panels, in
order to expand their expertise and engage as
experts in their fields.
Employee engagement
To ensure that Man Group’s employees are
aware of business priorities and the latest
developments across the firm, they receive a
range of communications and information.
We share an email newsletter with all
employees on a daily basis, run a programme
of presentations from executives across the
firm, called the business education series,
and host business unit town-halls and internal
Man Group results presentations. In addition,
when travelling across our international office
network, Executive Committee members
regularly host employee update events,
maximising the opportunity to engage
with staff members with whom they may
not have regular in-person contact.
In accordance with our business principles,
we are dedicated to ensuring that Man
Group is a great place to work, where people
know that success and achievements are
based solely on merit. In support of this, we
introduced employee recognition awards
during 2017, to recognise those individuals
who go above and beyond their day-to-day
responsibilities in service of the business. The
award winners are announced by CEO Luke
Ellis to the firm, celebrating the contribution
of those individuals who are recognised.
In 2017, we placed a particular focus on
employee well-being activities, running a
number of events and implementing changes
in order to enhance our offering in this area.
Across the firm, we recognise the pressures
of juggling work and personal commitments
so have introduced a number of supporting
initiatives, including celebrating Work-Life
Week with a variety of events and awareness-
raising sessions. We also offered onsite cancer
checks and benefits roadshows. In the US, we
undertook a large scale review of our benefits
broking arrangements which resulted in a
change of broker and a marked improvement
in the wellness offering for staff. We also offer
flexible working arrangements for all staff, to
help ensure that we support employees with
balancing their external commitments, as
well as recognising the importance of offering
enhanced maternity leave across all our global
locations, regardless of local practice.
37
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report PEOPLE AND CULTURE CONTINUED
Man Group’s culture is
based on mutual respect for
others, a commitment to
prioritising diversity and
inclusion, and a zero
tolerance approach to
discrimination of any kind
As part of our D&I focus, we are committed
to achieving a better balance between
male and female employees across the
business, and particularly at senior levels.
We are pleased to see visible progress this
year, with a higher proportion of female
executives in senior management roles in
2017 versus previous years, however we
recognise that there is still much further to go.
Overall gender balance across the business
remains a challenge for us, as it does for
many other financial services organisations.
Luke Ellis
Chief Executive Officer
We are pleased to report that our 2017
employee survey recorded a positive
engagement score of 7.5 out of 10 alongside an
increased response rate of 83%, compared with
77% for the previous survey in 2015. We sought
feedback from executives across the firm and
use this information to inform the initiatives we
undertake to continually enhance Man Group
as a place to work.
Diversity & Inclusion
Man Group’s culture is based on mutual
respect for others, a commitment to prioritising
diversity and inclusion, and a zero tolerance
approach to discrimination of any kind. By
celebrating diversity in all its forms, and
building an inclusive working environment,
we believe that we encourage original and
collaborative thinking, and so position
ourselves to deliver results for our clients.
Alongside our existing senior Diversity &
Inclusion (D&I) steering group, we have now
introduced a larger D&I working group, with the
intention of further driving the implementation
of D&I initiatives. Both groups are focused
across the diversity spectrum, and we have
also united our activity in this area under the
umbrella of “DRIVE”, which now acts as the
global network for all of the firm’s D&I initiatives,
and is supported by a dedicated section on
the Man Group employee intranet covering
our vision in this area, as well as relevant
events and resources. We are also actively
connecting with peer organisations to learn and
share experiences in relation to D&I activity.
Man Group has met the requirement for
employers in the UK to calculate and publish
their gender pay gap, a measure designed
to show the difference between the average
earnings of men and women across an
organisation. Man Group’s gender pay
gap statistics, available in full at www.man.
com, demonstrate the lower representation
of women in investment management roles
and at senior levels within the firm. We are
committed to addressing this, and continue
to make significant efforts both to encourage
the pipeline of female talent at the firm and in
the broader industry, and to support women
within the firm or those returning to work.
We recognise that we must take further
action, through the initiatives articulated in
this section, to foster better gender diversity
particularly in senior and front office roles.
We are focused on increasing female
participation in our graduate programme, in
order to grow the pipeline of female talent
that will reach senior roles in future. We were
delighted to see progress in this area in 2017,
including an entirely female intake onto our new
finance and operations graduate programme.
As part of our efforts to support and encourage
female talent in the potential pipeline for financial
services careers, we are also planning targeted
campaigns and initiatives to work with schools
and education providers to encourage greater
diversity on university courses which lead to
careers in quantitative finance, as well as
recruiting from non-traditional backgrounds.
For a number of years, Man Group has also
sponsored the UK team at the European
Girls’ Mathematical Olympiad and activities
such as the NSPCC’s Number Day, the largest
nationwide numeracy event for children and
young people in the UK, to encourage female
participation in STEM subjects.
People by function (%)
December 2013
December 2014
December 2015
December 2016
December 2017
30
31
33
32
35
18
17
52
52
15
52
15
53
14
51
Investment management
Sales and Marketing
Infrastructure and support
Staff by gender
Total workforce (2017)
953
72
Senior managers (2017)
152
80
Board of directors (2017)
9
82
Total workforce (2016)
891
Senior managers (2016)
149
Board of directors (2016)
9
Male
Female
372
28
39
2
18
364
29
1
We place great importance on the development
of women at all levels within the firm, to ensure
they reach their full potential to progress to
senior roles. Our female mentoring programme
actively identifies high-potential women within
the firm, pairing them with individual mentors
from Man Group’s Executive Committee to
support their professional development, share
expertise and act as a senior sounding-board.
During the year, we also successfully continued
our partnership with Women Returners, with
the aim of tapping into the predominantly
female talent pool of professionals seeking
to return to work following a career break.
Through this partnership, we are able to
identify suitable candidates as well as providing
them with tailored mentoring and support.
We are confident that, with the right support,
more highly-qualified women will return
to work and progress to or take up senior
roles. Our pilot programme in 2016 resulted
in a permanent hire into one of Man GLG’s
investment management teams. In 2017, we
offered two returner placements within our
technology group and are delighted that both
individuals have secured permanent roles.
38
Man Group plc Annual Report 2017Strategic report Business principles
Our business principles are
designed to distil and define the
firm’s key priorities, focus and
culture.
Performance
First, foremost and always we focus
on achieving superior risk-adjusted
performance
Clients
Our clients are at the heart of
everything we do
Excellence
Good is not enough, we strive to be
excellent in all we do
Responsibility
We expect our people to do the right
thing and conduct our business with
the highest standards of integrity
Differentiation
We seek to be differentiated and
original in our thinking
Meritocracy
We succeed through talent,
commitment, diligence and
teamwork
i More on page 49
39
Encouraging a diverse workforce relies on
attracting, hiring and retaining diverse talent.
Through our hiring processes, we seek to
consider applications from as diverse a pool
of candidates as possible, and during 2017
we therefore engaged with all our recruitment
agency suppliers to encourage them to
put forward more female candidates for
opportunities at Man Group. Particularly for
those areas within our business where women
are most under-represented and where we
have the most significant hiring requirements,
recruitment partners are required to meet
minimum proportions of female candidates put
forwards on a quarterly basis. Starting from
2018 initially in the UK, we will be monitoring
the impact of this pilot policy, and assessing
our recruitment partnerships accordingly.
Beyond encouraging applications from a diverse
pool of applicants, we seek to ensure that all
candidates globally experience a fair and
inclusive recruitment process at the firm. During
the year, we worked to put in place a process,
implemented at the start of 2018, whereby all
candidates receiving offers from the firm globally
must be interviewed by a diverse interview
panel, comprised of employees of more than
one gender. The feedback of all panellists is
taken into account, and particularly where the
feedback from a minority gender group is
markedly different to that provided by the
majority gender group, further discussion
will be required before any offer is issued.
We have a number of other partnerships in place
which feed into our broader D&I agenda. In the
UK, to increase our access to candidates from
under-represented backgrounds, we work with
SEO London, an organisation which provides
educational support and career access, and
MBTN, a recruitment agency with network of
female and ethnic minority candidates, We
hosted an on-site masterclass for 20 SEO
candidates during the year, and we continue
to see increased diversity in our graduate and
internship applications as a result of these
collaborative efforts. In the US, we partner with
the Young Women’s Leadership Network in New
York and are looking into additional partnerships
following the launch of our US Charitable Trust.
Apprenticeship programmes continue to be a way
for us to show our commitment to tackling youth
unemployment in London and broadening our
access to young people who may not otherwise
have considered a career in financial services.
Through offering apprenticeships, we provide
young people with an opportunity to complete
a qualification whilst gaining valuable work
experience. Our partnership with City Gateway
in this area has flourished since 2013 and we
currently have our fourth cohort of apprentices
on board within technology, operations and
commercial management. To date, we have
provided over a dozen apprenticeships, and two
of our apprentices have secured permanent roles
at Man Group. We are also exploring offering
apprenticeships at a more senior level, as a
means of offering those with more experience
additional training and development opportunities.
Man Group is committed to providing equal
employment opportunities and discrimination
by any individual on the grounds of age,
disability, gender, race, religion, sexual
orientation or educational background is not
tolerated. Full and fair consideration is given
by Man Group to all employment applications,
including from disabled people, considering
their aptitudes and abilities. The Company
ensures that disabled persons are fairly treated
in respect of training and career development.
For those who become disabled during their
employment, reasonable adjustments are made
and ongoing support is provided as required
to enable the individual to continue working.
i See page 64 for the Nomination
Committee’s diversity policy
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CORPORATE RESPONSIBILITY
We commit to pursue the
highest standards possible
Our corporate responsibility strategy is to pursue and
evidence where possible the high standards of behaviour,
both corporate and individual, which underpin our reputation
and maintain the trust and loyalty of our key stakeholders.
We focus on six key areas of corporate responsibility:
World class governance and risk
management
Man Group strives to deliver the highest
standards of governance and risk management.
We have long recognised the importance of
corporate governance practices that help
to ensure effective oversight and strong
accountability. With our scale, we are well
positioned to implement and manage these
practices effectively across our business,
as we strive to deliver industry leading
governance and risk management.
Responsibilities to our market place
Man Group is committed to the highest
standards of ethical conduct and actively
supports collaboration of the investment
management industry in developing and
committing to standards of responsible
investment. Man Group is a signatory to
the United Nations-supported Principles of
Responsible Investment, which recognises the
continued importance of the best practices
endorsed by the PRI that have developed to
accommodate increasingly diverse investment
approaches. Man Group is also a founding
signatory of the Standards Board for Alternative
Investments (SBAI), of which Luke Ellis, CEO of
Man Group, is a Trustee. The SBAI was fully
established in 2008 as a guardian to the
Standards with the goal of creating a framework
for promoting integrity, transparency and good
governance in the industry. Further details
regarding Man Group’s approach and
commitment to responsible investment
are outlined on page 41.
Contributing to our communities
We are very conscious of the impact of our
organisation on our community and have taken
steps to ensure we are contributing positively
to those around us. Man Group is actively
involved in charitable initiatives and volunteering
opportunities local to the firm’s offices through
its ManKind Programme and through the Man
Charitable Trust which sponsors many literacy
and numeracy initiatives as outlined on page 42.
40
Protecting the environment
Whilst our environmental impact is relatively
limited, we strive to deliver clear and transparent
reporting that makes sense of the measurable
elements within our control and respond to
external risk and expectations. We look to take
all practicable and economic measures to
conserve and reduce energy consumption
at our offices around the world. We monitor
our impacts using Credit 360, a system that
measures relevant data and generates reports
which provide practical guidance in identifying
our impacts and managing their reduction.
Anti-bribery and corruption
Man operates in multiple jurisdictions globally
and as such is either subject to or is required to
comply with various anti-bribery and corruption
laws and regulations. Man takes its anti-bribery
and corruption obligations very seriously and
has implemented a Group-wide anti-bribery and
corruption programme designed to comply with
all applicable anti-bribery and corruption laws
and regulations including the US Foreign
Corruption Practices Act 1977 and the UK
Bribery Act 2010. The programme includes
policies, procedures and controls designed to
prevent and detect bribery and corruption,
including ‘know your customer’, due diligence
and enhanced due diligence checks;
procedures to prevent, detect and report
suspicious activity; train employees and issue
red flags; and undertake politically exposed
persons (‘PEPs’) screening.
Risk factors that are considered include country,
business activity, adverse information, adverse
media and sanctions. Man is committed to
conducting its business with honesty and
integrity and complying with all applicable
anti-bribery and corruption laws. Man
accordingly also expects those who provide
services to us or who work on our behalf to have
the same commitment, wherever in the world
they are doing business.
Slavery and human trafficking
Man Group is committed to ensuring that
modern slavery does not exist within our
supply chains or any part of our business.
Man Group has a zero tolerance approach
to slavery and human trafficking and we
expect all those in our supply chain to
comply with those values. Man Group will not
support or deal with any business knowingly
involved in slavery or human trafficking.
Please refer to our website, www.man.com, for
our full Modern Slavery Transparency Statement.
Man Group plc Annual Report 2017Strategic report RESPONSIBLE INVESTMENT
Helping to shape the future
of investing responsibly
Our participation and promotion
Man Group is committed to raising the
awareness of responsible investment within the
firm and more widely across the industry. Since
2014, Man has chaired the United Nations-
supported Principles for Responsible Investment
(UNPRI) Hedge Fund Advisory Committee
and will be broadening its participation in the
coming year to the Fixed Income and Academic
Advisory Committees. Man also serves on the
board of the Standards Board for Alternative
Investment (SBAI) as well as Alternative
Investment Manager Association (AIMA) Council.
In 2017, Man Group elevated its UNPRI signatory
status to the Group level. We were also heavily
featured this year at a number of UNPRI events,
including hosting the London launch of the
PRI Hedge Fund Due Diligence Questionnaire.
The highlight of 2017 was the appearance by
Steven Desmyter and Jason Mitchell on two
panels at the annual PRI in Person Conference
held in Berlin where Steven discussed the
role of hedge funds in responsible investment
while, separately, Jason addressed economic
inequality and social cohesion. In addition,
Man will host a PRI and CAIA-sponsored
symposium, Quant at the Intersection of
Responsible Investment on 29 January, 2018.
Man Group writes widely on responsible
investing and environmental, social and
governance issues. This year saw publications in
the FT Fundfire, AIMA Journal and HedgeFund
Journal. Jason Mitchell was also a contributing
author to Sustainable Investing: Revolutions in
Theory and Practice (Routledge Press: 2017).
Our engagement
In an effort to instil best practices in the area
of responsible investment, Man Group has
developed education courses for investment
teams and, more widely, the firm to inform
and enrich approaches to the analysis of
environmental, social and governance factors
in the investment decision-making process.
Our innovation
Man Group believes that there are significant
opportunities for innovation in environmental,
social and governance (ESG) investing. Man’s
multi-strategy breadth is uniquely suited to
matching the firm’s quantitative strengths with its
fundamental work in areas like active ownership
and engagement with companies. Man is
currently implementing firm-wide analytics tools
with third-party data providers to develop an
ESG framework to better assess ESG
investments risks and exposure.
41
Responsible investing is no longer optional. As the
investment management industry has matured and
institutionalised, it has become increasingly responsive
to the requirements of the investors who charge it with
stewardship of their capital – the more they see mitigating
environmental, social and governance risks as part of that
stewardship, the more our industry must do to further
those interests.
Lord Livingston of Parkhead
Chairman of the Board, Man Group
Our commitment
Man Group recognises that responsible
investment is fundamental to our fiduciary
duty to our clients and beneficiaries. We
understand the importance of sound
stewardship in managing investors’ capital,
and our approach to Responsible Investing
closely aligns us with the values of our clients,
shareholders, and other stakeholders.
During 2017 Man announced the
appointment of Steven Desmyter as Head
of Responsible Investment and Chair of
Man Group’s Responsible Investment
Committee. Man also appointed Jason
Mitchell as Sustainability Strategist.
In an effort to better formalise our responsible
investment activities and provide greater
insight for our clients, investors and
stakeholders, Man launched a website
(www.man.com/responsible-investment)
dedicated to our publications, organisational
affiliations and oversight structure in this area.
We will continue adding content to the website,
including Perspectives towards a Sustainable
World, a podcast about what we are doing today
to create a more sustainable world tomorrow.
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CHARITABLE TRUST
The focus of the Man
Charitable Trust for 2017
has been on how we
engage staff and expand
our charitable focus
across the regions.
While continuing the core grant-giving focus
of supporting charities that demonstrate an
improvement in literacy and numeracy skills in
the UK, the Man Charitable Trust (the ‘Trust’) also
focused on increasing employee volunteering
and engagement across all regions in 2017.
As Man Group expands, particularly in the
United States, there has been significant effort
to reflect this in the firm’s charitable activities.
The Trust welcomed two additional Trustees
in 2017 with Robyn Grew, Chief Administrative
Officer and General Counsel, and Steven
Desmyter, Head of EMEA Sales and Head of
Responsible Investment, joining to complement
the existing group of Teun Johnston (Chairman
of the Trust and CEO of Man GLG), Colin
Bettison (Head of Operations, Americas),
Lydia Bosworth (Regulatory and Technical
Manager), Antoine Forterre (Co-CEO of
Man AHL ), Keith Haydon (CIO of Man FRM)
and Carol Ward (COO of Man GLG).
In 2017, further refinements were made to the
grant-giving criteria to ensure the charities
supported get the most value from the funds
provided whilst also benefiting from the Trustees’
individual involvement and experience. In addition,
the Trustees have commenced the process of
expanding the Trust’s activities with a US based
Charitable Trust in progress to commence in 2018
to reflect the Group’s growth in the region.
The Man Charitable Trust successfully focused
on increasing the number of employees
engaged in the firm’s ManKind community
volunteering programme, which enables UK
employees to take two additional days paid
leave per annum to volunteer with charities
supported by the Man Charitable Trust or a
charity of their choice. The positive social
benefits that stem from employees’ skills,
experience and knowledge can make a real
difference to local communities. Volunteering
also provides a highly cost-effective and
valuable method of achieving positive learning
and development benefits for our employees.
In September, the Man Charitable Trust partnered
with Benefacto, a corporate volunteering platform.
Benefacto enables individuals or groups to
participate in a range of volunteering opportunities
from supporting asylum seekers and refugees, to
participating in art sessions for children, holding
literacy sessions for women learning English, and
keeping older people company at weekly lunch
clubs. With support from Benefacto, we have
successfully held a ‘Christmas Volunteering
42
Registered charity no: 275386
Challenge’ and increased volunteering at Man
Group by over 10% (compared to 2016).
The Trust provided $533,756 in charitable
donations and employee engagement
programmes over 2017. In the UK, the projects
supported by the Trust benefited thousands of
vulnerable children, young people and adults
living in disadvantaged neighbourhoods,
providing them with the essential skills they
need to succeed in life and make a positive
contribution to society. We look forward to
building on the successes of 2017 throughout
2018 as the Man Charitable Trust footprint
continues to grow, both internally and in
the many communities we are a part of.
We would like to express our thanks to all
Man Group employees who supported our
charitable programmes during the year, and to
those who donated via their Give as You Earn
accounts. Additionally, we congratulate those
who independently fundraised for charities
of their choice and whose donations were
proudly matched by the Man Charitable Trust.
Sponsorship matching totalled $29,507 for
2017. In 2018, the Man Charitable Trust intends
to continue to provide support to charities that
are able to evidence their ability to improve
literacy and education, and focus on increasing
employee engagement in volunteering.
Featured grants
The Man Charitable Trust awards grants to
charities that work towards raising the levels
of literacy and numeracy in the UK. Examples
of grants awarded in 2017 include:
The Children’s Literacy Charity
The Children’s Literacy Charity (previously
Springboard for Children) aims to ensure that
disadvantaged and vulnerable children and
young people (including those with additional
barriers to learning such as dyslexia) who are
struggling to develop their literacy skills are able
to learn to read and write at levels expected of
their age.
The Trust’s donation funds bespoke, one to
one, literacy interventions for 28 disadvantaged
children per year over two years in deprived
areas of London. In addition to this funding, we
have a team of Man staff providing their time as
literacy volunteers. A group of staff members
also coordinated a ‘Give and Tonic’ evening
where senior management served staff with
all proceeds being donated to The Children’s
Literacy Charity. This evening raised of over
£5,000 which was then matched by the Trust,
providing a total of over £10,000 to the charity.
Maths on Toast
Maths on Toast works to make maths fun
– for families and communities. They work
with families in all the places families are found
– at home, at school, and in family friendly
places – developing and delivering activities
that include crafts, games, and colouring,
partnering with community organisations and
creative practitioners. Maths on Toast’s aim
is for people participating in their activities to
enjoy them, identify them as maths and form
family memories of good times doing maths.
The Trust granted £13,500 in core funding to
Maths on Toast before providing an additional
grant to assist Maths on Toast in expanding their
influence by recruiting a full time Marketing and
Operations Manager.
Vision for Literacy Business Pledge
Man Group is also a signatory of the Vision for
Literacy Business Pledge 2018, having also
signed the 2016 and 2017 Pledges. The Vision
for Literacy Business Pledge galvanises the
business sector behind the literacy challenge,
with signatories committing to taking practical
action that will deliver tangible benefits in helping
to raise UK literacy levels. Signing the Pledge
once again demonstrates our commitment to
tackling the literacy challenge by taking action
within the workforce, the local community and
at national level.
Man Group plc Annual Report 2017Strategic report MAN GROUP’S LITERARY SPONSORSHIPS
Man Group sponsors two
major literary prizes, The
Man Booker Prize and The
Man Booker International
Prize, in their celebration
of literary excellence
and creativity.
As a firm, we believe in nurturing and celebrating
intellectual capital. We want our colleagues to
be able to articulate their thoughts with
creativity, constantly questioning the world
around them, and we have to see and interpret
situations on many levels – both the obvious
headline but also understanding the subtlety of
competing narratives. These are all the things
we do when we read great novels.
Of the novel, Baroness Lola Young, 2017
Chair of judges, said: “This tale of the
haunting and haunted souls in the afterlife of
Abraham Lincoln’s young son paradoxically
creates a vivid and lively evocation of the
characters that populate this other world.
Lincoln in the Bardo is both rooted in,
and plays with history, and explores the
meaning and experience of empathy.”
We also believe businesses like Man Group have
an important duty to support progress in
education at every level: from the Man Booker
Prizes, which recognise global talent, to our
more local initiatives in schools and universities.
It is in all our interests and the right thing to do,
we believe, to encourage and promote literary
and academic endeavours in all their forms.
The Man Booker Prize 2017
The Man Booker Prize for Fiction, awarded
annually to a novel written in English and
published in the UK that year, is considered the
leading literary award in the English-speaking
world. In 2017, the fifteenth year of Man Group’s
sponsorship of the prize, it was awarded to
Lincoln in the Bardo, by American author
George Saunders. In the week following the
announcement, sales of Lincoln in the Bardo
increased by 1227% and Bloomsbury, the
book’s publisher, issued an immediate reprint
of 100,000 copies.
Born in Texas and resident in New York,
58-year-old George Saunders is the second
American author to win the prize in its 49-year
history. Internationally renowned as a short story
writer, Lincoln in the Bardo is Saunders’ first full-
length novel. The novel focuses on a single night
in the life of Abraham Lincoln: an actual moment
in 1862 when the body of his 11-year-old son
was laid to rest in a Washington cemetery.
Strangely and brilliantly, Saunders activates
this graveyard with the spirits of its dead.
The Man Booker International Prize 2017
Man Group has sponsored the Man Booker
International Prize since its inception in 2005.
Awarded each year on the basis of a single book
translated into English, the Man Booker
International Prize aims to encourage the
publishing and reading of quality fiction in
translation, and the £50,000 prize is divided
equally between the author and the translator.
All novels published in English in the UK are
therefore eligible for one or other of the Man
Booker Prize or Man Booker International Prize,
ensuring that the ‘Man Booker’ can honour
fiction on a truly global basis.
The 2017 Man Booker International Prize was
awarded to A Horse Walks Into a Bar by David
Grossman and translated by Jessica Cohen.
The paperback of A Horse Walks Into a Bar sold
20,000 copies in the three weeks following the
winner announcement.
Grossman is a bestselling Israeli writer of fiction,
non-fiction and children’s literature, whose
works have been translated into 36 languages.
Cohen, who was born in Colchester, England,
but raised in Jerusalem, has previously
translated Grossman’s critically acclaimed To
the End of the Land as well as work by other
major Israeli writers.
Commenting on the novel, Nick Barley, chair of
the 2017 judging panel, said: “A Horse Walks
into a Bar shines a spotlight on the effects of
grief, without any hint of sentimentality. The
central character is challenging and flawed, but
completely compelling. We were bowled over by
Grossman’s willingness to take emotional as well
as stylistic risks: every sentence counts, every
word matters in this supreme example of the
writer’s craft.”
Jessica Cohen said in her acceptance
speech: “This award is especially meaningful
because it is an unparalleled recognition
of translators. To me, the Man Booker
International Prize is about recognising works
that break down walls and barriers, that fight
against dehumanising other people or other
peoples, and find the language to express
the human experiences that we all share.”
43
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CORPORATE GOVERNANCE REPORT
Introduction from the Chairman
2017 was a year of good progress for
the Board as well as one of excellent
performance by the business and
management team.
Following certain improvements introduced at the beginning of the
year and the embedding of the new executive team appointed in 2016,
feedback from the 2017 Board evaluation indicated a number of areas
of progress.
There was particular appreciation of the quality of discussion, the
opportunity for open and inclusive debate and the strong engagement of
the executive team. Full details of the Board’s processes, areas of attention
and activities during 2017 are given in the main body of this report. In this
introduction, I have highlighted a number of changes we introduced and
key areas on which we focused. Also noted are areas where further work
is required and planned in 2018.
Strategy
In recognition of the importance Board members give to strategy debate,
we have built more time into our regular meetings for deep dive reviews
with senior management of individual business strategies and operations.
These are interactive sessions which are centred on discussion and
challenge and have been well received by both Board members and
management teams. The regular review of individual business strategies
enabled us to concentrate our annual strategy session on Man’s long term
direction and structure, including consideration of different views
presented by external speakers on the future of asset management.
Arising from this long term review, we identified a number of related
strategic topics to be debated in future meetings.
Management performance and risk
We have continued to review management’s execution of strategy and
monitored the impact of recent business improvements, notably the
changes made within Man’s discretionary investment manager, Man GLG.
Risk is always a key area of focus for a business such as Man and the
Board has considered it both as a standalone topic and as an important
factor in our decision making and business and strategic reviews. We
explored in particular the uncertainties, integration challenge and
opportunity costs attaching to potential acquisitions, Brexit, regulatory
changes and technology. In our review of the substantial progress made
by our Sales teams, we discussed the potential risk of concentration of
assets in certain strategies and clients.
44
Technological change and innovation
The Board is keenly aware of the fast pace and challenge of technological
innovation in our industry. During the year we had presentations from both
internal and external experts in the area of IT and technology. The Board
discussed with the Man AHL team the ongoing application of machine
learning to Man AHL’s quant strategies. It reviewed our Technology
Group’s contribution to enhancing Sales and the client experience,
providing scalable flexible infrastructure and increasing operational
leverage. We also reviewed the actions being taken to enhance Man’s
resilience to cyber risk and encouraged management to seek and share
relevant learning with their counterparts in other businesses. We will
continue to request regular updates on developments in technology
and digital capability to keep abreast of the challenges and opportunities
being created in this space.
Stakeholder voice
The Board is conscious of the increasing expectations placed on
companies and their Boards by society at large and the added impetus
given to the stakeholder voice by the Government’s current Corporate
Governance reforms.
The Board recognises the importance of taking account of all stakeholder
interests for the support and protection of Man’s long term growth. It has
reviewed progress on the development of business partnerships with the
Company’s major clients and the creation of customised product solutions
to meet investor needs. It has discussed the feedback from the 2017
employee survey and explored the impact of Man’s recruitment, learning
and development programmes, the retention of talent through internal
promotion and improvements in diversity. The Board is also very aware of
the importance of the Company’s role in the societies in which it operates
and has discussed expanding and enhancing the Company’s and our
people’s involvement with local good causes. More specific reviews of the
interests of stakeholders, including customers, staff and suppliers, will be
undertaken in the current year.
Adherence to business principles
While recognising the strength of Man’s business culture, the Board has
questioned management on the extent to which the Company’s business
principles are embedded in employees’ day to day behaviours and
decision making, including any variation of penetration across different
teams. The Board recognises that it is challenging for management to
report and the Board to monitor qualitative issues of this kind. We will,
however, continue to encourage management to analyse the impacts of
business culture and discuss progress and weaknesses, particularly as
the business grows.
Diversity and inclusion
The Board recognises the value of diversity on the Board and in the
workforce as a whole. We have updated our Board diversity policy to
embrace diversity in its broadest sense, both in our approach to new
Board appointments and in our oversight and encouragement of diversity
and inclusion initiatives throughout the firm. The Board’s updated policy
and disclosure on how it was implemented during the year is set out on
page 64. This is another area of work in progress where we are confident
that the measures we are taking will in time deliver a more diverse talent
base in the business and on the Board.
People
I should like to congratulate the executive directors and all our people
across the world for their excellent achievements during the year and to
thank all my non-executive colleagues for their continued contribution and
teamwork. I have greatly enjoyed working with them all. The Board will
continue its overall focus on delivering long term value to our shareholders,
fund investors and other stakeholders.
Lord Livingston of Parkhead
Chairman
Man Group plc Annual Report 2017Corporate governance BOARD OF DIRECTORS
CHAIRMAN
EXECUTIVE DIRECTORS
Lord Livingston of Parkhead
Chairman
Date of appointment
January 2016
Chairman: May 2016
Committee memberships
Nomination Committee (Chair)
Remuneration Committee
Background and career
Ian served as Minister of State for
Trade and Investment from 2013 to
2015. Prior to this he was Group Chief
Executive Officer of BT Group Plc,
having previously served as Chief
Executive Officer of BT Retail and as
Group Chief Financial Officer. Before
joining BT, he was Chief Financial
Officer of Dixons Group plc.
Areas of expertise and contribution
With over two decades of board level
FTSE 100 experience, Ian brings
extensive knowledge and understanding
of successfully growing a complex
international business and navigating
regulatory environments around the
world. He has a strong track record of
innovative leadership that is invaluable to
the Board and executive team. Since
being appointed as Chairman of Man
Group, Ian has navigated the Board
through significant change and has
streamlined certain Board Committee
memberships and delegations. He has
also introduced sharply focused strategy
sessions into the regular Board meetings.
Luke Ellis
Chief Executive Officer (CEO)
Date of appointment
September 2016
Mark Jones
Chief Financial Officer (CFO)
Date of appointment
January 2017
Committee memberships
None
Committee memberships
None
Background and career
Prior to his appointment to the Board,
Luke served as President of Man Group
from 2012 with responsibility for the
management of Man’s investment
businesses. Before this he was Head
and CIO of Man’s Multi-Manager
Business and Non-Executive Chairman
of GLG’s Multi-Manager activities. Luke
previously served as Managing Director
of FRM from 1998 to 2008, prior to
which he was a Managing Director at
J.P. Morgan in London.
Areas of expertise and contribution
Luke has a strong and varied investment
management background and extensive
knowledge of Man Group from his role
as President. Since his appointment
as CEO, Luke has led the Group in
diversifying its product range and
increasing its international presence.
He has also continued to strengthen
the Group’s control focus through the
creation of the Chief Administrative
Officer role and the appointment of a
Chief Investment Officer for the Group.
Background and career
Before joining the Board, Mark served
as Co-CEO of Man GLG from 2013 and
COO from 2010. Mark joined Man GLG
in 2005 from strategy consulting firm
McKinsey where he worked across a
range of industries.
Areas of expertise and contribution
Mark has significant management,
financial and operational experience
gained through his previous roles at
Man. This experience, together with his
extensive industry knowledge, has
supported the development of the
Group’s strategy and offering to clients.
Since his appointment as CFO, Mark
has brought clear focus on cost through
the delivery of challenging cost saving
initiatives, and has successfully
overseen a number of changes to the
structure of the Group’s Risk function.
Current external roles
Ian is a serving member of the House of
Lords. He is Chairman of Dixons
Carphone plc and a non-executive
director of Belmond Ltd.
Current external roles
Luke is a director of Standards Board
for Alternative Investments Limited,
Greenhouse Sports Limited, Investhor
Limited, and VWA Search Ltd.
Current external roles
Mark is a trustee of the Balliol Society
Educational Trust.
The Chairman’s role
Leads the Board, sets its agenda and
ensures it discharges its role
effectively.
Supports and constructively
challenges the CEO, fosters effective
relationships between executive and
non-executive Board members, and
creates a culture of open debate.
Leads, with the support of the
Nomination Committee, effective Board
succession planning and the search for
and appointment of new directors,
taking account of the need for the
development of Board competencies,
experience and diversity.
Ensures that the Board is aware of the
views of and maintains effective
communications with shareholders
and takes account of the interests of all
stakeholders.
The CEO’s role
Leads the development, for Board
approval, of business strategy and
leads and oversees management’s
delivery against it.
Runs the business with appropriate
delegated authorities, risk
management systems and internal
controls in place.
Builds and maintains an effective
management team and workforce and
develops, communicates and embeds
within the business a shared purpose
and set of business values.
The CFO’s role
Manages the allocation and
maintenance of the Group’s capital,
funding and liquidity in accordance
with regulatory requirements.
Responsible for the preparation and
integrity of the Group’s financial
information and its regulatory
reporting.
Leads the development of annual
budgets and medium term plans for
Board approval. Responsible for the
Group’s risk management within the
Board’s Risk Appetite Statement and
its capital buffer.
Develops an effective relationship with
the Chairman and leverages the
knowledge and experience of
non-executive Board members.
Maintains an effective dialogue with
shareholders on the Company’s
strategy and performance.
Builds relationships with shareholders,
banks and counterparties, rating
agencies, regulators and the external
auditor in relation to the performance
and financial structure of the
Company.
Jonathan Sorrell
President
Date of appointment
June 2012
CFO: June 2012 – December 2016
Co-President: June 2016
President: September 2016
Committee memberships
None
Background and career
Jonathan joined Man in August 2011
as Head of Strategy and Corporate
Finance. He was CFO from June 2012
to December 2016 and was appointed
Co-President in June 2016 and President
in September 2016. Prior to joining Man,
Jonathan spent 13 years at Goldman
Sachs where he worked in the
Investment Management, Securities and
Investment Banking Divisions, latterly
leading investments in a broad range of
alternative asset management firms.
Areas of expertise and contribution
Jonathan’s experience of financial
markets, particularly his extensive
knowledge of the alternative fund
management industry and strong
background in strategy and execution,
has supported the development of Man’s
business, including M&A activity that has
strengthened the Group’s footprint in the
US and established a business in private
markets. Since his appointment as
President, Jonathan has designed and
executed a new strategy for Sales &
Marketing, successfully established Man
Global Private Markets (including the
integration of Aalto), and has continued
to reposition, develop and grow Man
FRM as an alternative asset
management solutions provider.
Current external roles
Jonathan is a non-executive director of
Nephila Holdings Limited, representing
Man’s interest as a minority shareholder.
The President’s role
Leads and oversees the Group’s
Sales & Marketing capability globally.
Leads and oversees two investment
engines, Man Global Private Markets
and Man FRM.
Responsible for and leads the
development of the Group’s corporate
strategy, including merger and
acquisition activity.
45
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
BOARD OF DIRECTORS CONTINUED
SENIOR INDEPENDENT DIRECTOR
INDEPENDENT NON-EXECUTIVE DIRECTORS
Dame Katharine (Kate) Barker
Independent non-executive director
John Cryan
Independent non-executive director
Andrew Horton
Matthew Lester
Dev Sanyal
Nina Shapiro
Independent non-executive director
Independent non-executive director and
Independent non-executive director
Independent non-executive director
Date of appointment
April 2017
Date of appointment
January 2015
Date of appointment
August 2013
Date of appointment
December 2013
Date of appointment
October 2011
Committee memberships
Remuneration Committee
Committee memberships
None
Background and career
Kate is a business economist and was
previously a member of the Bank of
England’s Monetary Policy Committee
from 2001 to 2010. Prior to that, she
was Chief Economic Adviser to the
Confederation of British Industry. Her
previous roles include Senior Adviser to
Credit Suisse from 2010 to 2016 and
non-executive director of the Yorkshire
Building Society. Kate was awarded a
CBE in 2005 for services to social
housing and a DBE in 2014 for services
to the British economy.
Areas of expertise and contribution
Kate has over 30 years’ experience as a
senior business economist with
broad-ranging knowledge of monetary
and public policy, and the financial
services sector. Kate brings to Man
strategic thinking and economic insight
coupled with a strong knowledge of
financial markets and is a valuable
advisor and contributor to the Board.
Background and career
John is CEO of Deutsche Bank AG. He
previously held a number of senior roles
at UBS AG over a career spanning more
than 25 years with the banking group,
during which time he served as Group
CFO and Chairman and CEO of UBS
AG EMEA. Following his time at UBS,
John was president of Temasek
International’s European Operations.
Areas of expertise and contribution
John has extensive knowledge of
international financial markets gained
from experience at leading global
financial institutions and brings
significant knowledge of the regulatory
environment in which Man Group
operates.
Audit and Risk Committee Chair
Date of appointment
May 2011
Chairman of the Audit and Risk
Committee: November 2011
Committee memberships
Audit and Risk Committee (Chair)
Nomination Committee
Committee memberships
Audit and Risk Committee
Background and career
Andrew has served on the Board of
Beazley plc since 2003, first as Group
Finance Director and since 2008 as
CEO. Prior to his time at Beazley,
Andrew held a number of financial
positions within ING, NatWest and
Lloyds Bank.
Committee memberships
Audit and Risk Committee
Committee memberships
Remuneration Committee
Background and career
Matthew was CFO of Royal Mail plc
during the period of preparation for
Background and career
Dev has held a number of senior
Background and career
Nina held several senior management
financial and line management positions
and operating roles at the World Bank
privatisation and for its first four years as
with BP in a global career spanning
a listed entity. Prior to that, he was
more than 25 years. Dev is Chief
Group Finance Director of ICAP plc from
Executive, Alternative Energy and
and has led numerous investments in
emerging markets. From 2000 to 2011,
Nina was a member of the Management
2006 to 2010 and held a range of senior
Executive Vice President, Europe & Asia
Group and was Vice President, Finance,
finance roles at Diageo, including Group
Regions at BP plc.
Financial Controller and Group
Treasurer.
and Treasurer of the International
Finance Corporation (the World Bank’s
private sector arm). In that role, she
managed IFC liquid asset investment
and funding, and capital market
development in emerging markets.
Areas of expertise and contribution
Areas of expertise and contribution
Areas of expertise and contribution
Areas of expertise and contribution
Andrew has over 25 years of broad
financial services experience with
significant exposure to operating at
Matthew has substantial financial
Dev has extensive knowledge of capital
With extensive experience in
management and regulatory expertise.
markets, asset and risk management,
international financial markets and
He also has significant listed company
trading and foreign exchange gained
in-depth knowledge of investment in
Board level. With his banking, financial
experience acquired through his role at
from his role as BP Group Treasurer
markets and insurance background,
Andrew is well placed to contribute to
Man Group’s strategic development,
risk management and financial
reporting. Andrew’s international
experience has also enabled him to
ICAP plc and through the flotation of
Royal Mail plc on the London Stock
Exchange. Matthew’s experience
enables him to provide substantial
insight into the Group’s financial
reporting and risk management
provide valuable input to Man Group’s
processes.
increased international presence.
and Chairman of BP Investment
Management Ltd. With broad
international experience and wide
executive roles, he is able to contribute
to the development and execution of
Man Group’s business strategy and
global relationships.
ranging operational expertise in senior
expansion.
emerging markets, Nina has particular
insight into financial policy and market
development. This perspective helps to
support Man Group in its international
Current external roles
Kate is currently a non-executive
director of Taylor Wimpey plc and
Chairman of Trustees for the British Coal
Staff Superannuation Scheme. Kate is
also a member of the National
Infrastructure Commission.
Current external roles
John is CEO of Deutsche Bank AG.
Current external roles
Andrew is CEO of Beazley plc.
Current external roles
Current external roles
Current external roles
Matthew is currently a non-executive
Dev is Chief Executive, Alternative
director of Capita plc, where he is Chair
Energy and Executive Vice President,
Nina currently serves as Chairman of
Global Parametrics (an enterprise for
of the Audit and Risk Committee. He is
Europe & Asia Regions at BP plc. He is
parametric risk transfer of catastrophic
also a non-executive director of Barclays
also a member of the Accenture Global
risk in emerging markets), and is a
PLC and Barclays Bank PLC, where he
Energy Board; a member of the Board
director of Mountain Partners (an
is a member of the Board Audit and
Board Risk Committees.
of Advisors of The Fletcher School of
Law and Diplomacy, Tufts University;
accelerator for early technology
ventures), Identiv (a technology security
Vice Chairman of the Centre for China in
company) and Zyfin (an originator of
the World Economy at Tsinghua
University and a member of the
ETFs for emerging markets). She is also
on the Advisory Boards of the New Silk
International Advisory Board of the
Route PE Fund, the Carbon Trust
Ministry of Petroleum and Natural Gas,
(environmental group) and Mariner
Government of India.
Infrastructure Investment Management.
The role of the Senior
Independent Director
Gains a broad overview of the work of
the Board, including through serving
on or attending each of the three main
Board Committees.
Provides a sounding board for and
advice to the Chairman on any Board
matters, including Board development
and succession issues as appropriate.
Acts as a focal point for
communications with the
non-executive directors should Board
or business circumstances require this.
Leads the annual performance
evaluation of the Chairman and
provides feedback to him.
Available to shareholders if they have
any concerns which contact through
the normal channels has failed to
resolve or is inappropriate.
The role of the Independent
Non-Executive Directors
Contribute to and constructively
challenge the development of
business strategy.
Contribute to the identification of the
Company’s principal business risks
and the determination of its risk
appetite.
Scrutinise and challenge management
performance in delivering business
strategy and meeting business
objectives.
Monitor and challenge the
effectiveness of the internal control
and risk management framework.
Keep under review the Company’s
compliance with the regulatory
principles and requirements impacting
asset management and distribution.
Review and challenge, prior to
publication, the Company’s financial
statements and announcements.
Keep Board composition and
succession planning under review in
light of changing business needs and
recommend Board changes and
appointments as appropriate.
Determine executive director
remuneration policy and awards.
Richard Berliand
Senior Independent Director (SID) and
Remuneration Committee Chair
Date of appointment
January 2016
Chairman of the Remuneration
Committee: May 2016, SID: May 2017
Committee memberships
Remuneration Committee (Chair)
Nomination Committee
Background and career
Richard held a number of senior roles at
J.P. Morgan over a 23 year career at the
firm, including Global Head of Prime
Services, Global Head of Cash Equities
and Chairman of J.P. Morgan’s Market
Structure practice.
Areas of expertise and contribution
Richard has a wealth of experience in
the financial services sector gained
through a number of senior executive
roles. He also brings extensive
experience from a diverse range of
international non-executive positions
which gives him a deep understanding
of areas such as the current regulatory
environment, risk management and
technology. Richard’s focus on investor
engagement through his role as SID and
Chairman of the Remuneration
Committee has provided valuable
context to Board decisions, specifically
in relation to remuneration policy and
practice.
Current external roles
Richard currently serves as Deputy
Chairman of Deutsche Börse AG in
Frankfurt and is a Director of its Eurex
derivative subsidiaries in Frankfurt and
Zürich. He is also a non-executive
Director of Rothesay Life plc., the UK
bulk annuity specialist insurer. His other
roles include directorship of Saranac
Partners Limited, London, and
membership of the CFTC Global
Markets Advisory Committee in
Washington D.C.
46
Man Group plc Annual Report 2017Corporate governance Remuneration Committee Chair
Date of appointment
January 2016
Chairman of the Remuneration
Committee: May 2016, SID: May 2017
Committee memberships
Remuneration Committee (Chair)
Nomination Committee
Committee memberships
Remuneration Committee
Committee memberships
None
Background and career
Background and career
Background and career
Richard held a number of senior roles at
Kate is a business economist and was
John is CEO of Deutsche Bank AG. He
J.P. Morgan over a 23 year career at the
previously a member of the Bank of
previously held a number of senior roles
firm, including Global Head of Prime
England’s Monetary Policy Committee
at UBS AG over a career spanning more
Services, Global Head of Cash Equities
from 2001 to 2010. Prior to that, she
and Chairman of J.P. Morgan’s Market
was Chief Economic Adviser to the
than 25 years with the banking group,
during which time he served as Group
Structure practice.
Confederation of British Industry. Her
CFO and Chairman and CEO of UBS
previous roles include Senior Adviser to
AG EMEA. Following his time at UBS,
Credit Suisse from 2010 to 2016 and
John was president of Temasek
non-executive director of the Yorkshire
International’s European Operations.
Building Society. Kate was awarded a
CBE in 2005 for services to social
housing and a DBE in 2014 for services
to the British economy.
Areas of expertise and contribution
Areas of expertise and contribution
Areas of expertise and contribution
Richard has a wealth of experience in
Kate has over 30 years’ experience as a
John has extensive knowledge of
the financial services sector gained
senior business economist with
international financial markets gained
through a number of senior executive
broad-ranging knowledge of monetary
from experience at leading global
roles. He also brings extensive
experience from a diverse range of
international non-executive positions
and public policy, and the financial
services sector. Kate brings to Man
financial institutions and brings
significant knowledge of the regulatory
strategic thinking and economic insight
environment in which Man Group
which gives him a deep understanding
coupled with a strong knowledge of
operates.
of areas such as the current regulatory
financial markets and is a valuable
environment, risk management and
advisor and contributor to the Board.
technology. Richard’s focus on investor
engagement through his role as SID and
Chairman of the Remuneration
Committee has provided valuable
context to Board decisions, specifically
in relation to remuneration policy and
practice.
Current external roles
Richard currently serves as Deputy
Chairman of Deutsche Börse AG in
Current external roles
Kate is currently a non-executive
director of Taylor Wimpey plc and
Frankfurt and is a Director of its Eurex
Chairman of Trustees for the British Coal
derivative subsidiaries in Frankfurt and
Staff Superannuation Scheme. Kate is
Zürich. He is also a non-executive
also a member of the National
Director of Rothesay Life plc., the UK
Infrastructure Commission.
bulk annuity specialist insurer. His other
roles include directorship of Saranac
Partners Limited, London, and
membership of the CFTC Global
Markets Advisory Committee in
Washington D.C.
Richard Berliand
Dame Katharine (Kate) Barker
John Cryan
Senior Independent Director (SID) and
Independent non-executive director
Independent non-executive director
Andrew Horton
Independent non-executive director
Date of appointment
April 2017
Date of appointment
January 2015
Date of appointment
August 2013
Committee memberships
Audit and Risk Committee
Background and career
Andrew has served on the Board of
Beazley plc since 2003, first as Group
Finance Director and since 2008 as
CEO. Prior to his time at Beazley,
Andrew held a number of financial
positions within ING, NatWest and
Lloyds Bank.
Matthew Lester
Independent non-executive director and
Audit and Risk Committee Chair
Date of appointment
May 2011
Chairman of the Audit and Risk
Committee: November 2011
Committee memberships
Audit and Risk Committee (Chair)
Nomination Committee
Background and career
Matthew was CFO of Royal Mail plc
during the period of preparation for
privatisation and for its first four years as
a listed entity. Prior to that, he was
Group Finance Director of ICAP plc from
2006 to 2010 and held a range of senior
finance roles at Diageo, including Group
Financial Controller and Group
Treasurer.
Dev Sanyal
Independent non-executive director
Nina Shapiro
Independent non-executive director
Date of appointment
December 2013
Date of appointment
October 2011
Committee memberships
Audit and Risk Committee
Committee memberships
Remuneration Committee
Background and career
Dev has held a number of senior
financial and line management positions
with BP in a global career spanning
more than 25 years. Dev is Chief
Executive, Alternative Energy and
Executive Vice President, Europe & Asia
Regions at BP plc.
Background and career
Nina held several senior management
and operating roles at the World Bank
and has led numerous investments in
emerging markets. From 2000 to 2011,
Nina was a member of the Management
Group and was Vice President, Finance,
and Treasurer of the International
Finance Corporation (the World Bank’s
private sector arm). In that role, she
managed IFC liquid asset investment
and funding, and capital market
development in emerging markets.
Areas of expertise and contribution
With extensive experience in
international financial markets and
in-depth knowledge of investment in
emerging markets, Nina has particular
insight into financial policy and market
development. This perspective helps to
support Man Group in its international
expansion.
Areas of expertise and contribution
Andrew has over 25 years of broad
financial services experience with
significant exposure to operating at
Board level. With his banking, financial
markets and insurance background,
Andrew is well placed to contribute to
Man Group’s strategic development,
risk management and financial
reporting. Andrew’s international
experience has also enabled him to
provide valuable input to Man Group’s
increased international presence.
Areas of expertise and contribution
Matthew has substantial financial
management and regulatory expertise.
He also has significant listed company
experience acquired through his role at
ICAP plc and through the flotation of
Royal Mail plc on the London Stock
Exchange. Matthew’s experience
enables him to provide substantial
insight into the Group’s financial
reporting and risk management
processes.
Areas of expertise and contribution
Dev has extensive knowledge of capital
markets, asset and risk management,
trading and foreign exchange gained
from his role as BP Group Treasurer
and Chairman of BP Investment
Management Ltd. With broad
international experience and wide
ranging operational expertise in senior
executive roles, he is able to contribute
to the development and execution of
Man Group’s business strategy and
global relationships.
Current external roles
John is CEO of Deutsche Bank AG.
Current external roles
Andrew is CEO of Beazley plc.
Current external roles
Matthew is currently a non-executive
director of Capita plc, where he is Chair
of the Audit and Risk Committee. He is
also a non-executive director of Barclays
PLC and Barclays Bank PLC, where he
is a member of the Board Audit and
Board Risk Committees.
Current external roles
Dev is Chief Executive, Alternative
Energy and Executive Vice President,
Europe & Asia Regions at BP plc. He is
also a member of the Accenture Global
Energy Board; a member of the Board
of Advisors of The Fletcher School of
Law and Diplomacy, Tufts University;
Vice Chairman of the Centre for China in
the World Economy at Tsinghua
University and a member of the
International Advisory Board of the
Ministry of Petroleum and Natural Gas,
Government of India.
Current external roles
Nina currently serves as Chairman of
Global Parametrics (an enterprise for
parametric risk transfer of catastrophic
risk in emerging markets), and is a
director of Mountain Partners (an
accelerator for early technology
ventures), Identiv (a technology security
company) and Zyfin (an originator of
ETFs for emerging markets). She is also
on the Advisory Boards of the New Silk
Route PE Fund, the Carbon Trust
(environmental group) and Mariner
Infrastructure Investment Management.
47
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CORPORATE GOVERNANCE REPORT CONTINUED
Board profile
Percentage of Board members with relevant experience
Finance and investment
International
100%
Risk management
73%
Board composition
100%
Operations
82%
Chairman
9.1%
Executive directors
27.3%
Non-executive directors 63.6%
Board governance
Role of the Board
The Board’s core role is to promote the long term success of the
Company for the benefit of its shareholders. This requires us to:
– Determine and review business strategy and Man’s appetite for risk
– Monitor management performance in delivering that strategy
– Ensure that risk management measures and internal controls are
appropriate and effective
– Oversee and monitor the embedding of and adherence to the
Company’s business values
– Ensure that the Company’s financial structure, resources and culture
will support long term growth
In doing all this, the Board must also have regard to the interests of a wide
range of stakeholders, including employees, customers, suppliers and the
communities in which the business operates, in order to create mutual
trust and long term sustainability.
Matters reserved for the Board
To fulfil its role, the Board reserves for itself certain key areas of decision
such as business strategy, major acquisitions, risk appetite, capital structure,
borrowings, financial reporting and communications with shareholders. For
a full list of Board reserved matters, please see our website www.man.com/
corporate-governance.
Board Committees
The Board delegates its formal governance responsibilities to the three
non-executive Board Committees listed below; separate reports on
the activities of these Committees during 2017 can be found on the
pages shown.
Board
Tenure
Gender diversity
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
0–3 years
3–6 years
6+ years
45.5%
36.3%
18.2%
i Page 56 for the
Audit and Risk
Committee
report
i Page 62 for
i Page 65 for
the Nomination
Committee
report
the Directors’
Remuneration
report
2017 Board meetings
Board member
Ian Livingston, Chairman
Katharine Barker1
Richard Berliand
Phillip Colebatch2
John Cryan
Luke Ellis
Andrew Horton
Mark Jones
Matthew Lester
Dev Sanyal
Nina Shapiro
Jonathan Sorrell
Male
Female
81.8%
18.2%
1 Katharine Barker joined the Board on 1 April 2017.
2 Phillip Colebatch retired from the Board on 30 September 2017.
Meeting
attendance
7/7
6/6
7/7
4/4
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
i For full details of Man’s Board diversity policy
and planned actions in 2018, please see page 64.
48
Man Group plc Annual Report 2017Corporate governance Board delegation of decisions to CEO
All business decisions and activities which are not specifically reserved
for the Board or its Committees are delegated to Luke Ellis as CEO.
Luke has appointed and runs the business through the Senior
Management Executive Committee. The members of the Committee
and their particular areas of responsibility are shown below.
CEO’s delegated authorities within the Group
In addition, to support and protect the development and day to day
running of business throughout the Group, Luke has implemented a
framework of delegated authorities which is reviewed on a regular basis
and adopted by all Group entities. This sets out the operating authorities
and procedures which apply for the approval of business strategy and
investment products, budgets and expenses, treasury, tax, regulatory,
legal and other matters.
Senior Management Executive Committee
Robyn Grew
Chief Administrative
Officer and General Counsel
Mark Jones
Chief Financial Officer
and Executive Director
Sandy Rattray
Chief Investment Officer
Jonathan Sorrell
President and Executive Director
Man’s infrastructure – Operations,
Technology, Compliance, Legal,
HR and Facilities
Robyn joined Man with the
acquisition of GLG after
previous legal, regulatory and
risk management roles at
Barclays Capital and Lehman
Brothers. She was previously
Man’s Global Head of
Compliance and Regulatory.
Allocation and maintenance of
the Group’s capital, integrity
of financial reporting, risk
management, and relationships
with shareholders, regulators,
banks and auditors.
i Page 45 for
biographical details
Man AHL, Man Numeric,
Man GLG and Man Solutions
Sandy joined Man with the
acquisition of GLG after 15
years at Goldman Sachs. He
has extensive experience in
developing quantitative trading
strategies and was previously
CEO of AHL.
Global Sales and Marketing,
corporate strategy and M&A,
Man Global Private Markets
and Man FRM.
i Page 45 for
biographical details
Board operation during 2017
The Board held seven main meetings during 2017, including a full
day strategy review which focused on the long term prospects for the
investment management industry and the direction of Man. The tables
on pages 50 and 51 set out the main actions undertaken by the Board
to discharge its role during 2017.
To provide greater insight into how the Board conducts its work, key
aspects of its approach are discussed below.
Strategy review
In response to feedback from the 2016 Board evaluation, the timing
of meetings was reviewed to provide an earlier start and increased
opportunity for in depth review at every meeting of individual business
and operational strategies in line with a programme agreed by the Board.
These sessions also gave non-executive Board members further exposure
to executives working in a wide range of business areas and facilitated the
building of longer term relationships. The focus of such sessions is on
analysis and challenge, rather than presentation, and the sharing of
non-executive experience and insights.
Consideration of risk
Consideration of risk is always integrated into strategy reviews and
business decisions. In evaluating potential acquisitions, the Board
considered, in addition to the financial case, the issues which might
threaten the Company’s strategic objectives in terms of scale and
management stretch, integration and reputational challenges and the
opportunity cost. In reviewing the Sales teams’ planning and client
development strategy, the Board discussed the analysis of assets
at risk, the potential for over concentration of product and customer
base and the risk of over allocation of resource.
People and values
The Board seeks regular updates from the executive team on a wide range
of people issues. In 2017 these included the impact of the consolidation
of investment management and Sales teams into one London office,
the findings of the staff survey and staff sentiment about year end
compensation awards. The Board reviewed and discussed the Company’s
diversity statistics, its inclusion and diversity initiatives and the output from
its gender pay analysis. It also sought to understand and test how the
Company’s business principles are being embedded across the firm and
evidenced in employee behaviours and working practices. The progress
made by the leadership team in reinforcing Man’s business principles in
the day to day working environment is well recognised and the Board is
keen to increase its insight into and challenge of the shaping of this culture.
In depth analysis
The Board brings, where appropriate, a highly analytical approach to its
discussion of business issues. An example of this was that, prior to the
Board’s review of the 2017 ICAAP, Man’s Head of Central Risk gave
individual briefings to non-executive directors on the structure of the
document and the approach taken by Man to its preparation. In a debate
lasting some two and a half hours, the Board then collectively reviewed
and challenged the executive team and an external consultant on the
content of the document, focusing particularly on the risk modelling
and correlation assumptions applied.
Follow up and monitoring
Board discussions may give rise to requests for further information
or analysis on a given topic in order to enhance non-executives’
understanding of a business issue. Briefing notes on issues such as the
output from the FCA’s Asset Management Market Survey, the impact of
MiFID II on Man’s investment and trading activities, and the treatment of
dormant assets have been prepared and circulated. The Board may also
seek updates on progress on a particular area of the business on which it
has focused during the year. Following changes made in Man GLG at the
end of 2016, the Board received a written quarterly review from the CEO of
that business on performance, flows, new initiatives and people changes
during the year. Details of more formal education and training sessions on
regulatory impacts requested by the Board and delivered by external firms
during the year are set out later in this report.
49
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CORPORATE GOVERNANCE REPORT CONTINUED
Board activities during 2017
Review and develop
business strategy
Determine risk appetite
and monitor and manage risk
Annual long term strategy review (full day)
– Consideration of long term future of asset management including
external views from different industry experts
– Challenge of the value delivered by active management strategies
– Analysis of the comparative values of organic and inorganic
business growth
– Review and approval of Man’s updated Risk Governance and Appetite
framework in line with changes in the business and control environment
– Review of the commercial drivers of top level business risks and the
identification and analysis of operational risk indicators
– Ongoing monitoring of business risks and the effectiveness of Man’s
risk management and internal control framework
– Review of M&A and partnering opportunities
– Assessment of reporting on Man’s principal business risks and their
Individual business (“deep dive”) strategy reviews
– Review of current Man AHL product range, relative performance,
growth prospects and the value derived from machine learning
– Review of the evolution of Man FRM as a bespoke institutional
solutions provider and key developer of Man’s cross-content
product range
– Review of the progress of Aalto against plan and discussion
of further Man Global Private Markets acquisition prospects
– Review of the progress of Man Numeric since acquisition and
discussion of future objectives to develop asset growth
– Review of Man Solutions cross-content investment products
and development initiatives
Operational strategy reviews
– Review of Technology Group’s contribution to business development
in terms of alpha generation, client service, flexible infrastructure and
operational leverage
– Review of cyber protection strategy
– Review of initiatives to reduce trading costs
– Review and approval of Man’s tax positioning and strategy
Acquisition strategy and review of prospects
– Analysis of market trends and pricing and evaluation of several
potential prospects
– Review of learning from discontinued prospects, including the value of
Man’s disciplined approach to transaction structuring
– Review of integration and progress of acquisitions against plan
mitigation in the Annual and Interim Reports
i More on pages 30 to 35
Monitor business
performance
– Ongoing monthly review of investment manager performance, asset
flows and FUM, and financial results
– Specific focus on the performance of Man GLG following operational
changes in 2016
– Review of the performance of new discretionary investment
management team hires
– Analysis of fund redemption patterns and actions taken to identify and
focus on assets most at risk
– Review of the operation of the seeding book and lessons learnt from
testing new strategies
– Review and approval of updated KPIs to monitor and report on Man’s
overall performance and progress
Oversee business values
and people engagement
– Review of the embedding and day to day adherence to business
principles, including the level of penetration across different teams
– Review of ongoing talent development, internal promotions and
learning opportunities
– Discussion of employee recognition initiatives and encouragement
of employee volunteering culture
– Discussion of diversity statistics and review of current diversity
and inclusion initiatives
50
Man Group plc Annual Report 2017Corporate governance Review financial structure,
funding and capital distribution
Consideration of stakeholder
impacts and interests1
– In depth review of Man’s 2017 ICAAP (review of regulatory capital
requirement) submission to the FCA including challenge of the risk
modelling and correlation assumptions applied
– Review of economic capital and liquidity requirements
and the implications for Man’s future capital structure
– Approval of extension of Revolving Credit Facility
– Review of dividend policy and approval of further
share buyback programme
Shareholders
– Reviewed investor views on business strategy and management
performance and discussed their implications
– In depth engagement and discussion of feedback on the development
of the new Directors’ Remuneration policy (see Directors’
Remuneration report)
i More on pages 54 and 55
Review and approve
resources
Staff
– Discussed results of global staff survey and actions being taken
in response
– Discussed the impact of recruitment policies and diversity and
inclusion initiatives
– Discussed the analysis of gender pay reporting disclosures within
Man and their implications
i More on pages 36 to 39
Business planning
– Review and approval of Budget and three year Medium Term Plan
– Specific reviews of the cost of MiFID II implementation including the
decision to absorb investment research costs
– Review and approval of the lease of new London office accommodation
to co-locate investment management and Sales teams
Talent and people
– Discussion of senior management succession and development plans
(see Nomination Committee report on page 62)
– Approval of Directors’ Remuneration policy and structure (see
Directors’ Remuneration report on page 65)
Customers (Fund investors)
– Reviewed Man’s commitment to Responsible Investment, including
the work of its Sustainability Strategist and Responsible Investment
Committee
– Reviewed and discussed the Sales teams’ approach to the
development of Client relationships
– In depth review of the development of individual strategic partnerships
with Clients involving engagement on industry interests and the
provision of added value services
i More on pages 18 and 41
Financial reporting and shareholder
communications
– Approval of year end and half year financial results and dividends
– Review and approval of Q1 and Q3 Trading Statements
– Approval of Annual Report and Notice of AGM
Suppliers
– Review of relationships and engagement with Man’s supply chain
as part of the approval of the Company’s Modern Slavery
Transparency Statement
Community
– Review of the funding given to the Man Charitable Trust and its
activities
– Approval of additional funding to establish a US charitable trust to
reflect the extension of Man’s US footprint and support US teams’
volunteering initiatives
i More on page 42
1 Man’s corporate responsibility strategy is set out on page 40. For details of the further
review of stakeholder interests planned in 2018, please see the Board evaluation actions
on page 54.
51
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CORPORATE GOVERNANCE REPORT CONTINUED
Board strength
The Board biographies on pages 45 to 47 and the analysis of the Board’s
composition on page 48 give a flavour of the breadth and depth of talent
and experience on Man’s Board in terms of business career, background,
skills and global exposure. The non-executive directors bring wide ranging
contributions and diverse perspectives to Board review and decision
making from their current executive or portfolio careers. A mix of short and
long tenure delivers fresh outlooks and challenge complemented by a
longer term understanding of the business and its people. There are still
some gaps in our skill set and we have more to do on promoting diversity,
including gender diversity, both on the Board and within Man’s senior
management team. Our Board diversity policy and discussion of actions
taken in this area during the year are included in the Nomination
Committee report.
Board dynamics
In the 2017 Board evaluation, the majority of Board members felt that
Board dynamics were good and continued to improve, reflecting in part
the positive contribution and relationships of the new executive team. I
maintain very regular communication with the senior executive team and
continue dialogue with non-executive directors in between meetings on
relevant issues as they arise. We encourage non-executives to discuss
and share their experience on industry issues with executives at Board
level and below.
Board debate and independence
The 2017 evaluation feedback commented favourably on the quality and
openness of discussion at Board meetings and the fact that there was a
concerted effort to ensure that everyone had the opportunity to contribute
to the full to decisions made. Each of our non-executive directors has a
keen independent outlook informed by their experience outside Man
and each brings to management proposals a robust scrutiny which is
welcomed by the executive team. Our non-executive directors meet
informally for biannual Board dinners without the presence of the executive
directors to discuss current business and people issues. The CEO’s input
to these meetings is invited and much appreciated prior to private
non-executive discussion of issues raised.
Managing conflicts of interest
As a matter of formal governance, all Board members are required to
disclose and keep me updated on any external roles or interests they are
considering which might conflict with their responsibilities as a director of
the Company. Should any such potential conflicts arise, they will be duly
assessed by the other members of the Board and a decision will be taken
on the extent to which any such conflicts can be effectively managed. In
addition, in recognition of the wide ranging roles and interests of the
non-executive directors, the Board carries out an annual year end review
of all such roles and interests to ensure that they do not represent any
unmanageable business conflict or a time commitment which might
prejudice directors’ effective contribution to the Man Board.
Board induction
Induction to the Board
Our non-executive directors receive a comprehensive induction to the
business and our industry as soon as they are appointed, tailored as
necessary to their background and previous experience. Audit and Risk
and Remuneration Committee members are given a briefing on the role
and workings of those Committees, current areas of focus and regulatory
developments. The induction programme is structured around one to one
meetings with the executive directors, Executive Committee members,
Heads of Group functions and the Company Secretary covering the main
areas of business set out in the table opposite.
We seek feedback on the programme from our non-executives both
immediately and a few months after their appointment with a view to
making changes which would be beneficial to future appointees. Kate
Barker participated in the programme on her appointment to the Board
and the Remuneration Committee in April and was well prepared to
participate in subsequent Board discussions. She was also well placed to
bring to the Remuneration Committee her experience as Chair of the
Remuneration Committee at Taylor Wimpey plc.
Non-executive induction programme
Business review
– Strategic direction and priorities
– Business strategy and market context
– Risk appetite, principal risks and risk governance framework
– Overview of Man AHL, Man GLG, Man FRM, Man Numeric and Man
Global Private Markets
– Global Sales and Marketing
– Budget and Medium Term Plan
– Operations and Technology
Performance and market positioning
– Review of financial and market performance
– Recent analyst and media coverage
– Analysis of shareholder base and investor perceptions
– Shareholder engagement
Regulatory environment
– Overview of the Group’s key compliance and regulatory policies
– Recent changes in regulatory landscape and impact of upcoming
regulatory developments
– Hot topics and key priorities for regulators including relevant
thematic reviews
People, culture and values
– Discussion of business principles
– Key people and succession plans
– HR priorities including diversity, training and talent pipeline
– HR structure and outsourcing arrangements
Regulatory and governance framework
– Board structure, processes and relationships
– Board interaction with the business
– Overview of listed company obligations, reporting and corporate
governance framework
– Directors’ duties and responsibilities
52
Man Group plc Annual Report 2017Corporate governance 2017 Board evaluation
Evaluation cycle
In compliance with the UK Corporate Governance Code, Man carried out
a full external evaluation in 2015 and an internal evaluation in 2016. For
2017, which was my first full year as Chairman, I decided to carry out a
further internal Board evaluation which sought directors’ feedback on
specific improvement actions agreed at the end of 2016 and views on a
range of other issues which are key to the efficient and effective working
of the Board. Details of the process followed are set out below.
Evaluation process in 2017
– Written questions assessing progress against 2017 actions and current
Board operation circulated.
– Individual responses, comments and suggestions consolidated on an
unattributed basis and circulated to the Board for review.
– 1:1 discussions between me and individual directors on the evaluation
findings and related issues.
– Summary of the findings and individual discussions presented and
noted at the December Board meeting.
– Improvement actions for 2018 discussed and agreed.
Evaluation findings
Overall, directors’ feedback indicated a high level of satisfaction with the
operation of the Board. The quality of papers, the open and genuine
discussion, the level of engagement and the Company Secretary’s and
administrative Board support received particular praise. The detailed
output from the evaluation in terms of clear progress made and areas for
further work in 2018 are summarised on page 54. A number of these areas
of progress and agreed future actions have been discussed in earlier
sections of this Corporate Governance report.
Board Committee evaluations
Separate evaluations were carried out for the Audit and Risk and
Remuneration Committees and are reported in the respective Committee
reports. Questions relating to the work of the Nomination Committee were
included in the main Board assessment and the outcome of that separate
evaluation and agreed actions for 2018 are discussed in the Nomination
Committee report.
Individual director reviews
As part of my private discussions with individual directors on the outcomes
of the collective Board evaluation, I explored with them their personal
contributions and any areas for further learning and development.
Richard Berliand, as Senior Independent Director, reviewed my leadership
and management of the Board with each member individually and shared
and discussed their feedback with me.
Board training
Our induction programme is only the first step in building directors’
understanding of the business. Further education is provided in regular
Board meetings through individual business strategy and operations
reviews and our non-executives look for opportunities to get out into the
business for one to one engagement with senior management. As an
example of this, Richard Berliand and I recently made a dedicated trip
to the US to visit our Man Numeric and Man Global Private Markets
businesses and our central US Finance, Compliance, Legal and
Sales teams.
The Company Secretary regularly circulates to the Board details of external
programmes for non-executives on topical business and regulatory issues
and a number of Board members attended workshops on Audit and Risk
Committee challenges and cyber strategy during the year. In addition, in
response to requests for in-house briefings on the numerous regulatory
developments currently impacting our business, the Company’s auditors
and external legal advisers led a series of interactive Board training sessions
on the topics set out below. These were held within scheduled Board
meetings and provided the opportunity for full discussion and challenge by
Board members of the implications of the developments for Man’s business.
In-house training programme
Accounting update
– Potential impact of upcoming accounting changes
– Refresher on key accounting rules impacting Man
– Update on Financial Reporting Council hot topics
Board governance of technology risk
– Overview of the current technology risk landscape across
the industry
– Review of key findings from a recent EMEA IT risk management survey
– Identification of main areas on which the Board should focus: strategic
alignment, IT operations risk, measurement of value to the business,
resource capability and cyber risk
Corporate governance and regulatory update
– Briefing on the Government’s corporate governance reform
package and implementation plans and the implications for Man
– Developments in non-financial reporting and other transparency
requirements
– FCA focus on firms’ culture and governance practices
– FCA expectations regarding Board oversight of risk appetite
framework and reporting
Market Abuse Regulation (‘MAR’) and Senior Managers and
Certification Regime (‘SMCR’)
– Refresher on the key features of MAR, the importance of internal
processes and recent FCA enforcement activity
– Briefing on the FCA’s current proposals for the application of SMCR
to investment management firms
– Discussion of Man’s proposed approach to SMCR implementation
and the implications for the business
53
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report CORPORATE GOVERNANCE REPORT CONTINUED
2017 Board evaluation findings
Assessment of progress
against 2017 actions
Assessment of ongoing Board
operation and effectiveness
Progress made
Agreed 2018 actions
Comments
Agreed 2018 actions
Timing,
structure and
content of
meetings
Effectiveness
of annual
strategy meeting
Effectiveness
of deep dive
strategy reviews
Earlier meeting start
time to accommodate
the scheduling of
regular business and
operational strategy
reviews with business
owners.
2017 strategy meeting
focused on the long
term development and
direction of asset
management with
external perspectives
from industry peers.
High quality analysis of
business and
operational strategies
with opportunity for
challenge of
management and the
sharing of non-
executive experience.
Board strength,
balance and
diversity
Board strengthened
with the appointment of
Kate Barker.
Continue time efficient
scheduling with rich
agenda content.
Continue the long term
focus including the
consideration of external
views and the implications
for Man.
Continue the programme of
regular reviews and
bringing business owners
to the Board.
Further work planned to
continue to broaden the
Board’s background,
capabilities and diversity
through ongoing non-
executive director search
(see also Nomination
Committee evaluation
outcomes on page 63).
Scope, quality
and timeliness
of papers and
presentations
High quality materials
and discussions with
presenters.
Scope and
quality of Board
training
Formal in-house
programme introduced
for the first time.
Quality of
CoSec and
administrative
Board support
Effectiveness of
Board dynamics
Highly appreciated and
rated strongly relative
to non-executive
directors’ experience
on other Boards.
Strong engagement of
executive directors
with their non-
executive Board
colleagues.
Awareness and
consideration of
business values
and behaviours
Good progress made
on management
reporting to the Board
on people and the
implementation of
business values.
Awareness and
consideration
of stakeholder
interests
Main focus has been on
shareholders, clients
and staff.
Maintain high quality
submissions to stimulate
challenge and added value
discussion.
Relevant training sessions
to continue to be
incorporated in Board
meetings.
Continue to develop the
support provided in
response to changing
Board and business need.
Continue to create and
pursue opportunities for
further non-executive
engagement with senior
management below Board
level.
Continue regular
management reporting on
and Board review of people
development, behaviours
and diversity.
Introduce an annual review
and analysis of overall client
base and half yearly reviews
of key client relationships.
Board review of other
stakeholder group interests
(including staff and
suppliers) to be scheduled.
Engaging with shareholders
The Board is committed to proactive and ongoing engagement with
the Company’s investors and is keen to understand the views of major
shareholders. The Board receives updates at every meeting from the
Head of Investor Relations on important changes in the share register
and current areas of interest. Copies of investment research published
on the Company are regularly circulated.
Midway through the year our independent advisers and corporate brokers
gathered feedback from investors and provided the Board with a high level
summary of their views. This covered issues such as the diversification of
Man’s investment business, its acquisition strategy, options for growth and
the performance of the new executive team. The Board welcomed this
feedback and noted the continuing need for Man to explain and update
the market on its investment case.
Richard Berliand, as Chairman of the Remuneration Committee, provides
regular reports on shareholder views on Man’s Directors’ Remuneration
policy and award decisions from his engagement with top shareholders
and shareholder representative bodies.
Institutional investors
The Company has developed a comprehensive investor relations
programme through which the Head of Investor Relations, CEO and
CFO maintain a continuous dialogue with investors on performance, plans
and strategic objectives. This is achieved through one to one meetings
throughout the year and participation in investor roadshows and investor
conferences. The 2017 investor events calendar is set out opposite.
Key areas which the CEO and CFO have discussed with investors during
the year have included:
– Investment performance across our range of strategies
– Flows, interaction with clients, product innovation and margin trends
– MiFID II implementation
– Progress in the areas of Machine Learning and Artificial Intelligence
– Potential new acquisitions and capital management
During 2017, Richard Berliand spent considerable time consulting with
major shareholders and shareholder representative bodies on the most
appropriate approach to directors’ executive remuneration in Man ahead
of our seeking approval for a new Directors’ Remuneration policy at the
2018 AGM. Further details of this engagement are provided in the 2017
Directors’ Remuneration report on page 65.
54
Man Group plc Annual Report 2017Corporate governance Private investors
Our private investors are encouraged to access the Company’s Interim
and Annual Reports, half-year and final results presentations and quarterly
trading statements on our website. Other useful information such as
historic dividend records and shareholder communications is also
available. Our website also gives access to our Registrars’ Shareview
website (www.shareview.co.uk) through which shareholders can manage
their individual account online. Printed copies of our Annual and Interim
reports and other shareholder communications continue to be available
on request for shareholders who prefer this method of delivery.
We are always keen to understand the views of and answer questions
from private investors and offer a dedicated shareholder mailbox
(shareholder@man.com) for this purpose.
Shareholder meetings
We welcome shareholders to our AGM in May each year. At every AGM,
our shareholders are given an overview by the CEO of the progress of
the business and our future plans and outlook. This is followed by the
opportunity for shareholders to ask questions about the resolutions
before the meeting and about the business more generally. The CEO's
presentation is made available on our website after the meeting.
We look forward to meeting shareholders and providing a further business
update at our 2018 AGM in May this year. If you are unable to attend the
AGM, please send in any questions that you would like raised at the
meeting to our AGM mailbox (agm@man.com) and we will provide a
direct reply.
Q1 2017
Q2 2017
Q3 2017
Lord Livingston of Parkhead
Chairman
Q4 2017
Calendar of investor events
– 2016 year end results released
– 2016 Annual Report published
– UK investor roadshow
– US investor roadshow
– Morgan Stanley Annual European
Financials conference (London)
– Q1 2017 Trading Statement released
– Shareholder engagement on 2016 Directors’
Remuneration report and AGM voting
– Annual General Meeting
– 2017 interim results released
– 2017 Interim Report published
– UK investor roadshows
– US investor roadshow
– Barclays Global Financial Services
Conference (New York)
– Bank of America Merrill Lynch Annual
Banking and Insurance Conference (London)
– Communications and meetings with
shareholders and shareholder representative
bodies to discuss the new Directors’
Remuneration policy
– Q3 2017 Trading Statement released
– JP Morgan ‘Best of British’ conference
– Bank of America Merrill Lynch Annual
Banking and Insurance Conference (Paris)
– Citi European Diversified Financials
Conference (London)
– Continued engagement with shareholders and
shareholder representative bodies on the new
Directors’ Remuneration policy
Statement of compliance
The Company has, throughout the year ended 31 December 2017, applied
the principles of and complied with the provisions of the UK Corporate
Governance Code (the ‘Code’) except in relation to the following:
the Board believes that, in order to provide transparency and allow the
views of all the directors, executive and non-executive, to be taken into
account, it is appropriate for all Board members to provide input into the
determining of the Chairman’s remuneration.
Setting the Chairman’s remuneration
Provision D.2.2 of the Code requires that the Remuneration Committee
(the ‘Committee’) should have delegated responsibility for setting the
remuneration of the Chairman. The terms of reference of the Committee
provide that the Committee has authority to recommend to the Board
but not to approve the remuneration of the Chairman. This is because
Other information
Certain additional information in relation to the Company’s share
capital, the powers of the directors and amendments to the Articles of
Association that is required to be disclosed in the Corporate Governance
report pursuant to DTR 7.2.6 may be found in the Directors’ report on
pages 95 and 96.
55
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report AUDIT AND RISK COMMITTEE REPORT
During the year the Audit and Risk
Committee (the ‘ARCom’) has continued to
support the Board in its assessment of the
integrity of the Group’s financial reporting,
monitoring the effectiveness of the Group’s
systems of risk management and internal
controls, and overseeing the activities of the
Group’s Internal Audit function and its
external auditor.
The ARCom has also dedicated significant time to considering regulatory
developments impacting the Group such as MiFID II, to reviewing and
challenging the process supporting the Group’s ICAAP submission and to
discussing the integration of the Aalto acquisition. We have also made a
number of changes to the ARCom’s forward agenda during the year
which have enabled us to develop our understanding of the oversight
and governance arrangements that exist in respect of Man’s overseas
offices, the most significant risk issues facing certain key offices and
the processes and controls that have been implemented to mitigate
such risks.
In addition, the ARCom has continued to challenge whether the right
culture exists within Man to ensure transparency and accuracy of financial
reporting and has undertaken a candid assessment of the risks facing the
Group and the degree to which they are effectively mitigated. The ARCom
has been pleased to see continued progress in this area.
Matthew Lester
Chairman, Audit and Risk Committee
56
Membership and meeting attendance
I am supported in my role as Chairman of the ARCom by Andrew Horton
and Dev Sanyal, both of whom are independent non-executive directors.
Phillip Colebatch stepped down from the Board on 30 September 2017
and therefore ceased to be a member of the ARCom from that date. I am
considered to have recent and relevant financial experience for the purposes
of the UK Corporate Governance Code (the “Code”) and the ARCom as a
whole has competence relevant to the sector in which the Group operates.
Further details of the ARCom members’ experience and areas of expertise
and contribution are provided on page 47.
During the year, we met on six occasions with attendance at these
meetings set out below:
Committee member
Matthew Lester
Phillip Colebatch
Andrew Horton
Dev Sanyal
Meeting
attendance
6/6
3/41&3
5/62&3
6/6
1 Phillip Colebatch stepped down from the Board on 30 September 2017. He was not able to
attend the ARCom meeting in February 2017 which had to be rescheduled at short notice to
accommodate conflicting commitments of other ARCom members.
2 Owing to conflicting business commitments, Andrew Horton was not able to attend the
ARCom meeting in October 2017.
3 Phillip and Andrew both received and reviewed the papers to be considered at the meetings
and had the opportunity to direct any questions to the Chairman in advance of the meetings.
The Board Chairman, CEO, CFO and CAO are invited to attend committee
meetings along with the Head of Internal Audit and representatives from
Deloitte LLP (‘Deloitte’), the Group’s external auditor. Other members of the
senior management team attend for those items that are relevant to them. At
the end of each meeting, the ARCom meets with the Head of Internal Audit
and representatives from Deloitte in the absence of management. Both the
Head of Internal Audit and Deloitte have direct access to me should they
wish to raise any concerns outside formal meetings.
How the ARCom operates
Forward
agenda
Agenda
setting
meetings
Committee
meetings
The ARCom’s annual forward agenda covers key events
in the financial reporting cycle, specific risk matters
identified by the ARCom and standing items that it is
required to consider in accordance with its terms of
reference. The forward agenda is reviewed and updated
in response to changing business risks and priorities.
In order to identify key issues impacting the business that
may require consideration by the ARCom, agenda setting
meetings, which I attend together with members of the
senior management team, the Head of Internal Audit and
representatives from Deloitte, are held in advance of each
committee meeting.
At each meeting, the ARCom considers dashboards
which highlight and monitor changes in the key risks
impacting the business, compliance matters, the financial
controls framework and internal controls. The dashboards
are designed to enable the ARCom to focus on any
matters that may require further discussion. The ARCom
also receives reports and presentations on key financial
reporting, risk, compliance and audit matters from
management who attend committee meetings to report
on significant issues and respond to queries raised by
the ARCom.
Board
reporting
I report to the Board on the key areas of discussion and
make recommendations as appropriate following each
committee meeting.
Man Group plc Annual Report 2017Corporate governance How the ARCom has discharged its roles
and responsibilities during 2017
Financial reporting
Key accounting judgements and estimates
As part of the process for monitoring the integrity of the financial
information contained in the interim and annual financial statements, the
ARCom reviewed the key accounting policies, judgements and estimates
adopted by management and confirmed that these were appropriate. The
significant areas of judgement and estimation identified by the ARCom, in
conjunction with management and the external auditor, are set out in the
table on page 58.
Viability and going concern
The ARCom reviewed the viability statement (as set out on page 31)
and the processes supporting the viability assessment. After significant
discussion and having considered the Group’s prospects, principal
risks, forecast regulatory capital surplus and liquidity resources and
requirements, the ARCom concluded that the three-year assessment
period, in line with the Group’s business planning horizon, continued to
be appropriate and recommended the draft viability statement to the
Board for approval.
The ARCom also reviewed the going concern disclosure (which is set
out on page 110) and concluded that the Group and the Company
had adequate resources to continue in operational existence for the
foreseeable future and confirmed to the Board that it was appropriate for
the Group’s financial statements to be prepared on a going concern basis.
Fair, balanced and understandable assessment
At the request of the Board, the ARCom reviewed the interim and
annual financial statements in conjunction with the narrative sections
of the interim and annual reports to ensure that there was consistency
in the information reported, that sufficient weight had been given to
both positive and negative aspects of business performance, that
there was an appropriate balance between statutory and adjusted
performance measures, and that key messages had been presented
coherently. The ARCom concluded that, taken as a whole, the
interim and annual reports were fair, balanced and understandable
and provided the information necessary for shareholders to assess
the Group’s performance, business model and strategy.
Communications with the Financial Reporting Council (FRC)
As reported last year, the Company received a letter from the FRC
in November 2016 which raised a number of questions around
contingent consideration payments in relation to the Numeric,
Silvermine and NewSmith acquisitions and the accounting
treatment of Reservoir Trust assets. The Company responded to
these queries and, in the first half of 2017, received a further letter
from the FRC which confirmed that it had concluded its enquiries
and that no changes to the key accounting judgements that
supported the areas highlighted in the letter were required.
Roles and responsibilities
The ARCom is integral to Man Group’s governance framework through its
oversight of the Group’s financial reporting, risk management and internal
controls, and internal and external audit. The ARCom’s roles and
responsibilities are outlined below, together with an explanation of how it
has discharged its responsibilities during the year. Full terms of reference
for the ARCom, which are reviewed on an annual basis and referred to the
Board for approval, are available on the Company’s website www.man.
com/corporate-governance.
Financial
Reporting
Risk
Management,
ICAAP,
Internal
Controls &
Compliance
– Monitor the integrity of the financial information
contained in the interim and annual financial
statements with particular focus on key accounting
policies, judgements and estimates and the
financial controls framework.
– Review the viability and going concern statements
and recommend their approval to the Board.
– Advise the Board on whether the ARCom believes
the Interim and Annual Reports to be fair, balanced
and understandable.
– Monitor and review the effectiveness of the Group’s
systems of risk management, capital adequacy
and internal controls (please refer to page 32 for
further details).
– Ensure that a robust assessment of the principal
risks facing the Group has been undertaken and
advise the Board on the management and
mitigation of these risks.
– Review the Group’s Internal Capital Adequacy
Assessment Process (‘ICAAP’) including regulatory
and economic capital, downside forecasts, and the
wind down cost.
– Review the effectiveness of the Group’s regulatory
reporting activities, Compliance function and
arrangements for staff to raise concerns, in
confidence, about possible wrongdoing in financial
reporting or other matters.
– Report to the Remuneration Committee any findings
in relation to risk matters which may impact its
decision on discretionary remuneration payments.
Internal Audit
– Approve the annual Internal Audit Plan and Charter
and Internal Audit activities.
– Review the effectiveness of the Internal Audit
function.
– Review all significant Internal Audit
recommendations and oversee progress in
addressing these.
External Audit
– Recommend to the Board the appointment, and
determine the remuneration, of the external auditor,
including reviewing the external auditor’s
effectiveness and independence.
– Review and approve the external audit plan and
the external auditor’s control procedures.
– Review the findings of the external audit and the
external auditor’s management letter and oversee
management action to address the findings where
necessary.
– Approve and monitor the policies relating to the
provision of non-audit services by the external
auditor and the hiring of personnel from the
external auditor.
– Ensure that the tendering, selection and rotation of
the external audit services contract are carried out
in accordance with applicable law, regulation and
best practice.
57
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report AUDIT AND RISK COMMITTEE REPORT CONTINUED
Key accounting judgements and estimates
Matter considered
Action
Outcome
Accounting treatment of Aalto acquisition
The accounting treatment of the purchase price
of the Aalto acquisition required judgement to
determine whether each component should be
accounted for as purchase consideration (and
therefore as goodwill and acquired intangibles on
the balance sheet) or as a post-acquisition P&L
remuneration cost.
i Please refer to Note 10 in the Group
financial statements for further details.
Impairment assessment of goodwill and
acquired intangibles
Goodwill and acquired intangibles for each of the
Group’s cash generating units (Man AHL, Man
GLG, Man FRM, Man Numeric and Man Global
Private Markets) are tested for impairment at least
annually through the application of a ‘value in use’
model. This requires estimates concerning future
cash flows, growth rates and associated discount
rates to be taken into account.
i Please refer to Note 10 in the Group
financial statements for further details.
The ARCom discussed and challenged
management’s assessment that all of the purchase
price should be accounted for as consideration
rather than remuneration in accordance with the
indicators set out in IFRS 3.
After full discussion, the ARCom confirmed that it
agreed with management’s assessment that the
full Aalto purchase price should be accounted for
as purchase consideration.
The ARCom considered reports from
management outlining the methodology for
the impairment assessment and challenged the
assumptions underpinning the goodwill valuation
model including discount rates, the change in
cost allocation methodology, flow projections and
headroom availability.
After debate and challenge, the ARCom concluded
that no impairment expense was required to be
recorded for the year ended 31 December 2017.
Fair value of contingent consideration
The valuation of the contingent consideration is
dependent on estimates concerning the projected
future growth rates and cash flows based upon
management’s view of future business prospects
and associated discount rates.
i Please refer to Notes 15 and 25 in
the Group financial statements for
further details.
The ARCom considered management’s fair value
assessment of the contingent consideration
creditors of the Numeric, Aalto, Pine Grove, BAML,
FRM, Silvermine and NewSmith earn-outs which
projected an overall net increase in the fair value
of the contingent consideration of $16m. The net
increase was primarily attributable to higher than
budgeted performance for Numeric and small
movements in actuals versus forecast for Aalto,
Pine Grove, BAML and FRM.
After a full discussion, the ARCom confirmed that
it was comfortable with the proposed accounting
treatment and that the net increase in the fair value
of the contingent consideration was appropriate. A
fair value adjustment of $16m has been recognised
in the income statement.
The ARCom reviewed management’s assessment
of the investments which the Group is deemed to
control in accordance with IFRS 10.
The ARCom concluded that it was satisfied with
management’s assessment of the entities which
are deemed to be controlled by the Group and
the associated accounting treatment. Four funds
have been classified as ‘held for sale’ and nine
investments have been consolidated on a line by
line basis with a grossing up impact on the balance
sheet of $162m.
The ARCom discussed the existing methodology
underpinning the valuation of the DTA which uses
a three year period to forecast profits. The ARCom
also challenged management’s assessment that
this methodology continues to remain appropriate
and represents their best estimate of probable
future taxable profits.
The ARCom confirmed that it was satisfied that a
three year period was the most appropriate basis
upon which to forecast profits in accordance with
the Group’s business planning horizon and that the
existing methodology continued to be appropriate.
A movement in the DTA of $17m has been
recognised in the income statement.
The ARCom reviewed and discussed the APMs
contained in the interim and annual reports having
considered a paper prepared by management
which compared adjusted profit to operating cash
flows for the last five years in aggregate.
The ARCom noted that adjusted profit over the last
five years was broadly consistent with cash inflows
from operating activities and therefore concluded
that the APMs were appropriate, provided a fair
assessment of the underlying profitability of the
business and were appropriately defined and
reconciled to statutory measures as disclosed on
pages 147 to 150.
Consolidation of investment in funds
The Group holds seeding investments in a number
of funds which it manages. Judgement is required
to be exercised in terms of assessing whether
these investments are controlled by the Group
and therefore need to be consolidated into the
Group’s financial statements.
i Please refer to Note 13 in the Group
financial statements for further details.
Deferred tax assets (DTA)
The Group has unrecognised deferred tax assets
in the US which largely represent historical tax
losses and future deductions for amortisation
of goodwill and other intangible assets that will
reduce the tax payable in the US. The value of the
DTA recognised requires judgement regarding the
assessment of probable future profits.
i Please refer to Note 7 in the Group
financial statements for further details.
Alternative performance
measures (APMs)
Man assesses the performance of the Group
using a variety of APMs, most significantly
adjusted profit before tax. The directors focus
on adjusted profit as this reflects the underlying
trends in the business and the revenue and costs
that drive the Group’s cash flow.
i Please refer to pages 147 to 150
for further details.
58
Man Group plc Annual Report 2017Corporate governance Risk management, internal controls
and compliance
Oversight of risk and control environment – key business areas
The ARCom was keen to develop its understanding of the governance
arrangements that exist within Man’s overseas offices and the exercise of
central oversight. As a result, the ARCom’s forward agenda was revised
with the in-depth risk reviews focusing on key overseas offices rather than
the investment management businesses.
Senior representatives from the US and Japanese businesses were
invited to present on the risk and control profile of their respective areas.
These presentations provided the ARCom with real insight into the
significant risks perceived by each business and the controls that exist to
manage and mitigate these risks as appropriate. Key areas of discussion
are set out below. The ARCom intends to continue its review of Man’s
overseas offices in the year ahead with further presentations scheduled
throughout 2018.
Compliance
During the year, the Head of Compliance & Regulatory presented
the 2017 Compliance overview. Particular focus was given to key
developments in financial regulation including MiFID II and the Senior
Managers and Certification Regime (SMCR) and their impact on the
business and the industry in general. Consideration was also given to the
increasing complexity within the financial crime environment and the use
of technology to mitigate the associated risks. The ARCom also reviewed
and discussed the Group’s whistleblowing policy and processes and
the steps that had been taken by the management team to improve
awareness of the independent, confidential and external reporting
service that was available to staff to raise concerns.
In addition, the Money Laundering and Reporting Officer (MLRO)
presented his 2016 annual report in the first half of 2017 and confirmed
that Man had established and maintained an effective AML/CTF
programme with proportionate systems and controls. Updates were
also provided during 2017 on the implementation of the Fourth EU
Money Laundering Directive.
Japan
The ARCom was provided
with an overview of the
opportunities and key objectives
for the Japanese business
and discussed the strategic
relationship with Sumitomo
Mitsui Trust Bank. The interaction
between the Japanese office and
Man Group’s global functions
was also considered, as was
the role of the Board of Man
Group Japan Limited (based
in Guernsey) in overseeing the
activities of its Japanese branch.
US
Discussion focused on the
significant growth of the US
business over the previous five
years, particularly the increased
Sales and Investment management
presence in the region. The
ARCom also discussed the
challenges and risks associated
with operating from multiple US
locations and the extent to which
such risks were mitigated through
the centralisation of controls,
processes and reporting lines.
The ARCom also received an update at its meeting in May on the actions
taken by management to address the operational issues identified in
Australia which I reported on last year.
Oversight of risk and control environment – key functional areas
The ARCom also considered presentations from each of the Group’s key
functional areas.
Risk
The ARCom received an update on the Group Risk function and
discussed its role in supporting the Group’s governance processes,
primarily through the maintenance of the Group’s Authorities Summary
(please see page 49 for further details) and the operation of the Risk
Governance and Appetite Framework (the ‘Framework’). During the
year, the ARCom considered a number of proposed changes to
the Framework which had been developed to align the risk appetite
process with other metrics and processes within the business. The
ARCom endorsed the revised Framework and recommended it to
the Board for approval. At its meeting in May, the ARCom spent
considerable time discussing the process supporting the Group’s
ICAAP prior to its submission to the Board in July. ARCom members
reviewed and challenged the economic modelling approach
and assumptions as well as the model inputs and outputs.
Finance
The ARCom received a presentation from the Group Financial Controller
on the Finance function’s governance arrangements and the key areas of
focus during 2017 and 2018. Particular consideration was given to career
development and training across the function, changes to the structure of
the US finance teams and improvements to process efficiency including
the planned implementation of a new general ledger and consolidation
system in 2018. The ARCom also received a number of updates from the
Head of Tax during the year on the new criminal offences in respect of the
failure to prevent the facilitation of tax evasion that had been introduced by
the UK Criminal Finances Act 2017 and the steps that had been taken by
the Group to ensure that reasonable prevention procedures were in place
across the business globally.
Operations and Technology
The Group’s Chief Operating Officer updated the ARCom on changes
impacting the risk and control environment of the Operations and
Technology functions. Key areas of discussion included MiFID II,
particularly research costs and best execution, the transition of Man’s fund
administration and agency business to an alternative service provider, the
CASS (Client Assets) compliance framework and the selection of a leading
order management platform to upgrade legacy technology solutions.
Ongoing monitoring of the Group’s systems of risk management
and internal control
The ARCom is satisfied that, through its regular review of dashboards,
its in-depth assessment of key business areas and functions, its
consideration of changes to the Risk Governance and Appetite Framework
and its ongoing review of progress against the Internal Audit Plan (as
described below), it is monitoring the effectiveness of the Group’s systems
of risk management and internal control on an ongoing basis. Further
details can be found in the Risk Management section on page 32.
During the year, a number of operational and regulatory matters that had
occurred were reported to the ARCom. A paper summarising these
matters was considered by the ARCom at its December 2017 and
February 2018 meetings. Whilst Man sought to improve its processes in
response to the matters identified, they were not considered sufficiently
material in number or nature either to require separate disclosure in the
financial statements or to indicate that the control environment had not
been operating effectively.
59
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report AUDIT AND RISK COMMITTEE REPORT CONTINUED
Internal Audit
2018 Internal Audit Plan
The Group’s Internal Audit function continues to be performed by KPMG.
During the year, the ARCom reviewed and approved the 2018 Internal
Audit Plan (the ‘Plan’) which included details of the planned audit reviews
for 2018 and the team responsible for delivering the Plan.
The ARCom received and discussed Internal Audit reports presented
by the Head of Internal Audit at each meeting and monitored progress
against the 2017 Plan. Whilst no significant weaknesses were identified
in any of the Internal Audit reports, a number of improvements to certain
processes and controls were implemented in response to the
recommendations put forward.
Effectiveness of Internal Audit function
A review of the effectiveness of the Internal Audit function was undertaken
during the year which was facilitated internally. A questionnaire, which
covered areas such as internal audit resourcing, delivery and reporting
was circulated to and completed by key stakeholders. The output of the
review indicated that, overall, the Internal Audit function continued to be
effective. The audit planning process and the Head of Internal Audit’s
knowledge of Man’s business and risk environment were identified as
key areas of strength whilst it was suggested that further co-ordination
with the external audit function would encourage increased efficiency.
Respondents also indicated that they were keen to understand how
Man’s control environment compared to industry best practice and
whether there were any areas where improvements could be made.
In response to this feedback, the Internal Audit function undertook an
assessment of the maturity of Man Group’s control environment across a
number of thematic areas using the experience of the internal audit work
performed and knowledge obtained across other organisations, the
output of which was discussed by the ARCom.
External Audit
2017 external audit plan
At the October meeting, Deloitte’s 2017 external audit plan was presented
by David Barnes, who took over the role as the lead engagement partner
during the year. The plan, which was discussed and approved by the
ARCom, set out the proposed materiality threshold, the scope of the
audit and the significant audit risks that had been identified.
Auditor independence and the provision of non-audit services
In order to safeguard the independence and objectivity of the external
auditor, the ARCom is responsible for the development, implementation
and monitoring of the Group’s policies on the provision of non-audit
services and the hiring of personnel from the external auditor. The
ARCom reviewed and approved these policies during the year.
Summary of non-audit policy
In accordance with the non-audit services policy, any potential services
to be provided by the external auditor, which are not excluded under the
non-audit services policy but which have an expected value of $75,000
or more, must be approved by the ARCom in advance. The non-audit
services fees in aggregate must not exceed 70% of the statutory audit
fee, currently set at $1.4m. Further details can be found on the
Company’s website.
The table below shows the remuneration paid to Deloitte in 2016 and 2017.
Fees payable to the external auditor for the
audit of the Company and the consolidated
financial statements
Other services:
The audit of the Company’s subsidiaries
pursuant to legislation
Audit-related assurance services
All other services
2017
$000
2016
$000
456
451
1,572
1,529
341
54
308
54
Total auditor’s remuneration
2,423
2,342
Following a formal assessment of the external auditor’s independence and
objectivity at its meeting in February 2018, the ARCom concluded that
Deloitte continued to be independent and objective.
Effectiveness of external audit process
At the May 2017 meeting, the ARCom considered responses to a
questionnaire which had been completed by ARCom members and
various members of the management team in order to facilitate the
ARCom’s formal assessment of the effectiveness of the external audit
process. The questionnaire focused on several components of the
external audit process including the quality of the audit partner and team,
planning and execution of the audit, communication with the ARCom and
the external auditor’s independence and objectivity.
The responses indicated that, overall, Deloitte was performing in line with
expectations and that the quality of the audit team was a key area of
strength. The output of the review also highlighted that certain areas
that had been identified as requiring improvement in the previous year’s
assessment, particularly around the direct involvement of specialists and
the extension of the controls-based approach, had been addressed in the
2016 audit. A number of areas, primarily around resourcing of subsidiary
audits and further use of specialists, were identified as requiring further
consideration and Deloitte’s plans to address these issues were set out in
the 2017 Audit Plan. After extensive discussion, the ARCom concluded
that the external audit process in respect of the 2016 financial statements
had been effective.
Reappointment of Deloitte as external auditor
Deloitte was appointed as the Group’s external auditor in 2014, following a
tender process led by the ARCom in 2013. In accordance with the Code
and the Competition and Markets Authority’s Order 2014 (the ‘Order’), the
Company will be required to put its external audit process out to tender
again in 2023 at the latest with mandatory rotation of the external auditors
required by 2033 pursuant to the EU Audit Regulation. The ARCom
confirms that the Company has complied with the provisions of the
Order for the financial year under review.
Following the ARCom’s review of the effectiveness of the external audit
process and its assessment of the external auditor’s independence and
objectivity, it has recommended the reappointment of Deloitte as the
Group’s external auditor to the Board for recommendation and approval
by shareholders at the 2018 Annual General Meeting.
60
Man Group plc Annual Report 2017Corporate governance How the ARCom has assessed
its effectiveness
Outlined in the table below are the three key areas that were identified
in the ARCom’s 2016 evaluation as requiring further consideration and
development during 2017, together with progress that has been achieved
in 2017.
2016 evaluation
2017 progress
Undertake in-depth
reviews of new business
areas as the Group
continues to diversify
The forward agenda for 2017 was revised
and the in-depth risk reviews focused on
particular overseas locations (i.e. Japan
and the US) rather than the investment
management businesses.
Organise further
targeted training
on regulatory
developments and key
issues impacting the
ARCom
Explore areas of best
practice among other
Audit Committees
The in-depth reviews will be supplemented
by more thematic reviews of specific risk
areas during 2018.
Based on feedback from the ARCom,
Board training sessions took place
throughout 2017 covering key accounting
updates, governance over IT matters,
corporate governance and emerging
regulation. Please refer to page 53 of the
Corporate Governance report for further
details.
Deloitte highlighted a number of areas of
best practice among other audit
committees and advised that
representatives from the external audit
team often attended agenda setting
meetings. In response to this feedback,
representatives from Deloitte now attend
the ARCom’s agenda setting meetings.
In December 2017, the ARCom conducted a further evaluation of its
effectiveness, which was facilitated internally. Questionnaires, which
covered topics such as composition, meeting effectiveness and
engagement with the Internal Audit function and with Deloitte, were
circulated to all ARCom members and regular attendees. The findings
of the evaluation confirmed that the ARCom was operating effectively
and responses indicated that meetings were well structured with an
appropriate level of constructive challenge provided by all members.
Areas identified for focus in 2018 included the introduction of thematic
risk-focused reviews, streamlining the agenda for certain meetings and
organising further training on areas identified by ARCom members.
Matthew Lester
Chairman, Audit and Risk Committee
61
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report Membership and meeting attendance
Committee member
Ian Livingston (Chairman)
Richard Berliand
Matthew Lester
Formal meeting
attendance
1/1
1/1
1/1
Phillip Colebatch was a member of the Committee from 1 January until 5
May 2017 but no formal meetings were held during this period.
Luke Ellis attends meetings by invitation of the Chairman.
Role
The
Committee’s
primary role
– keep the Board’s composition in terms of
competency, skills, experience, background and
diversity under regular review in response to
changing business needs;
– identify the particular competency and
experience base required for a specific Board
appointment and conduct the search and
selection process;
– recommend the appointment of new candidates
to the Board and the renewal, where appropriate,
of existing non-executive director appointments;
and
– review and challenge senior management
development and succession plans.
The Committee’s full terms of reference, which are reviewed by the
Committee and submitted to the Board for approval on an annual basis,
are available on the Company’s website (www.man.com/corporate-
governance).
Meetings in 2017
The Committee held one formal meeting during the year at which all
members were present. In addition, as noted above, I had frequent calls
and face to face conversations with my Committee colleagues to discuss
progress on our NED search and consider the renewal of certain existing
non-executive appointments. The Committee also met twice informally
with the full non-executive team to discuss top management development
and succession plans.
Further details of the business discussed during the year are given on the
following pages.
NOMINATION COMMITTEE REPORT
The Committee’s main work during 2017
was to continue to seek new non-executive
directors who would be able to bring
additional skills to the business and
enhance the diversity of the Board.
The Committee also focused on
senior management development and
succession following the successful new
top management structure introduced
by Luke Ellis on his appointment as
CEO in September 2016.
Following the streamlining of Committee membership at the end of 2016,
the Committee was able to discuss and share views on possible
non-executive candidates and agree any follow up steps both quickly and
informally without the need for formal scheduled meetings. Progress on
this search, on which I updated the Board at regular intervals during the
year, is reported below.
As in previous years, the Committee continued its review of senior
management development and succession plans within our biannual non-
executive dinners. Luke Ellis joins us on these occasions to talk through
his plans following which we have the opportunity for private discussion.
In December the Committee held a formal meeting at which it reviewed
the proposed update of the Board diversity policy prior to its consideration
and approval by the Board. The policy is discussed in more detail opposite
and set out in full on page 64.
62
Man Group plc Annual Report 2017Corporate governance 2017 Committee evaluation
As noted on page 53, this year’s Committee evaluation was conducted as
part of the main Board evaluation. Questions relating to the Committee’s
progress against its agreed 2017 priorities and its operation during the
year were included in a written assessment circulated by the Company
Secretary. The responses were consolidated in an unattributed summary
report and discussed on an individual basis by me with Committee
members. The findings of the evaluation and priorities for 2018 arising from
the written assessment and my discussions were reviewed and agreed by
the Committee and Board and are set out below.
Assessment of progress
against 2017 actions
Progress made
Agreed 2018 actions
Increase Board
diversity
Bring additional
direct experience
of fund
management, US
exposure and
regulatory/legal
expertise to the
Board
Review of senior
management
development and
succession
planning outside
formal meetings
The appointment of
Kate Barker brought
additional strategic
thinking, economic
insight and market
knowledge to the
Board.
Reviewed and
interviewed a large
number of candidates.
Good discussion
with Luke Ellis of
development and
succession plans for
the Senior
Management
Executive Committee
roles.
In 2018 we shall continue
to seek opportunities to
increase diversity in its
broadest sense to reflect
the spread of the
Company’s business.
Continue the search in
2018 and seek to fill
additional gaps identified in
financial technology and
digital capability,
recognising that we may
need to recommend more
than one appointment.
In 2018 the intention
is to extend this review
to the next layer of
management below Senior
Management Executive
Committee level.
Lord Livingston of Parkhead
Chairman
Business during the year
New non-executive director search
We were pleased to welcome Kate Barker to the Board in April 2017 as
recommended by the Committee and agreed by the Board at the end of
2016. Kate brings us strategic thinking, deep economic insight and a good
understanding of financial markets from her broad ranging career as a top
level business economist.
At the same time we continued our search for new non-executive directors
to bring additional skills and experience to the Board. We recognised
that we were unlikely to find the broad range of skills required – fund
management expertise, international and particularly US exposure, legal
and regulatory experience and financial technology and digital capability
– in one person. We were also intent on identifying someone with the
intellect, knowledge and personality to contribute to and enjoy working
on our Board while seeking to enhance its diversity. In addition, it was
important to avoid any candidate’s potential industry conflict or time
commitment to another role which might prejudice Man’s interests.
With the support of The Zygos Partnership, an executive search firm which
has no other connection with the Company, the Committee reviewed long
lists of names and has interviewed a large number of potential candidates.
The Committee believes that it has made good progress and expects to
be able to recommend a preferred appointee to the Board in due course.
Renewal of existing non-executive director appointments
During the year, taking account of the progress of the new non-executive
director search and the need for both the continuity and refreshing of
the Board’s capability and experience, the Committee considered the
renewal of the appointments of Ms Shapiro and Mr Cryan as non-
executive directors on the expiry of their second and first terms of
office respectively. After full discussion and review, the Committee decided
to recommend to the Board the renewal of Ms Shapiro’s and Mr Cryan’s
appointments for a further one year and three years respectively.
Senior management development and succession
The Committee took advantage of the opportunity provided by our regular
informal non-executive dinners held during the year for in depth review
and discussion of development and succession planning for the top
management roles below the Board. Luke Ellis joined these meetings
to talk through his plans for the new Senior Management Executive
Committee roles through which he runs the business. Details of the
structure of the Senior Management Executive Committee are given
on page 49.
Diversity
To reflect the importance of diversity in making new appointments to the
Board and in senior management development and succession planning,
the Committee reviewed and recommended to the Board an updated
Board diversity policy. This explains the Board’s understanding of the
value and impact of diversity in its broadest sense and the measures,
processes and inputs through which it seeks to increase diversity on the
Board and influence and monitor its introduction and impact within the
Company as a whole. The policy is fully aligned with Man’s diversity and
inclusion statement. Further details of our diversity and inclusion activities
throughout the firm are given in the People and Culture section on pages
38 and 39.
63
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
NOMINATION COMMITTEE REPORT CONTINUED
Board diversity policy
Overview
The Board embraces and seeks to promote diversity in its broadest sense,
both in terms of its own composition and within Man’s senior management
and employee base as a whole. It sees diversity as the combination
and interaction of people with different knowledge, skills, experience,
backgrounds and outlooks and believes that this creates greater value
and leads to better decision making and performance at all levels of
the organisation. The Board is also aware of the focus on and voluntary
targets proposed for building gender and ethnic diversity into FTSE
company boards and senior management. While we do not believe that
the adoption of a specific output target will on its own address the long
standing gender diversity challenge within the financial services sector,
we will continue to pursue, encourage and monitor progress on a
number of processes, initiatives and measures which we believe
will in the longer term collectively deliver the desired improvement
in gender balance across the firm. Set out below are three main
areas on which we are focusing in pursuing our policy objectives.
Board appointments
When seeking to make a new appointment, the Board will focus first on
identifying an individual with the capability, expertise and experience
which are required to discharge the specific role and will select the best
candidate on that basis. Within this remit, it recognises and will pursue
the added value to be derived from diversity, including gender and ethnic
diversity. To support this objective, we adopt a formal approach to Board
search which includes insisting on strong representation of under-
represented groups on search firms’ long and short lists and remaining
conscious of any potential for bias in the interview and selection process.
We will also consider and explore alternative routes to the supply of
appropriate candidates.
Oversight of recruitment, development and inclusion
The Board continues to encourage and oversee the output from a wide
range of recruitment and people development policies and initiatives
led by the executive management which aim to grow the diversity of
Man’s talent pool, provide development opportunities for all and embed
an inclusive culture. While we cannot lead such initiatives directly, our
role is to monitor and challenge the impact they are having on the
firm. As part of this oversight we review the level of gender diversity
introduced through our summer internship and graduate programmes
and women’s progression over time through mentoring, retention and
Returner initiatives. We also keep updated on Man’s relationships with
partners who can help source talent from more diverse backgrounds
and under-represented groups and Man’s sponsorship of events
which encourage more diverse talent into financial careers.
In addition, a key role of the Nomination Committee is to monitor and
discuss with the CEO the career development and succession plans
for senior management across the firm, including the progress of any
under-represented groups, and to promote the development of a
strong and diverse pipeline of talent for future executive leadership
and Board positions.
Review and reporting
The Board is committed to the development of diversity on the Board and
among Man’s employees. It will seek feedback on Board balance and any
missing skills and experience in its annual Board evaluation and will keep
the review and challenge of Man’s people development, inclusion and
diversity programmes firmly on the Board agenda. An account of the
Board’s activities and progress against its objectives in these areas
will be given in the Annual Report each year.
Implementation of policy during 2017
Board appointments
Following discussion and recommendation by the Nomination
Committee, the Board broadened its knowledge and experience base
with the appointment of Kate Barker as a non-executive director with
effect from 1 April. From her wide ranging career as a top level business
economist, Kate brings good understanding of global economies and
markets and a diverse outlook from her non-executive experience in
different institutions and sectors.
Plans for 2018
The Nomination Committee will continue to seek additional non-
executive skills and experience, including direct fund management
expertise, US market exposure, regulatory and legal knowledge, and
financial technology and digital capability. A broad search will be
conducted across a range of sources to identify candidates who
can bring these different perspectives to the business.
Oversight of recruitment,
development and inclusion
A wide ranging overview of People and Culture presented to the Board
by management included details of Man’s current global inclusion and
diversity statistics and progress on a wide range of supporting
management initiatives. The Board noted and discussed the impact of
the more diverse and collaborative culture created by the colocation in
the London office of different investment management teams. It reviewed
the broadening of recruitment channels, the extension of the women
Returner programme and the wide range of Man’s Diversity and
Inclusion network activities. It received regular updates on specific
people hires and promotions and led fuller discussions with Luke Ellis
on development and succession planning for the Senior Management
Executive Committee roles. The Board noted the diversity challenges
highlighted in all these discussions and encouraged management to
continue to seek and take advantage of opportunities to deliver further
progress in this area.
Plans for 2018
As a follow up to its review of the Senior Manager Executive Committee
roles, the Board will explore with Luke Ellis his development and
succession plans for managers immediately below that level and will
monitor and challenge progress made in increasing diversity within that
key population.
Review and reporting
Feedback from the 2017 Nomination Committee and Board evaluations
confirmed the positive progress made in diversifying the Board over the
past year while identifying additional skills, expertise and perspectives
which would strengthen it further. The Board noted the progress made
on diversity awareness and development within the firm under Luke’s
leadership and reinforced the need for further Board and management
focus on people development and the promotion of diversity through
recruitment, talent management and succession during 2018.
64
Man Group plc Annual Report 2017Corporate governance
Directors’
Remuneration report
contents
1 Chairman’s annual statement
2 Remuneration at a glance
2.1 Directors’ remuneration policy
2.2 Executive pay in 2017
2.3 Maximum total remuneration opportunity compared to
actual remuneration received for 2017
66-69
70
71
71
2.4 Executive director pay in the context of Man’s employees 72
2.5 Executive director pay in the context of Man’s
shareholders
2.6 Executive directors’ shareholdings
3 Remuneration outcomes in 2017
72
72
3.1 Single total figure of remuneration for executive directors
73
3.2 Short-term annual bonus in respect of 2017 performance 73–75
3.3 Long-term deferred bonus under the DEIP
3.4 Percentage change in CEO remuneration
3.5 Relative importance of spend on pay
3.6 Review of past performance
3.7 Retirement benefits
3.8 Single total figure of remuneration for non-executive
directors
75-77
78
78
78-79
79
79
3.9 Payments for loss of office and payments to past directors 79
3.10 Directors’ interests
3.11 Directors’ interests in shares and options under Man
Group long-term incentive plans
3.12 Shareholder voting and engagement
4
Implementation of directors’ remuneration policy for 2018
4.1 Base salary
4.2 Short-term annual bonus for 2018
4.3 Long-term incentive plan for 2018
4.4 Non-executive director remuneration policy for 2018
5 Remuneration Committee
5.1 Membership and attendance
5.2 Independent advisers
5.3 Committee activities during 2017 and early part of 2018
5.4 2017 Committee evaluation
5.5 Benchmarking and peer groups
6 Directors’ remuneration policy
6.1 Executive directors’ remuneration policy
6.2 Illustrative pay for performance scenarios
6.3 Performance measures selection and approach to
target-setting
6.4 Differences between executive directors’ and employees’
remuneration
6.5 Approach to recruitment remuneration
6.6 Service Contracts & Exit Payment Policy
6.7 External appointments
6.8 Non-executive directors’ remuneration policy
6.9 Recruitment of non-executive directors
6.10 Consideration of conditions elsewhere in the company
6.11 Consideration of shareholder views
80
81-83
83
84
84
84
84
85
85
86
86
87
88-90
90-91
91
91
91-92
92-93
93
93
93
94
94
65
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT
Implementing
our new policy
We believe our new policy addresses
historical shareholder concerns and
delivers a clear link between executive
pay, company performance and
shareholder experience
Richard Berliand
Chairman of the Remuneration Committee
66
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors’
Remuneration report (DRR) for the year to 31 December 2017.
For ease of reference this report contains the following sections:
– a detailed index to help you find the sections you need (page 65);
– this Annual Statement (pages 66 to 69);
– the Remuneration ‘at a glance’ section, summarising how the
policy has been implemented in 2017 and how it will operate
in 2018 (pages 70 to 72);
– the Annual Report on Remuneration (pages 73 to 87); and
– the proposed Directors’ Remuneration policy for 2018 onwards
(pages 88 to 94).
We will be seeking approval for the 2017 DRR, the new Directors’
Remuneration policy and the new Man Group plc share plans (the Long
Term Incentive Plan and Deferred Share Plan) at the AGM in May 2018.
1. Chairman’s annual statement
1.1 Introduction
During the past year, we have reviewed our Directors’ Remuneration
policy, which shareholders will be asked to approve at the AGM in
May 2018. During that review, it has been my pleasure to speak
to many of our shareholders, and their representative bodies, as
we have consulted widely on the most appropriate approach for
executive remuneration in our business. In proposing the new policy,
under which the maximum variable opportunity is substantially
reduced from the previous maximum, the Committee has sought
to respond to concerns raised by the Company’s shareholders.
More detail about both the new policy and the application of the current
policy to the remuneration outcomes for 2017 is covered below and in the
sections that follow. Before that, I thought it was important to provide
some context about Man’s business and strategy. This has been at the
centre of our thinking in developing the new policy and we have, therefore,
incorporated metrics that reflect:
i) critical inputs that drive both short and long term performance;
ii) key outputs that measure performance; and
iii) the alignment of shareholder experience with management
remuneration.
Man’s business today is pure asset management, providing a
comprehensive and diverse suite of strategies. The complementary
approaches of those strategies work collectively to deliver better solutions
for our clients and diversify risk for our business. The Group’s overall
priority remains delivery of superior risk-adjusted performance for our
clients which should result in their choosing to allocate further capital to the
firm, driving improved profitability and value creation for our shareholders.
The combination of:
– net inflows, which reflects new client business; and
– our relative investment performance, which monitors whether our
strategies are outperforming competitors,
is therefore critical to our overall growth and profit delivery.
Our total profitability in any given year will be impacted by the absolute
performance we deliver, particularly in products eligible for performance
fees. However, over the cycle, strong relative performance for our clients
results in increased client demand and improved profitability.
Man Group plc Annual Report 2017Corporate governance Consequently, these metrics form the basis of the input measures we are
proposing for the variable pay programmes in the new policy. In addition,
we have increased the focus on output measures, including both Core
Management Fee Profit Before Tax (PBT) and Core Total PBT, together
with Earnings per Share. We have also introduced a new Relative TSR
metric, to ensure that reward for management is more directly linked to the
experience of shareholders. Further details showing how the proposed
new policy links to our strategic KPIs are shown in section 1.3 below.
1.2 Our new remuneration policy for 2018
The Committee has developed the new policy with the aim of delivering
better alignment to our business strategy, shareholder experience and
best practice. We have also been cognisant of the need to address the
legacy concerns raised by some shareholders. Consequently, for the new
policy, the maximum variable pay opportunity has been reduced and we
are proposing moving towards a structure in line with market norms.
Variable pay will comprise an annual bonus, with significant deferral,
together with a Long Term Incentive Plan, measured over a three-year
performance period, with a subsequent two-year holding period. In
combination with an increase in the shareholding requirements and a
post-departure shareholding requirement, this will further improve
alignment with shareholder interests. Wherever appropriate we have also
moved the policy towards leading practice, for example in defining an
absolute salary maximum for executive directors and reducing the
maximum pension provision to align with the wider employee policy.
The Committee concluded the specifics of the proposed new policy after
detailed consultation with our largest shareholders. During Autumn 2017,
letters were sent to some thirty of our top shareholders, representing
about 60% of our shareholder base, seeking their feedback on our
proposed new remuneration policy. I am pleased to say that I met with the
majority of those shareholders and we received feedback from
shareholders representing more than 50% of our total investor base,
together with the main shareholder representative bodies. Having carefully
considered the feedback we received from shareholders, the Committee
incorporated a number of changes into our proposal. Generally we
received very positive feedback on the steps we had taken and it was
recognised that the Committee had tried to balance a range of diverse
shareholder views.
The key features of the new policy are summarised below:
– Executive directors’ salaries will be capped at the CEO’s current level
of $1.1m for the duration of this policy period (i.e the three years
commencing May 2018).
– The pension contribution available to executive directors will be
capped at the same level as the maximum available under the
employee policy, currently 14%, representing a reduction from the
current maximum opportunity of 20% of salary.
– Shareholding requirements will increase to 300% and 200% of salary,
from 200% and 100%, for the CEO and other executive directors,
respectively. The requirement will be expected to be maintained for
a period following departure from the Company.
– The maximum available under the annual bonus plan will be 250%
of salary, compared with 300% in the current policy, and half will now
be deferred into Man Group plc shares. Deferral will be allowed into a
combination of shares and funds, with the latter only being available
once an executive’s shareholding requirement has been reached.
– A new forward-looking Long Term Incentive Plan (LTIP) will be
introduced at a maximum of 350% of salary, to replace the Deferred
Executive Incentive Plan (DEIP). Performance will be measured over
three financial years with a subsequent holding period of two years
for any vested shares.
– The current policy maximum variable pay of 767% of salary
(reduced previously by the Committee from 825%, as approved
in the current policy) has therefore been further reduced to 600%.
– The malus and clawback provisions have been reviewed and
enhanced.
1.3 How the proposed policy links to our strategic KPIs
The performance metrics selected for use in the short and long term incentive arrangements in the new policy have been chosen to reflect Man Group’s
strategic priorities so that the link between strategy, performance and reward is clear.
Strategic Priority
Performance Measure
Bonus Weighting
LTIP Weighting
Aggregate Weighting1
Innovative Investment Strategies
Relative Investment Performance
Strong Client Relationships
Efficient and Effective Operations
Returns to shareholders
Net Inflows
Cumulative Net Inflows
Core Management Fee PBT $m
Core Total PBT, $m
–
30%
20%
20%
Relative TSR
–
Adjusted Management fee EPS growth % –
–
3 year cumulative Core total EPS
Strategic and Personal Objectives
30%
TOTAL
25%
10%
–
–
25%
20%
20%
–
15%
18%
17%
38%
12%
100%
1 Aggregate weighting shows the overall weighting when consolidated across both the bonus and LTIP opportunities; maximum bonus opportunity is 250% salary; maximum LTIP opportunity is
350% salary
67
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
The rationale for the selection of the appropriate metrics for the incentive
programmes was a topic of extensive discussion during the shareholder
consultation. In establishing the new metrics and weightings, the
Committee has been mindful to ensure that management are incentivised
to focus on those measures that they can influence to drive performance
and deliver shareholder value.
Some shareholders wanted to understand why the metrics did not
include a return measure (such as Return on Invested Capital (ROIC) or
Return on Capital Employed (ROCE)). Asset management is a less
capital-intensive business than many other industries. Furthermore, the
Committee believes that the Company has developed a transparent track
record for return of excess capital and that it would be wrong to use a
metric that might encourage management to reduce capital levels
inappropriately. It was felt that management fee EPS growth and
cumulative EPS are more appropriate metrics.
There were also discussions about the elimination of EBITDA margin
from the incentive arrangements. As many of you will be aware, Man’s
businesses have a range of different margin profiles and the Committee
did not wish to incentivise delivery of a particular EBITDA margin
percentage at Group level. This was because it could result in unintended
consequences, with management potentially disincentivised to pursue
lower margin, high value mandates which might dilute the overall margin
percentage despite increasing overall profitability. We continue to monitor
margin closely within each business but, at Group level, the metrics
selected are focused on profitability, within which margin achievement
is an important driver.
The introduction of the new relative TSR measure seems to have polarised
views amongst our shareholders with some being strong critics, and
others welcoming the introduction of a measure they regard as improving
alignment between management and shareholder experience. On
balance, we feel that a relative TSR measure, versus the FTSE 250,
accounting for 15% of the overall incentive outcome, supports that
alignment. The clear majority of the overall incentive outcome is
dependent on metrics over which management has much more
direct control.
1.4 Establishing the appropriate maximum variable opportunity
In developing the revised remuneration policy, one of the areas the
Committee has spent considerable time on has been the determination of
the appropriate incentive quantum for the executive team. We have
substantially reduced the maximum incentive available, both in absolute
and expected value terms. The reduction reflects a recognition by the
Committee that, although many of our competitors who are unlisted or
listed in the US market continue to pay significantly above this level, it is
also important to recognise our broader listed environment and the
increased pressure on pay quantum at the current time. That said, the
Committee also feels that it is extremely important to ensure that the
remuneration for our management team remains competitive and
therefore considered the risks of being unable to attract the talent
required. It was acknowledged by the Committee that the pool from which
future talent could be sought might be limited (and unlikely to include
unlisted or US listed competitors) which reinforces the need for excellent
succession planning and continued focus on the development of talented
individuals internally. On balance, it was felt appropriate to demonstrate
our desire to respond to legacy shareholder concerns about quantum by
finalising the maximum opportunity at 600% of salary (reduced from 825%
approved in 2015). This also represents a real reduction in the expected
value of variable pay, taking into account that the expected value of a
“forward-looking” LTIP is inherently lower than the “performance on grant”
model of the DEIP.
On a related matter, the Committee has also considered what proportion
of the opportunity should vest at threshold performance. Under the
short term incentive, threshold performance will result in 25% of the total
opportunity of 250% of salary being achieved. For the new LTIP, the level
of vesting at threshold will be 0% of the total opportunity of 350% of salary,
meaning that directors will only start to receive any awards under this plan
when threshold performance has been exceeded, representing a much
tougher hurdle than in the majority of listed businesses. As a result,
aggregate threshold performance under the combined variable pay
programmes will deliver 10.4% of the total variable opportunity.
1.5 Review of performance in 2017
2017 has proved to be a year of exceptional performance for the Group.
Record net inflows were delivered and we were delighted that they
were both high in absolute terms and materially above wider industry
experience, demonstrating the positive impact of our focus on client
relationships. Investment performance was at a high level across the
firm with strong absolute performance for clients and the majority of our
strategies out-performing their peers. The combination of performance
in these two key inputs has driven an outcome for Core Total PBT that is
126% ahead of prior year. This represents a significant rebound in the
performance of Adjusted Management Fee EPS Growth, which has also
benefited from ongoing focus on cost control and the reduced number of
shares in issue following the return of capital to shareholders. The breadth
of performance across the firm means that we have seen a significant
increase in absolute performance fees, despite a lacklustre environment
for trend-following strategies. We are pleased to see meaningful
performance fee contributions from AHL, GLG and Numeric this year.
This excellent performance has been achieved despite the ongoing
headwind from the run off of the structured product business and other
non-core revenues. Our performance this year demonstrates the value of
our strategy of diversifying the Group away from these legacy business
lines, and the strong organic growth delivered in Man’s core businesses.
Given these legacy revenues are in contractual run off, following the
financial crisis, the Committee believes it continues to be appropriate to
set short term targets based on Man’s core businesses.
Net management fee revenues from core activities have grown by 10%,
and Core Total PBT (including performance fees) has grown by 126% with
strong performance fees across the firm combining with the growth in
Core Management Fee PBT to deliver an excellent overall result. The
remuneration committee set a stretching maximum target of $168 million
for Core Management Fee PBT in the short term annual bonus, requiring a
year-on-year growth rate of 27%. We are pleased to have seen that very
high target surpassed by growth of 35% on this measure in 2017.
In setting the target in the short term annual bonus for Core Total PBT
(including performance fees) the Committee took into consideration the
range of performance fee profitability over the cycle, and did not focus
on growth from the depressed performance in 2016. The rebound in
performance fees, with 2017 performance fees and gains on investments
of $333 million, was 46% above the average of the preceding five years.
The Committee considers this an excellent result given the weak
performance environment in 2016, which resulted in various strategies
entering the year well below high water marks. 2017 was also not a strong
environment for trend following strategies, as seen by the performance of
the BTOP 50. This good outcome was below the maximum target set by
the Committee, reflecting the stretching nature of the overall target.
68
Man Group plc Annual Report 2017Corporate governance
During 2017 Man’s share price has increased by 71% (from 121.0p to
206.8p), a total dividend per share of 7.41p has been paid and we have
returned c$92 million through share buyback programmes.
1.6 Variable remuneration outcomes for 2017
The Committee was very pleased with the performance delivered under
the leadership of Luke Ellis, appointed as CEO in September 2016. In
determining the remuneration outcomes the Committee has carefully
considered shareholder experience during the period as well as taking
account of feedback received during our consultation on the policy.
As a result, although the current policy would allow for the application of
maximum awards under the short term bonus and DEIP at 300% and
467% of salary respectively, the Committee has based the outcomes on
250% and 350% respectively, in line with the maxima applied to the
outcomes relating to performance in 2015 and 2016.
The table on page 73 summarises the remuneration outcomes for each of
the executive directors for 2017 and the detailed outcomes for both the
quantitative and qualitative metrics are set out in table R2 (for the bonus)
and tables R3 to R6 (for the DEIP). Other than the adjustments set out
above, the Committee did not consider it necessary to exercise any other
discretion to adjust the formulaic outcome under either the bonus or DEIP.
No salary increase has been applied to the President or CEO but the
Committee did review the salary of the CFO, Mark Jones, and decided to
award an increase of 4.3%, taking his salary to $600,000 from January
2018. As we noted at the time of Mark’s appointment, he was brought in
at a significant discount to his predecessor, in recognition of this being
his first appointment at this level; he has performed well and a modest
increase was considered appropriate to recognise that performance.
The new policy salary maximum of $1.1 million means that the salary of
the CEO is frozen for the next three years; the salaries of the other
Executive Directors will be kept under review.
The exceptional performance in the quantitative metrics for the short term
cash bonus resulted in a pay-out of 74.1%, out of a total of 75%. All three
directors performed strongly on their personal qualitative objectives and
received a range of awards, from 19% to 25% (out of a total of 25%) based
on their individual delivery.
1.7 Conclusion
I hope that you find the information in this letter, and the sections of the
DRR that follow, to be clear and useful and I would welcome any feedback
you may have.
As set out in last year’s report, the performance periods for the DEIP
were different for each executive director, to ensure that they were only
rewarded for performance to which they had contributed. The impact of
the very strong performance in 2017 on the average performance over
the periods contributed to quantitative outcomes of 44.1% and 30.4%
(out of a total of 80%) for each of the two and three years periods, ending
on 31 December 2017, for Luke Ellis and Jonathan Sorrell respectively.
For the one year period over which Mark Jones was due to be measured
the quantitative outcome was 64.6%. However, the Committee decided
to apply its discretion to reduce this outcome to 44.1%, representing
the quantitative performance over the two year period. The Committee
considered this appropriate to recognise that, whilst Mark Jones was not
CFO during that full period, he had started the transition into the role at
the same time as Luke Ellis was appointed as CEO and this adjustment
would mean both were measured over the same performance period.
The Committee was pleased by the further progress that has been made
on the Culture and Talent objectives that account for 20% of the overall
DEIP outcomes; individual director contributions resulted in a range of
awards, from 12.5% to 19% (out of a total of 20%) based on their
individual delivery.
In setting out our new policy, we have tried to address the concerns
around some of our previous approaches to remuneration and the
resultant tensions created with a minority of shareholders. We believe we
have addressed all the major concerns and developed a policy, with the
valued engagement and input from many of those shareholders, that
delivers better alignment to our business strategy, shareholder experience
and best practice.
I look forward to welcoming you at our AGM and receiving your support
for our Remuneration policy, 2017 DRR and new share plans resolutions at
that meeting.
Richard Berliand
Chairman of the Remuneration Committee
69
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
2. Remuneration at a glance
Key elements of the Directors’ Remuneration policy, as it applies in 2017 and how it is intended to apply in 2018, subject to shareholder approval for the
new policy and Man Group plc share plans at the AGM, are summarised below:
2.1 Directors’ Remuneration policy
Key elements
Salary
(annual base)
Current Policy 2017
CEO $1.1m
President $750k
CFO $575k
Proposed new 2018 Policy
Overall policy maximum of $1.1m will apply to all
executive directors meaning no increase for the CEO
over the life of the policy
Salaries effective from 01/01/18:
CEO $1.1m
President $750k
CFO $600k
Pension allowance
Policy Maximum 20% salary
Actual 14% salary
Policy Maximum 14% salary 1
Actual 14% salary
Benefits
Includes family private medical insurance, life assurance and permanent health insurance
Maximum opportunity
Opportunity applied
300% of salary
250% of salary
Operation
Awarded as non-deferred cash
250% of salary
Awarded as a combination of cash (50%) and deferral
(50%) into shares vesting in equal tranches in each of
the following three years.
Opportunity to defer up to half the deferred amount into
funds, once the share ownership guidelines are met
KPIs: 75% financial, 25% strategic
KPIs: 70% financial, 30% strategic and personal
Malus and clawback apply
Enhanced malus and clawback apply
Maximum opportunity
Opportunity applied
Operation
467% of salary
350% of salary
350% of salary
Deferred Executive Incentive Plan (DEIP): Grant based
on a pre-grant three-year performance period, any
shares awarded at year 3 vest equally in years 6, 7
and 8
Man Group Long Term Incentive Plan (LTIP):
Forward-looking three-year performance conditions
with share grant at year 0, vesting year 3 with
subsequent two-year holding period
Final award will be made in March 2018
First grant will be made in March 2019
KPIs: 80% financial, 20% culture and talent
KPIs: 100% financial
Malus and clawback apply
Enhanced malus and clawback apply
Share ownership
guidelines
CEO 200% of salary
Other EDs 100% of salary
Requirement
CEO 300% of salary
Other EDs 200% of salary
100% of the requirement to be retained for one year
after leaving and at least 50% for the second year
y
a
p
d
e
x
F
i
s
u
n
o
B
l
a
u
n
n
A
e
v
i
t
n
e
c
n
I
m
r
e
t
g
n
o
L
i
p
h
s
r
e
n
w
O
Notes
1 The directors’ maximum pension contribution is aligned to the maximum available to all employees, currently 14% of salary
70
Man Group plc Annual Report 2017Corporate governance
2.2 Executive pay for 2017
The table below summarises the results of the key remuneration decisions taken during 2017
USD
2017 salary
2018 salary (from 01/01/18)
Percentage salary increase from 2017
2017 Bonus
2017 Bonus as a percentage of 2017 salary
Percentage change in bonus from 2016
2017 DEIP Award
2017 DEIP as a percentage of 2017 salary
Percentage change in DEIP from 2016
2017 Pension and Benefits
2017 Total Remuneration
CEO
Luke Ellis
$1,100,000
$1,100,000
0%
CFO
Mark Jones
$575,000
$600,000
4.3%
President
Jonathan Sorrell
$750,000
$750,000
0%
$2,601,500
$1,338,313
$1,858,125
237%
96%1
233%
–2
248%
117%
$2,371,600
$1,139,075
$1,296,750
216%
62%1
$142,104
198%
–2
$78,059
173%
14%
$96,753
$6,215,204
$3,130,447
$4,001,628
Percentage change in total remuneration from 2016
54%1
–2
41%
1 Luke Ellis’s 2016 bonus and DEIP awards have been annualised to provide a meaningful comparison with the current year; Luke Ellis was appointed as CEO on 1 September 2016 and his actual
bonus and DEIP awards for 2016 were $441,834 and $488,950 respectively.
2 Mark Jones was appointed as CFO on 1 January 2017 so there is no prior year comparative.
2.3 Maximum total remuneration opportunity compared to actual remuneration received for 2017
The table below shows total remuneration received for 2017 for each executive director that served during the year, extracted from the Single Figure
Table (R1, page 73) compared to the minimum, on-target and maximum total pay under the current and proposed new policy.
USD
0
2m
4m
6m
8m
10m
Luke Ellis
Mark Jones
Jonathan Sorrell
2017 Policy
Opportunity
2018 Policy
Opportunity
Actual
2017 Policy
Opportunity
2018 Policy
Opportunity
Actual
2017 Policy
Opportunity
2018 Policy
Opportunity
Actual
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Fixed pay
Bonus
DEIP
1 Pro-ration represents four months since appointment on 1 September 2017.
2 Pro-ration represents eight months prior to exit on 31 August 2017.
71
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
2.4 Executive director pay in the context of Man’s employees
In determining the appropriate remuneration for the executive directors, the Committee carefully considered conditions for employees across the Group.
A high calibre, motivated workforce, appropriately rewarded for their contributions, is a critical component of our success and the table below illustrates
remuneration paid to the executive directors in the context of the wider workforce.
CEO – Single total remuneration figure (SFT) ($000)
Ratio of SFT to UK employees2
Compensation – all employees ($m)3
Compensation ratio4
Number of bonus-eligible employees
Mean annual bonus award per bonus-eligible employee ($000)
Median annual bonus award per bonus-eligible employee ($000)
CEO SFT as % of total compensation of all employees
Aggregate total SFT of all executive directors as % of total compensation of all employees5
2016
4,0411
13:1
367
48%
1,095
182
31
1.1%
1.9%
2017
6,215
16:1
470
44%
1,183
250
40
1.3%
2.8%
1 Luke Ellis was appointed as CEO on 1 September 2016 so the single total figure for 2016 of $1,347k represents remuneration earned in the four month period since then; the equivalent annualised
pay, shown here, is $4,041k which has been used for calculating the ratio to enable meaningful year-on-year comparison.
2 CEO ratio calculated by comparing the Single Figure Table (SFT) disclosure for the CEO to the average remuneration for all UK employees for 2017 on the same basis (i.e salary, benefits, pension
and variable remuneration). Given the geographical spread of Man’s employees, the ratio of CEO pay to all employees has also been monitored and is broadly in line with the ratio to UK-only
employees disclosed here.
3 Compensation for all employees represents total fixed pay (salary, pension and benefits) and variable pay in respect of 2017.
4 Compensation ratio represents total compensation costs for all employees (fixed base salaries, benefits, variable bonus compensation and associated social security costs as a proportion of net
revenue (gross management and other fees, performance fees, income or gains on investments and other financial instruments, and share of post-tax profits of associates, less distribution costs).
In 2016, there were two Executive Directors (CEO & CFO) whereas there were three executive directors in 2017 (CEO, CFO & President)
5
2.5 Executive director pay in the context of Man’s shareholders
The chart below shows the total shareholder return (TSR) generated since Luke Ellis’s appointment as CEO, compared to the FTSE 250, the peer group
for the new Relative TSR measure in the Man Group Long Term Incentive Plan, which shareholders are being asked to approve at the 2018 AGM.
200
170
140
110
80
50
01 Sep 16
Sep 16
Oct 16
Nov 16
Dec 16
Jan 17
Feb 17
Mar 17
Apr 17
May 17
Jun 17
Jul 17
Aug 17
Sep 17
Oct 17
Nov 17
Dec 17
Man Group TSR (Sep 16 – Dec 17)
FTSE 250 TSR (Sep 16 – Dec 17)
Source: Datastream
2.6 Executive directors’ shareholdings
The chart below shows the shareholdings of each executive director compared to both the current policy requirement and the increased holdings
required in the new policy. Mark Jones was appointed as CFO on 1 January 2017 and the Committee is pleased with the progress he has already
made towards achieving his required shareholding. Both Luke Ellis and Jonathan Sorrell retain unencumbered Man shares valued in excess of the
requirements representing good alignment with shareholder interests.
Current Policy
New Policy
Luke Ellis
Mark Jones
Jonathan Sorrell
72
0
100
200
300
400
500
600
700
800
900
1000
1100
New Policy
Current Policy
Shares held outright
Unvested deferred share awards
Man Group plc Annual Report 2017Corporate governance 3. Remuneration outcomes in 2017
3.1 Single total figure of remuneration for executive directors
The table below sets out a single figure for the total remuneration received by each executive director for the year ended 31 December 2017 and the prior
year.
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)
TABLE R1
All figures in USD
Salary
Taxable benefits4
Short term variable5
Long term variable6
Pension benefits7
Other8
Total
Luke Ellis1, 2
Executive Directors
Mark Jones3
Jonathan Sorrell
2017
2016 (4 months)
2017
2016
2017
2016
1,100,000
366,667
575,000
3,256
1,095
2,869
2,601,500
441,834
1,338,313
2,371,600
488,950
1,139,075
134,626
48,080
4,223
596
72,425
2,765
6,215,205
1,347,222
3,130,447
–
–
–
–
–
–
–
750,000
750,000
3,256
3,286
1,858,125
856,875
1,296,750
1,136,625
91,791
1,706
93,006
1,787
4,001,628
2,841,579
1 Luke Ellis was appointed to the Board and as CEO with effect from 1 September 2016. Remuneration for 2016, therefore, reflects four months’ service only.
2 Luke Ellis is a director of Ferox Master Fund and Ferox Fund Limited. For 2016 and 2017, he received fees of $7,500 per annum in respect of these directorships. The figures in Table R1 do not
include these fees.
3 Mark Jones became CFO on 1 January 2017. Accordingly, the remuneration that he received for the financial year ending 31 December 2016 has not been disclosed.
4 Taxable benefits include private medical insurance and gym membership subsidy.
5 See table R2 for details of the short term variable compensation.
6 Long term variable remuneration is subject to deferral under the Deferred Executive Incentive Plan. Please refer to Tables R3 to R6 for further information.
7 Pension benefits are paid into the Man Group Self-Invested Personal Pension with any contributions exceeding the annual or lifetime allowance paid as cash on a cost neutral basis to the Company.
8
“Other” includes non-taxable benefits (e.g. life insurance, Group income protection and fund fee rebate).
3.2 Short term annual bonus in respect of 2017 performance
The short term annual cash bonus is based on the Committee’s assessment of executive directors’ performance against objectives agreed by the
Board at the beginning of the year, split 75% based on quantitative metrics and 25% on qualitative performance. The threshold, target and maximum
ranges are considered to represent appropriately stretching levels of performance and are set by reference to internal budgets and strategic plans,
industry backdrop and external expectations. The targets for Core Management Fee PBT and Core PBT (including performance fees) have been
adjusted to exclude “non-core management fees” relating to discontinued business in order to ensure the directors are incentivised only using stretching
targets for metrics over which they have direct control. 2017 has seen the Company deliver record net inflows and broad-based performance across the
business, while maintaining discipline on cost control and capital returns. The combination of strong performance across these areas has resulted in
exceptional growth in core profitability with Core Management Fee PBT increasing by 35% and performance fee profits coming in above their long term
average despite a weak environment for the trend-following strategies that have historically driven Man’s performance fee profits.
Table R2 shows the results of the Committee’s assessment of the exceptional performance delivered in 2017.
73
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
SHORT TERM ANNUAL BONUS IN RESPECT OF 2017 (AUDITED)
TABLE R2
Bonus outcome,
after weighting
(% of maximum)
21.7%
21.6%
Measure
Weighting
2016 actual
Threshold
(25% of max)
Target
(50% of max)
Maximum
(100% of max)
21.67%
2.4%
1.0%
3.5%
6.0%
Outcome
15.8%
%
achieved
100%
Assessment
Category
Sales &
Financial
Health
Investment
performance
Increase in net flows
Core management
fee PBT
Core PBT (including
performance fees)
AHL: asset weighted
performance vs
BTOP 50
GLG: asset weighted
alternative composite
vs HFRX sub-sector
weighted index
Numeric: asset
weighted performance
vs benchmark
FRM: FRM Equity Alpha
vs HFRI fund of funds
conservative index
TOTAL FINANCIAL METRICS
Strategy, Structure and People
Risk, Compliance and Reputation
External Stakeholder Engagement
TOTAL NON-FINANCIAL METRICS
2.5%
75%
10%
10%
5%
25%
21.67%
$132m
$139m
$152m
$168m
$178m
100%
21.67%
$159m
$214m
$257m
$368m
$359m
95.9%
20.8%
2.5%
2.5%
0.0%
1.0%
2.0%
9.8%
100%
2.5%
2.5%
0.5%
0.0%
1.0%
2.0%
5.3%
100%
2.5%
2.5%
1.4%
0.0%
1.0%
2.0%
2.1%
100%
2.5%
–10.2%
0.0%
1.0%
2.0%
4.8%
100%
2.5%
74.1%
Qualitative assessment (see below)
Qualitative assessment (see below)
subject to achievement of two
qualifying hurdles:
– manage within VaR limit ($75m)
– no material regulatory disclosure
(both passed)
Qualitative assessment (see below)
CEO
9.0%
CFO
8.0%
President
10.0%
7.5%
4.0%
20.5%
94.6%
250%
78.8%
7.5%
3.5%
19.0%
93.1%
250%
77.6%
10.0%
5.0%
25.0%
99.1%
250%
82.6%
PERCENTAGE OF SHORT TERM ANNUAL BONUS AWARDED
PERCENTAGE OF SALARY APPLIED (REDUCED FROM MAXIMUM 300%)
ACTUAL AWARD AS A PERCENTAGE OF MAXIMUM OPPORTUNITY
QUANTUM OF AWARD
$2,601,500
$1,338,313
$1,858,125
74
Man Group plc Annual Report 2017Corporate governance Assessment of performance against qualitative objectives
Category
CEO
Strategy, Structure and People
– Active talent scouting has
identified and brought in new
fund teams that are performing
well
– Further progress on succession
and development planning for
senior roles, following re-
structure in previous year
– Co-location of all London-based
teams has reinforced team
cohesion supporting the “single
point of contact” strategy for
clients delivering record inflows
in year
– Substantial focus on
MiFID II preparations
– Appointment of Chief
Investment Officer
Risk, Compliance and Reputation
Achievements
CFO
– 2017 fixed compensation and
non-compensation costs
delivered better than targets
– Successful transition to new risk
organisation and integration of
GLG and AHL risk teams
President
– Successful integration of Aalto
into the Group with existing
clients increasing their allocations
demonstrating their confidence in
the process
– New sales team and structure
implemented with strong initial
results
– FRM leadership transition
seamlessly executed
– Completion of ICAAP
– New CRM system implemented
submission and no change in
firm’s capital requirement
– Management of seed book
supported range of new
launches and remained within
VaR limit
within sales to ensure appropriate
relationships are monitored and
managed successfully
– Integration of Aalto onto Man’s
systems and controls platform
External Stakeholder Engagement
– Personal focus on client
– Full programme of meetings with
– Engagement with largest clients
relationships contributed to
record FUM in the year
– Careful media exposure has
continued to build profile and
enhance Man’s reputation
existing and potential
shareholders globally to
communicate Man’s equity
story, positive engagement and
feedback
globally, with Man adding material
number of new strategic
relationships during the year
3.3 Long term deferred bonus under the Deferred Executive Incentive Plan (‘DEIP’)
The long term deferred bonus plan awards are determined by an assessment against a balanced scorecard of performance criteria for each executive
director, with 80% determined by financial criteria and 20% non-financial criteria. Tables R3 to R5 show the result of this assessment for the awards to be
granted in 2018. For the financial metrics, performance is normally measured against Man’s financial KPIs for each of the three preceding reporting years
(2015, 2016 and 2017) and then averaged. Transition rules ensure that participants are only rewarded for performance to which they have contributed as
an executive director. Performance was measured based on 2016 and 2017 only for Luke Ellis. The Committee considered the outcome for Mark Jones
when measured only on performance delivered in 2017 and determined it was more appropriate to base the outcome on the two years ending
31 December 2017 to reflect his transition into the role of CFO from September 2016. Consequently, the percentage achieved under the financial KPIs
was reduced from 64.6% to 44.1% (see below).
LONG TERM DEFERRED BONUS – ASSESSMENT OF ACHIEVEMENT UNDER FINANCIAL KPIS (AUDITED) – LUKE ELLIS
TABLE R3A
Performance targets1
Actual performance
Measure
Threshold
Maximum
2016
2017
Average
over 2 year
performance
period
Percentage
of target
achieved
Bonus
outcome,
after weighting
Weighting
1. Investment performance
n/a
Proportion of 4
investment managers
having net performance
> benchmark
AHL
GLG
FRM
Numeric
√
×
×
√
√
√
√
√
√
√
×
√
75%
25%
18.8%
2. Net flows
0%
10%
2.4% 15.8%
9.1%
91.0%
25%
22.8%
3. Adjusted management fee EBITDA
margin
25%
40%
26.1% 27.7%
26.9%
12.7%
4. Adjusted management fee EPS growth
RPI + 0% RPI + 20%
–14.3% 15.9%
0.8%
4.0%
Percentage achieved under financial KPIs (maximum of 80%)
15%
15%
1.9%
0.6%
44.1%
75
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
LONG TERM DEFERRED BONUS – ASSESSMENT OF ACHIEVEMENT UNDER FINANCIAL KPIS (AUDITED) – MARK JONES
TABLE R3B
Performance targets1
Actual performance
Measure
1. Investment performance2
2. Net flows
3. Adjusted management fee EBITDA margin
Threshold
Maximum
n/a
Proportion of 4 investment
managers having net
performance
> benchmark
0%
25%
10%
40%
4. Adjusted management fee EPS growth
RPI + 0% RPI + 20%
Percentage achieved under financial KPIs (maximum of 80%)
Reduced Percentage based on two year performance (at Committee discretion)
Percentage
of target
achieved
2017
Bonus
outcome,
after weighting
Weighting
AHL
GLG
FRM
Numeric
√
√
√
√
100%
25%
25%
15.8%
27.7%
15.9%
100%
18.0%
79.5%
25%
15%
15%
25%
2.7%
11.9%
64.6%
44.1%2
LONG TERM DEFERRED BONUS – ASSESSMENT OF ACHIEVEMENT UNDER FINANCIAL KPIS (AUDITED) – JONATHAN SORRELL
TABLE R3C
Performance targets1
Actual performance
Measure
Threshold
Maximum
2015
2016
2017
Average over 3
year performance
period
Percentage
of target
achieved
Bonus
outcome,
after weighting
Weighting
1. Investment performance
n/a
Proportion of 4
investment managers
having net performance
> benchmark
AHL
GLG
FRM
Numeric
×
√
√
√
√
×
×
√
√
√
√
√
×
√
×
√
50%
25%
12.5%
2. Net flows
0%
10%
0.4%
2.4% 15.8%
6.2%
62.0%
25%
15.5%
3. Adjusted management fee
EBITDA margin
4. Adjusted management fee
25%
40%
27.2% 26.1% 27.7%
27.0%
13.3%
15%
2.0%
EPS growth
RPI + 0% RPI + 20%
-0.2% -14.3% 15.9%
0.5%
2.5%
15%
Percentage achieved under financial KPIs (maximum of 80%)
0.4%
30.4%
1 To the extent the actual performance is between the threshold and maximum targets for net flows, adjusted management fee EBITDA margin and adjusted management fee
EPS growth KPIs, the criteria is met proportionally.
2 The Committee considered the outcome for Mark Jones when measured only on performance delivered in 2017 and determined it was more appropriate to base the outcome on the two years
ending 31 December 2017 to reflect his transition into the role of CFO from September 2016. Consequently, the percentage achieved under the financial KPIs was reduced from 64.6% to 44.1%.
Comments on 2017 performance against financial KPIs:
1. Investment performance
2. Net flows
3. Adjusted management
fee EBITDA margin
4. Adjusted management
fee EPS growth
All four businesses beat their
investment benchmarks in 2017,
representing an exceptional
result.
2017 has seen record net
inflows which are both high in
absolute terms and materially
above wider industry
experience, demonstrating the
positive impact of our focus on
strong client relationships.
The improvement versus prior
year is driven by organic growth
and a lower compensation ratio.
There has been a very
significant rebound in this critical
KPI, representing the
combination of strong
investment performance,
exceptional net inflows,
continued focus on costs and
the return of capital
to shareholders.
76
Man Group plc Annual Report 2017Corporate governance
LONG TERM DEFERRED BONUS – ASSESSMENT OF ACHIEVEMENT UNDER NON-FINANCIAL KPI (AUDITED)
TABLE R4
Luke Ellis
Mark Jones Jonathan Sorrell
Culture and Talent – Percentage achieved under non-financial KPI (maximum of 20%)
17.5%
12.5%
19.0%
Over the last three years, remarkable progression has been achieved with a much improved culture, new acquisitions integrated and the Company being
seen as a good place to work in an industry often driven largely by financial rewards. Since the appointment of Luke Ellis as CEO in September 2016
followed by Jonathan Sorrell’s transition into the role of President and Mark Jones appointment as CFO, the Committee identified the following areas
of particular progress which are creating firm foundations for future growth:
– Ongoing embedding of business principles supports effective dealings with all stakeholders including core focus on clients, meaning they now benefit
from a single point of contact within Man’s global sales team
– Several critical senior roles filled in 2017 via internal promotions including CEO & COO of FRM, and Co-CEOs & COO of AHL
– Global employee survey achieved an 83% response rate (up from 77% in 2015) and an encouraging overall staff engagement level of 7.5/10
– Significant progress has been made in Man’s commitment to responsible investing (RI), building environmental, social and governance (ESG) factors
into the investment decision making process with the appointment of a Head of RI and the creation of an RI committee
– Increased engagement with charity partners to provide volunteering opportunities for staff, a proven means of increasing motivation and retention
– Active diversity and inclusion agenda with events, talent programmes and partnerships enabling Man to broaden the diversity of Man’s workforce
CEO
– Personally led firm succession planning process, initiated twice yearly planning sessions with senior leadership team to consider and/or develop
successors for senior and/or critical roles across the firm, identify gaps and put appropriate measures in place. Man’s ongoing ability to promote
internally remains a material competitive strength; critical senior roles filled in 2017 via internal promotions include CEO & COO of FRM, and Co-CEOs
and COO of AHL
– Introduction of employee recognition awards, designed to reward excellence throughout the firm and promote Man’s principle of meritocracy
President
– Overseen material improvement in both effort and achievement in sourcing and recruiting sales people, with 15 new people joining during 2017
contributing to strong sales performance
– Ongoing sourcing effort for potential teams or businesses within private markets with over 100 potential opportunities identified and reviewed
– Implementation of training programme across sales focussed on core sales skills and deeper product knowledge
CFO
– Graduate programme extended into finance and operations to develop future generation of talent
– Increased integration across risk functions within the Company, and roll out of structured talent assessment across finance and risk
LONG TERM DEFERRED BONUS – AGGREGATE ACHIEVEMENT UNDER FINANCIAL AND NON-FINANCIAL KPIS (AUDITED)
TABLE R5
Financial KPIs (out of 80%)
Non-financial KPI (out of 20%)
Total percentage achieved
Percentage of salary applied (reduced from maximum 467%2)
Actual award as a percentage of maximum opportunity
Quantum of award
Luke Ellis
Mark Jones1 Jonathan Sorrell
44.1%
17.5%
61.6%
350%
46.2%
44.11%
12.5%
56.6%
30.4%
19.0%
49.4%
350%
42.4%
350%
37.0%
$2,371,600
$1,139,075 $1,296,750
1 The Committee considered the outcome for Mark Jones when measured only on performance delivered in 2017 and determined it was more appropriate to base the outcome on the two years
ending 31 December 2017 to reflect his transition into the role of CFO from September 2016. Consequently, the percentage achieved under the financial KPIs was reduced from 64.6% to 44.1%.
2 The maximum opportunity approved by shareholders at the 2015 AGM was 525% of salary, for awards made in respect of performance in the period 2015 to 2017, with the potential opportunity
increasing progressively to ensure the increase did not apply retrospectively. The Committee determined in 2017 that it will never use the 525% approved maximum and a revised maximum of
467% now applies.
SCHEME INTERESTS TO BE AWARDED UNDER THE DEFERRED EXECUTIVE INCENTIVE PLAN (DEIP) IN RELATION TO 2017 (AUDITED)
TABLE R6
Executive director
Luke Ellis
Mark Jones
Jonathan Sorrell
Award
(% of maximum
opportunity1)
Award
value2
(USD)
End of
holding
period date
46.2% $2,371,600
42.4% $1,139,075
37.0% $1,296,750
Mar-23
Mar-23
Mar-23
1 The maximum opportunity approved by shareholders at the 2015 AGM was 525% of salary, for awards made in respect of performance in the period 2015 to 2017, with the potential opportunity
increasing progressively to ensure the increase did not apply retrospectively. As disclosed last year, in 2017, the Committee determined that it will never use the 525% approved maximum and a
revised maximum of 467% applies.
2 The awards to be made in 2018 in respect of the financial year ended 31 December 2017 are calculated according to performance against a balanced scorecard, as shown in Tables R3 to R5. The
monetary value of these awards will be converted into a number of shares using the USD/GBP rates and mid-market share price quoted on the award date. The awards will be granted as
conditional awards of shares and will vest three to five years after grant, subject to the DEIP rules. Details of awards made under the DEIP in relation to performance in periods ending in 2013 to
2016 can be found in Table R14.
77
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
All figures in $’000s
3.4 Percentage change in CEO remuneration
The table below sets out the percentage change in remuneration for the CEO and staff.
PERCENTAGE CHANGE IN CEO REMUNERATION
TABLE R7
Salary
Taxable benefits3
Short term variable
CEO
All Staff
All figures in $’000s
2017
1,100
3
2,602
20161
% change
% change2
1,100
3
1,326
0
0
96
24
74
385
1 Figures for the CEO for 2016 are taken from the disclosure in Table R1 and then annualised for the full year in order to enable comparison.
2 Figures are calculated on a per capita basis.
3 Taxable benefits include private medical insurance and gym membership subsidy.
4 Represents the average increase in salary and taxable benefits in underlying currency in which each employee is paid.
5 For staff, short term variable remuneration includes both variable cash compensation and deferred awards relating to the current year.
3.5 Relative importance of spend on pay
The table below shows the year-on-year change in total employee expenditure compared to the change in shareholder distributions.
RELATIVE IMPORTANCE OF SPEND ON PAY
Total employee expenditure1
Shareholder distributions2
2017
$m
474
250
2016
$m
388
193
TABLE R8
%
change
22
30
1 Remuneration paid to or receivable by all employees (i.e. accounting cost). Refer to Note 4 to the financial statements for further details. Total employee expenditure excludes restructuring costs.
2 Distributions to shareholders (dividends paid of $158 million and repurchase of shares of $35 million in 2016; dividends paid of $158m and repurchase of shares of $92m in 2017).
3.6 Review of past performance
The performance graphs below compare the Company’s total shareholder return performance against the FTSE 350 Financial Services Index. The
graphs cover both the required reporting period (Table R9a) and the three-year period ending December 2017 over which the DEIP is measured (Table
R9b). Man Group operates in the alternative investment management sector and is listed on the FTSE 250 Index on the London Stock Exchange. The
FTSE 350 Financial Services Index has been chosen as it is the most appropriate comparator to cover a period when Man has been in both the FTSE
100 and FTSE 250. The majority of Man Group’s direct competitors are unlisted and equivalent information for these firms is not available.
TABLE R9a
TABLE R9a
Luke Ellis appointed CEO
9
0
r
a
M
9
0
c
e
D
0
1
c
e
D
1
1
c
e
D
2
1
c
e
D
3
1
c
e
D
4
1
c
e
D
5
1
c
e
D
6
1
p
e
S
6
1
c
e
D
7
1
c
e
D
Luke Ellis appointed CEO
TABLE R9b
TABLE R9b
4
1
c
e
D
5
1
r
a
M
5
1
n
u
J
5
1
p
e
S
5
1
c
e
D
6
1
r
a
M
6
1
n
u
J
6
1
p
e
S
6
1
c
e
D
7
1
r
a
M
7
1
n
u
J
7
1
p
e
S
7
1
c
e
D
160
140
120
100
80
60
Man Group TSR (March 09–17)
Man Group TSR (Dec 14–17)
FTSE 350 Financial Services TSR (March 09–17)
Source: Datastream
FTSE 350 Financial Services TSR (Dec 14–17)
Source: Datastream
400
350
300
250
200
150
100
50
0
78
Man Group plc Annual Report 2017Corporate governance
HISTORICAL CEO REMUNERATION
TABLE R10
31 March
2010
31 March
20111
31 December
20112
31 December
2012
31 December
2013
31 December
2014
31 December
2015
31 December
2016
31 December
2017
Accounting period ended
CEO single figure
($’000s)
L Ellis3
E Roman3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
P Clarke3
6,299
8,173
6,437
1,048
Short term variable
L Ellis3
award (as a percentage
of maximum
opportunity)4
E Roman3
P Clarke3
Long term variable
L Ellis3
award (as a percentage
of maximum
opportunity)4
E Roman3
P Clarke3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1,347
6,215
3,397
5,068
5,367
978
n/a
70%
0%
n/a
17%
0%
n/a
n/a
n/a
n/a
100%
83.3%
n/a
n/a
40%
n/a
n/a
n/a
40.7%
n/a
910
n/a
n/a
n/a
40.2%
78.8%
n/a
n/a
n/a
n/a
28.6%
46.2%
n/a
n/a
n/a
n/a
1 Salary and benefits are for 12 months and bonus for 9 months.
2 Salary and benefits are for 9 months and bonus for 12 months.
3 Peter Clarke stepped down as CEO with effect from 28 February 2013 and was on garden leave until his retirement on 10 December 2013. Emmanuel Roman became CEO on 28 February 2013
and stepped down on 31 August 2016. Luke Ellis was appointed CEO on 1 September 2016. Remuneration for 2016, therefore, reflects four months’ service only.
4 For the accounting periods ended up to and including 31 December 2012, as there was no cap on the overall maximum bonus awards, the percentage of maximum opportunity is not shown.
3.7 Retirement benefits
Luke Ellis, Mark Jones and Jonathan Sorrell are not eligible for any defined benefits under the Man Group plc Pension Plan.
3.8 Single total figure of remuneration for non-executive directors
The table below sets out a single figure for the total remuneration received by each non-executive director for the year ended 31 December 2017
and the prior year.
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
TABLE R11
All figures in GBP
Lord Livingston of Parkhead1
Dame Katharine Barker
Richard Berliand
Phillip Colebatch
John Cryan
Andrew Horton
Matthew Lester
Dev Sanyal
Nina Shapiro
Fees
Taxable Benefits5
Total
2017
2016
450,000
325,038
56,2502
99,7693
–
81,2313
2017
341
–
–
2016
739
–
–
72,7314
108,622
2,986
5,469
65,000
80,000
95,000
80,000
75,000
65,000
80,000
95,000
80,000
75,000
–
–
–
1,279
18,248
–
–
122
1,002
28,742
2017
2016
450,341
325,777
56,250
99,769
75,717
65,000
80,000
95,000
81,279
93,248
–
81,231
114,091
65,000
80,000
95,122
81,002
103,742
1 Lord Livingston of Parkhead was appointed to the Board and a member of the Audit and Risk Committee, Nomination Committee and Remuneration Committee on 1 January 2016. He was
appointed as Chairman on 6 May 2016 following the Company’s 2016 AGM, at which time he stood down as a member of the Audit and Risk Committee in order to comply with the provisions of
the UK Corporate Governance Code.
2 Dame Katharine Barker was appointed to the Board on 1 April 2017. Her remuneration for 2017 has been pro-rated accordingly.
3 Richard Berliand was appointed to the Board on 19 January 2016 and as Chairman of the Remuneration Committee following the 2016 AGM. He was appointed as Senior Independent Director
following the 2017 AGM. His remuneration for 2016 and 2017 has been pro-rated accordingly.
4 Phillip Colebatch retired from the Board on 30 September 2017. His remuneration for 2017 has been pro-rated accordingly.
5 Taxable benefits comprise travel expenses.
3.9 Payments for loss of office and payments to past directors (audited)
There were no payments made for loss of office or remuneration payments made to former executive directors during the year.
79
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
3.10 Directors’ interests
DIRECTORS’ INTERESTS IN SHARES OF MAN GROUP PLC (AUDITED)
Executive directors
Luke Ellis3
Mark Jones4
Jonathan Sorrell
Non-executive directors
Lord Livingston of Parkhead
Dame Katharine Barker5
Richard Berliand
Phillip Colebatch6
John Cryan
Andrew Horton
Matthew Lester
Dev Sanyal
Nina Shapiro
TABLE R12
Number of
ordinary
shares1
31 December
20172
Number of
ordinary
shares1
31 December
2016
2,419,391
1,741,020
142,602
–
666,917
598,729
33,138
40,910
50,000
10,000
–
50,000
22,692
74,292
28,258
33,138
–
50,000
10,000
–
50,000
22,692
71,062
28,258
1 All of the above interests are beneficial.
2 There has been no change in the directors’ interests in the ordinary shares of Man Group plc from 31 December 2017 up to 27 February 2018, being the latest practicable date prior to the
publication of this report.
3 Luke Ellis was appointed to the Board as CEO on 1 September 2016.
4 Mark Jones was appointed to the Board as CFO on 1 January 2017.
5 Dame Katharine Barker was appointed to the Board on 1 April 2017.
6 Shareholding as at 30 September 2017, the date at which Phillip Colebatch stepped down from the Board.
The market price of the Company’s shares at the end of 31 December 2017 was 206.80 pence. The highest and lowest daily closing share prices during
the 12-month financial period were 206.80 pence and 121.00 pence respectively.
EXECUTIVE DIRECTORS’ SHAREHOLDINGS MEASURED AGAINST THEIR RESPECTIVE SHAREHOLDING REQUIREMENT
AS AT 31 DECEMBER 2017
TABLE R13
Executive directors
Luke Ellis
Mark Jones
Jonathan Sorrell
Shares
owned
outright1
Value of
shareholding2
(USD)
Annual
Salary
(USD)
Shareholding
requirement as
a % of salary
Current
shareholding as
a % of salary
Requirement
met?
2,419,391
6,764,963
1,100,000
142,602
398,736
575,000
666,917
1,864,795
750,000
200%
100%
100%
615%
69%
249%
Yes
No3
Yes
1 Details of unvested share awards can be found in Tables R14 and R16.
2 Shareholdings valued at 31 December 2017 share price of £2.0680 and an exchange rate £1 = $1.3521.
3 Mark Jones became CFO on 1 January 2017 and will build up his shareholding progressively in line with the Directors’ Remuneration policy
80
Man Group plc Annual Report 2017Corporate governance 3.11 Directors’ interests in shares and options under Man Group long term incentive plans
CONDITIONAL SHARE AWARDS UNDER THE DEFERRED EXECUTIVE INCENTIVE PLAN (DEIP) – SUBJECT TO SERVICE CONDITIONS
(AUDITED)
TABLE R14
Executive director
Luke Ellis
Jonathan Sorrell
Date of grant
1 January 2017
Granted during
year1
Dividends
accruing2
Exercised during
the period
31 December
2017
Exercise date
Mar-176
—
271,992
12,390
—
284,382
—
Mar-143
Mar-154
Mar-165
Mar-176
255,855
335,595
585,525
—
—
—
—
632,281
7,770
15,288
26,676
28,809
85,284
—
—
—
178,341
350,883
612,201
661,090
Mar-17
—
—
—
1 The award values of $448,950 and $1,136,625 for Luke Ellis and Jonathan Sorrell respectively included in Table R8 in the DRR for the financial year ended 31 December 2016 were converted into
the number of shares shown above using the GBP/USD rate of £1=$1.2171 and a share price of £1.4770, being the market value on the immediately preceding dealing day to grant. These awards
attract dividend accruals. Further details of the Deferred Executive Incentive Plan can be found in section 3.3 of this DRR.
2 On 12 May 2017 dividend accruals of 6,045 and 38,317 shares were added to Luke Ellis and Jonathan Sorrell’s awards respectively based on a Sterling dividend of 3.62 pence. On 6 September
2017, dividend accruals of 6,345 and 40,226 shares were added to Luke Ellis and Jonathan Sorrell’s awards respectively based on a Sterling dividend of 3.79 pence.
3 Award vests in two equal instalments in March 2018 and March 2019.
4 Award vests in three equal instalments in March 2018, March 2019 and March 2020.
5 Award vests in three equal instalments in March 2019, March 2020 and March 2021.
6 Award vests in three equal instalments in March 2020, March 2021 and March 2022.
OPTIONS GRANTED UNDER THE MAN GROUP DEFERRED SHARE PLANS – NOT SUBJECT TO SERVICE CONDITIONS (AUDITED)
TABLE R15
Executive director
Luke Ellis1
Mark Jones2
Date of grant
1 January
2017
Exercised during
period
31 December
2017
Option exercise
price
Latest exercise
date
Deferred Share Plan (KEOP)
Nov-10
Mar-11
744,327
407,463
—
—
744,327
407,463
319.88p
267.08p
Nov-20
Mar-21
Partner Deferred Share Plan (POP)
Mar-11
356,110
—
356,110
308.55p
Mar-21
1 Luke Ellis was granted KEOP options under the Deferred Share Plan prior to his appointment as a director. All options are vested.
2 Mark Jones was granted a POP option under the Partner Deferred Share Plan prior to this appointment as a director. All options are vested.
81
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
DIRECTORS’ REMUNERATION REPORT CONTINUED
OPTIONS GRANTED UNDER THE MAN GROUP DEFERRED SHARE AND FUND PRODUCT PLANS – SUBJECT TO SERVICE
CONDITIONS (AUDITED)
TABLE R16
Executive director
Date of grant
Luke Ellis1
1 January
2017
Granted during
the year
Dividends
accruing
Exercised during
period
31 December
2017
Transfer/earliest
exercise date
Latest exercise
date
Deferred Share Plan (DSP)
Mar-14
Mar-15
Mar-15
Mar-15
Mar-16
Mar-16
Mar-16
Mar-17
Mar-17
Mar-17
181,405
142,227
142,228
383,5402
157,211
157,211
157,213
—
—
—
—
—
—
—
—
—
—
186,818
186,818
186,820
Fund Product Plan (FPP)3
Mar-114
Mar-114
Mar-114
Mar-13
Mar-13
Mar-14
Mar-14
Mar-15
Mar-15
Mar-15
Mar-16
Mar-16
Mar-16
276
276
277
1,602
1,602
1,536
1,536
2,442
2,442
2,442
149,447
149,447
149,447
Mark Jones5
Partner Deferred Share Plan (PDSP)
Mar-14
Mar-15
Mar-15
Mar-15
Mar-16
Mar-16
Mar-16
81,055
14,321
14,321
383,540
47,226
47,226
47,226
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,480
17,476
—
7,162
7,162
8,512
8,512
8,512
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
652
17,476
—
2,151
2,151
Deferred Share Plan (DSP)
Mar-17
Mar-17
Mar-17
Mar-17
—
—
—
—
278,139
12,673
43,476
43,476
43,476
1,980
1,980
1,980
181,405
142,227
—
—
157,211
—
—
—
—
—
276
276
277
1,602
1,602
1,536
1,536
2,442
2,442
—
—
—
—
81,055
14,321
—
—
47,226
—
—
—
—
—
—
—
—
148,708
401,016
—
164,373
164,375
195,330
195,330
195,332
—
—
—
—
—
—
—
—
—
2,442
149,447
149,447
149,447
—
—
14,973
401,016
—
49,377
49,377
290,812
45,456
45,456
45,456
Mar-17
Mar-17
Mar-18
Mar-20
Mar-17
Mar-18
Mar-19
Mar-18
Mar-19
Mar-20
Mar-17
Mar-17
Mar-17
Mar-17
Mar-17
Mar-17
Mar-17
Mar-17
Mar-17
Mar-18
Mar-17
Mar-18
Mar-19
Mar-17
Mar-17
Mar-18
Mar-20
Mar-17
Mar-18
Mar-19
Mar-22
Mar-18
Mar-19
Mar-20
n/a
n/a
Mar-25
Mar-25
n/a
Mar-26
Mar-26
Mar-27
Mar-27
Mar-27
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Mar-19
Mar-20
Mar-20
Mar-20
n/a
n/a
Mar-18
Mar-20
n/a
Mar-18
Mar-19
Mar-27
Mar-27
Mar-27
Mar-27
82
Man Group plc Annual Report 2017Corporate governance OPTIONS GRANTED UNDER THE MAN GROUP DEFERRED SHARE AND FUND PRODUCT PLANS – SUBJECT TO SERVICE
CONDITIONS (AUDITED)
TABLE R16
Executive director
Date of grant
Mark Jones5 continued
1 January
2017
Granted during
the year
Dividends
accruing
Exercised during
period
31 December
2017
Transfer/earliest
exercise date
Latest exercise
date
Partner Fund Product Plan (PFPP)3
Mar-14
Mar-15
Mar-15
Mar-16
Mar-16
Mar-16
687
226
226
896
896
896
—
—
—
—
—
—
—
—
—
—
—
—
687
226
—
896
—
—
—
—
226
—
896
896
Mar-17
Mar-17
Mar-18
Mar-17
Mar-18
Mar-19
n/a
n/a
Mar-18
n/a
Mar-18
Mar-19
1. Luke Ellis was granted nil-cost options under the Deferred Share Plan and Fund Product Plan schemes prior to his appointment as a director.
2. The dividend accrual was omitted from the opening balance of the 2016 DRR (Table R19). This has been corrected in the 2017 DRR.
3. Award granted over a number of fund units in various funds.
4. These fund awards were transmitted via Man Group plc shares on exercise. The exercise value of these awards was used to purchase 92,351 shares which Luke Ellis elected to retain.
5. Mark Jones was granted nil-cost options under the Deferred Share Plan and Fund Product Plan schemes as well as conditional awards under the Partner Deferred Share Plan and Partner Fund
Product Plan prior to his appointment as a director.
OPTIONS GRANTED UNDER THE MAN GROUP SHARESAVE SCHEME (AUDITED)
TABLE R17
Executive
director
Date of grant
Luke Ellis
Jun-11
Sep-14
Sep-17
Jonathan Sorrell
Aug-12
Sep-14
Sep-17
Mark Jones
Sep-17
1 January
2017
Granted during
year
Exercised during
period
Lapsed during
year
31 December
2017
Option price
Earliest exercise
date
Latest exercise
date
Number of options
7,561
16,833
—
—
—
11,363
23,076
16,833
—
—
—
—
11,363
13,636
—
—
—
23,076
—
—
—
7,561
—
—
—
—
—
—
—
16,833
11,363
—
16,833
11,363
204.0p
90.0p
132.0p
65.0p
90.0p
132.0p
Aug-16
Oct-19
Oct-22
Oct-17
Oct-19
Oct-22
Jan-17
Mar-20
Mar-23
Mar-18
Mar-20
Mar-23
13,636
132.0p
Oct-20
Mar-21
3.12 Shareholder voting and engagement
At the AGMs held on 8 May 2015 and 5 May 2017, votes cast by proxy and at the meetings in respect of directors’ remuneration were as follows:
Resolution
Votes for
% for
Votes against
% against
Total votes cast
TABLE R18
Votes withheld
(abstentions)
Approve the annual report on remuneration (May 2017)
851,330,872
71.8% 335,157,811
28.2% 1,186,488,683
64,024,380
Approve the directors’ remuneration policy (May 2015)
591,048,110
57.2% 442,929,218
42.8% 1,033,977,328
12,680,269
Details of the reasons behind the significant percentage of votes cast against these resolutions and actions taken by the Committee in response are
provided in the Chairman’s annual statement on pages 66 to 69.
83
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
DIRECTORS’ REMUNERATION REPORT CONTINUED
4. Implementation of directors’ remuneration policy for 2018
4.1 Base salary
Salaries are reviewed annually taking into account market benchmarks for executives of comparable status, responsibility and skill.
BASE SALARY OF EXECUTIVE DIRECTORS
Base salary at
1 January 2017
1 January 2018
Luke Ellis Jonathan Sorrell
TABLE R19
Mark Jones
$1,100,000
$750,000
$575,000
$1,100,000
$750,000
$600,000
Subject to shareholder approval, the Committee will apply the new policy during 2018.
4.2 Short term annual bonus for 2018
The following table shows the performance metrics and weightings for the short term annual bonus in 2018
Metrics
Net Inflows
Core Management Fee PBT, $m
Core Total PBT, $m
Strategic and Personal
Financial: Non-financial
TABLE R20
Weighting %
30%
20%
20%
30%
70%:30%
The Remuneration Committee considers that the disclosure of detailed performance targets in advance for 2018 would be commercially sensitive and
they are not, therefore, disclosed here. It is the intention of the Committee to disclose them in the DRR for the year ended 31 December 2018.
4.3 Long term incentive plan for 2018
Subject to shareholder approval, the first award under the new Man Group plc LTIP will be made in March 2019 and the Committee will, therefore,
disclose the threshold to maximum ranges in the Directors’ Remuneration report for 2018. No awards will be made under the new LTIP or the DEIP that
reference performance in respect of 2018. The metrics and weightings which the Committee intends to use, from 2019, are as follows:
Metrics
Relative Investment Performance
Relative TSR vs FTSE 250
Adjusted Management Fee EPS growth, %
Three year Cumulative Adjusted Total EPS
Cumulative Net Inflows
TABLE R21
Weighting %
25%
25%
20%
20%
10%
4.4 Non-executive director remuneration policy for 2018
There has been no increase in fees for the Chairman since his appointment in 2016, nor any increase for the role since 2007. There had been no increase
in non-executive directors’ Board fees since 2009 and there have been increased demands associated with the role. The executive members of the
Board agreed an increase to £70,000 in the Board fee with effect from 1 January 2018.
NON-EXECUTIVE DIRECTORS’ FEES FOR 2018
Position (All figures in GBP)
Chairman of the Board
Board fee1
Senior Independent Director
Audit and Risk Committee chair
Other Audit and Risk Committee members
Remuneration Committee chair
Other Remuneration Committee members
1
Includes Nomination Committee membership where appropriate.
84
TABLE R22
2018
2017
% increase
450,000
450,000
70,000
15,000
30,000
15,000
25,000
10,000
65,000
15,000
30,000
15,000
25,000
10,000
–
7.7
–
–
–
–
–
Man Group plc Annual Report 2017Corporate governance 5. Remuneration Committee
5.1 Membership and attendance
The Committee met seven times during 2017 with attendance by members as indicated below. All members held office throughout the year subject to
the exceptions shown. In addition, certain urgent proposals relating to the retention of awards by good leavers were circulated and agreed by email in
between meetings.
Committee member
Richard Berliand (Chairman)
Dame Katharine Barker (appointed 1 April 2017)
Phillip Colebatch (retired 30 September 2017)
Lord Livingston of Parkhead
Nina Shapiro
TABLE R23
Meetings attended
7/7
5/51
5/52
7/7
7/7
1 Appointed to the Board and Committee on 1 April 2017 and attended all meetings thereafter.
2 Retired from the Board on 30 September 2017 and attended all meetings prior to that date.
Committee meetings are regularly attended by the CEO and, where appropriate, by the CFO at the invitation of the Chairman. The Committee is
supported by the Senior Reward Executive, who routinely attends, as does the Head of HR. Other members of the Legal, Compliance and Executive
Incentive Plans teams attend meetings when required to provide information and advice on remuneration, regulatory and executive incentive plan
matters. The Company Secretary acts as Secretary to the Committee.
At the end of each meeting there is an opportunity for private discussion between Committee members without the presence of executive directors and
management. No Committee member or attendee is present when matters relating to his or her own remuneration are discussed.
Roles and responsibilities
The Committee’s principal responsibilities are to:
– Determine the Company’s remuneration philosophy and the principles and structure of its remuneration policy, ensuring that these are aligned with
business strategy, objectives, risk appetite and values, comply with all regulatory requirements and promote long term shareholder interests;
– Propose the specific remuneration policy for the executive directors, for approval by shareholders, and make remuneration decisions within that
approved policy;
– Approve the total annual compensation for individual executive directors based on their achievement against objectives set by the Committee and
Board at the start of the year for the short term annual bonus and at the start of the relevant performance period for the DEIP and, subject to approval
of the new Directors’ Remuneration policy, for the LTIP;
– Recommend to the Board the remuneration of the Chairman;
– Approve the total annual compensation for Executive Committee members and Remuneration Code staff;
– Review and consider shareholder feedback and agree the approach to any shareholder engagement.
Full terms of reference for the Committee, which are reviewed on an annual basis and submitted to the Board for approval, are available
on the Company’s website.
www.man.com/corporate-governance
5.2 Independent advisers
Following a formal tender process for ongoing professional advisory services, the Committee appointed PriceWaterhouseCoopers (PwC) as its
independent advisers in July 2017 to replace Kepler, a brand of Mercer (Kepler). PwC provide the Committee with advice on a range of remuneration
matters including the benchmarking of directors’ compensation in the asset management sector, trends in market practice and regulatory disclosures.
PwC also provide professional services in the ordinary course of business including tax and related advisory work to parts of the Group. There are
processes in place to ensure the advice received by the Committee is independent of any support provided to management. The Committee is satisfied
on this basis that PwC are able to serve as an objective and independent remuneration adviser. The total fees paid to Kepler and PwC in 2017 were
£20,499 and £78,250 (ex. VAT) respectively on the basis of agreed fixed fees. The Committee also received legal advice from Herbert Smith Freehills LLP
on compliance with legislation and regulations relating to remuneration matters.
85
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
5.3 Committee activities during 2017 and the early part of 2018
The summary below sets out the main issues considered and decisions made by the Committee in the period following the publication of the 2016
Directors’ Remuneration report up to the current date.
Executive director compensation
– Reviewed the Directors’ Remuneration policy ahead of its renewal at the AGM in 2018 and proposed a new simplified policy, on which extensive
consultation with shareholders was undertaken.
– Established the threshold, target and maximum ranges to be achieved for the financial metrics and approved the objectives to be delivered under
the non-financial component in the 2017 annual bonus.
– Assessed the 2017 performance of the CEO, CFO and President against the financial and non-financial metrics of the annual bonus, determined
the salary multiple to be applied and the total cash sum payable.
– Reviewed the percentage of long term deferred share bonus earned under the quantitative metrics of the DEIP for 2017 and determined the
percentage of bonus earned by the CEO, CFO and President under the Culture and Talent element.
– Determined the salary multiple to be applied under the DEIP for 2017 and the total value of the Deferred Bonus.
– Approved a salary increase for the CFO for 2018.
– To provide the business context for all the above reward decisions, reviewed the available benchmarking for the CEO, CFO and President roles within
UK and US listed asset managers (please see section 5.5 for information on peer groups).
Shareholder engagement and reporting
– Reviewed shareholder voting and feedback on the 2017 AGM DRR resolution, noting the improved level of support and agreeing the appropriate
response to address, in the renewal of the Directors’ Remuneration policy, the outstanding concerns of the minority of shareholders who did not
support the resolution.
– Continued the extensive shareholder engagement programme, already commenced in late 2016/ early 2017, to ensure shareholder views were
fully understood in finalising the new Directors’ Remuneration policy.
– Reviewed the 2017 Directors’ Remuneration report taking account of best practice recommendations, institutional shareholder guidelines and
the extensive investor feedback gained as part of the shareholder engagement programme.
Executive compensation below Board level
– Reviewed, challenged and approved the 2017 bonus pool proposed by management in relation to the Company’s performance for the year.
– Approved bonus deferral policies for different groups of staff.
– Approved total compensation proposals for Executive Committee members, taking account of the CEO’s appraisal of their individual performance
for 2017 and their adherence to the Company’s business values.
– Approved the total compensation for BIPRU and AIFMD Remuneration Code staff.
– Retained oversight of the total compensation for staff earning over $1 million, taking account of the CEO’s appraisal of their performance for 2017
and reports from the Risk and Compliance functions on any related risk issues arising during the year.
– Approved a small number of downward risk adjustments to individual awards where behaviours were observed which fell below the standards
required by Risk and Compliance.
– Reviewed the ratio of CEO pay to the average remuneration paid to other employees.
Financial regulation and governance
– Reviewed ongoing regulatory developments on remuneration and their implications for the Company’s business.
– Reviewed the Company’s FCA Remuneration Policy Statement and the Company’s BIPRU, AIFMD and MiFID II Remuneration Policy.
– Approved updates to the list of BIPRU and AIFMD Remuneration Code staff.
5.4 2017 Committee evaluation
Following a mid-year review of the 2017 priority actions identified in the Committee’s 2016 evaluation, the Chairman undertook at the year-end a full year
evaluation of the operation and effectiveness of the Committee during 2017. The topics covered included progress on the priorities for 2017 and the
conduct and outcomes of specific areas of Committee activity and focus during the year, including the support and advice available to the Committee.
In the evaluation feedback, the Committee recognised the contribution made by its new advisers since their appointment in July 2017 and the thorough
process which had been undertaken to support the review of the new Directors’ Remuneration policy. It had also welcomed the streamlining and
rescheduling of Committee business and meetings. The following specific areas of focus were agreed for 2018:
– deliver the 2017 Directors’ Remuneration report;
– continue the Committee’s engagement with shareholders to deliver the new Directors’ Remuneration policy and ensure its seamless implementation,
subject to shareholder approval;
– review the compensation models below Board level; this area of focus previously agreed in 2017 had been deferred to allow the Committee to
concentrate on developing the new Directors’ Remuneration policy; and
– keep the remuneration advice and industry knowledge available to the Committee under review as a matter of ongoing good governance.
86
Man Group plc Annual Report 2017Corporate governance 5.5 Benchmarking and peer groups
Benchmarking is one of a number of factors considered by the Committee in its deliberations on remuneration as it is important that the Committee
understands the level of remuneration paid by Man’s competitors for similar positions and which they may be offering in the market place.
Man variously uses three separate peer groups as detailed in the tables below. These are:
1. a group of asset managers and related businesses listed on the London Stock Exchange;
2. a group of similar businesses listed on the New York Stock Exchange or Nasdaq; and
3. businesses within the privately owned hedge fund industry.
All three of these sources are relevant.
UK LISTED PEER GROUP
– 3i
– Aberdeen Asset Management1
– Ashmore
– Close Brothers
– Henderson2
– TPICAP
– ICG
– Investec Asset Management
– Jupiter
– M&G (Prudential)
– Schroders
US LISTED PEER GROUP
– Affiliated Managers
– Apollo Investment
– Ares
– Artisan Partners
– Blackrock
– Blackstone
– Carlyle
– Eaton Vance
– Federated Investors
– Janus Capital2
– KKR
– Legg Mason
– Oaktree Capital
– Waddell & Reed
PRIVATE MANAGER PEER GROUP
– AKO
– AQR
– Arrowgrass
– Brevan Howard
– Bridgewater
– Capula
– Citadel
– Lansdowne Partners
– Marshall Wace
– Millennium
– Two Sigma
– Winton
Notes to peer companies
1 Following the merger of Aberdeen Asset Management and Standard Life on 14 August 2017, the peer group company to be used from 2018 onwards will be StandardLifeAberdeen
2 Following the merger of Henderson and Janus Capital on 30 May 2017, the peer group company to be used from 2018 onwards will be Janus Henderson
Many of Man’s senior staff are geographically mobile, particularly between London and New York, and an explicit consideration of remuneration levels in
both of these geographies is relevant. Man is one of the few listed companies anywhere in the world that operates in the hedge fund industry. The
majority of businesses in this industry are privately owned and systematic remuneration data is not publicly available. Nevertheless, Man competes for
talent against these businesses and staff move between Man and these private companies.
Man operates globally – witnessed in the geographic footprint of its operations, the spread of its client base and in the breadth of assets it manages. It
also creates and distributes a wide range of products: hedge funds, long only funds and quantitative funds. None of the companies referred to above
have these same characteristics and, although some of them are larger than Man, the Committee believes that, while they are broadly comparable, Man
tends to be more diverse geographically and have a wider range of fund strategies. However, these groups share some of Man’s characteristics and, in
some cases, information regarding the remuneration of directors is publicly available.
The privately owned hedge fund market is made up of a large number of participants, some of them small and single product and others very large. As
noted earlier, little information is available publicly on the compensation quantum and structures in these businesses. The senior management of those few
hedge fund companies which are publicly listed are generally the founders of the original private company who retained very significant shareholdings at the
time of listing. Man endeavours to make up this gap in publicly available data by reviewing available information on privately owned peers, some of whom are
listed in the table above. Man has also obtained direct information about remuneration in those privately held companies that Man has acquired.
Interpreting peer group data and benchmarking involves a number of complexities and the Committee looks at this data to provide important market
context for its decisions.
Unless otherwise stated, all information in the Directors’ Remuneration report is unaudited.
For and on behalf of the Board
Richard Berliand
Chairman of the Remuneration Committee
28 February 2018
87
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
6. Directors’ remuneration policy
6.1 Executive directors’ remuneration policy
Aligning the interests of the executive directors with those of shareholders and with Man Group’s strategic goals is central to Man Group’s remuneration
policy. During 2017, the Directors’ Remuneration policy has been reviewed and the proposed changes, including a significant reduction in the variable
pay opportunity, discussed during detailed consultations with the Company’s largest shareholders and their main representative bodies.
The principal changes proposed are:
– Introduction of significant deferral into Man Group plc shares (and funds, once the increased shareholding requirement has been met) from the annual
bonus, to ensure even greater alignment with shareholders; the bonus opportunity has been reduced to 250% of salary.
– Introduction of a forward-looking performance share plan (the Man Group plc Long Term Incentive Plan) with a range of financial metrics to be
measured over a three-year performance period, with a subsequent two-year holding period; this is also intended to ensure even greater alignment
with shareholders. The maximum award is 350% of salary compared to a maximum of 467% (previously reduced by the Committee from 525%) for
the DEIP.
– An increase in shareholding requirements to 300% of salary for the CEO (from 200%) and 200% of salary for other executive directors (from 100%),
again to ensure greater alignment with shareholders. On leaving the Man Group Board, directors will be expected to retain a shareholding for two
years, with 100% retained for the first year and at least 50% for a further year.
– An absolute cap on an executive director’s salary of $1.1m demonstrating the Committee’s commitment to respond proactively to previous
shareholder concerns about lack of transparency on base salary intentions.
– A reduction in the pension provision available as a percentage of salary, from 20%, to align executive directors’ opportunity with the maximum
available under the employee policy, currently 14%.
– Enhanced malus and clawback provisions to ensure appropriate safeguards are in place to protect the interests of the Company and shareholders.
In line with shareholders’ interests being managed within a robust governance framework, the Company continues to aim to retain and incentivise high
calibre executive directors; it will do this by paying competitive base salary and benefits, together with a short term annual bonus, with significant deferral,
and a long term incentive plan collectively linked to a range of financial and non-financial metrics to deliver the Company’s strategy and ensure alignment
with shareholder interests.
This section of the report sets out the new Remuneration policy for executive and non-executive directors which will be put to shareholders for approval
and, if approved, be effective from the conclusion of the 2018 AGM on 11 May 2018.
EXECUTIVE DIRECTORS’ REMUNERATION POLICY
TABLE R24
Function
Operation
Opportunity
Performance metrics
Base salary
Based on experience and
individual contribution to
leadership and Company
strategy
Salaries are reviewed annually taking
into account market ranges for
executives of comparable status,
responsibility and skill in companies
of similar size and complexity to Man
with consideration also given to sector
relevance.
None.
The maximum salary for
an executive director is
$1.1m for the duration of
this Remuneration policy.
In reviewing salaries the
Remuneration Committee
takes into account individual
and company performance,
salary increases below Board
level, time since the last
increase, market practice
and total compensation
opportunity.
Pension
To provide an opportunity
for executives to build up
income on retirement
Benefits
To provide non-cash benefits
which are competitive in
the market in which the
executive is employed
Group Personal Pension (GPP), or a
similar contribution to an alternative
arrangement is provided. For those
exceeding HM Revenue & Customs
pension allowances, cash allowances
are provided at no additional cost
to Man.
The maximum employer
contribution for executive
directors is aligned with the
maximum available under
the wider employee policy,
currently 14% of pensionable
base salary.
None.
Benefits include family private medical
insurance, life assurance, permanent
health insurance and gym membership
subsidy.
It is not anticipated that the
total taxable benefits for any
executive director will normally
exceed 10% of salary.
None.
Flexible benefits can be purchased
from base salary.
Other ad-hoc benefits such as
relocation can be offered, depending
on personal circumstances.
88
Man Group plc Annual Report 2017Corporate governance EXECUTIVE DIRECTORS’ REMUNERATION POLICY
TABLE R24
Function
Operation
Opportunity
Performance metrics
Sharesave
To encourage UK-based
employees to own Man
Group shares
Annual Bonus
To incentivise and reward
strong performance against
annual financial and non-
financial targets
Deferral of a significant
proportion of the bonus into
shares is designed to align
executives’ interests with
those of shareholders over
the long term
Long Term Incentive Plan
To engage and motivate
executive directors to deliver
on KPIs which support
implementation of the
Company’s strategy in order
to deliver superior long term
returns to shareholders
The Man Group Sharesave Scheme
is an all-employee plan. The executive
directors who participate in the
Sharesave Scheme are granted options
over Man shares and make monthly
savings from their post-tax salary.
Options are granted at a 20% discount
to market price on the date of grant.
Performance measures and stretching
targets are set at the start of the
year. At the end of the year, the
Remuneration Committee considers
the extent to which these have
been achieved and sets the award
level, taking into account the overall
performance context and experience of
shareholders.
50% of any bonus is delivered upfront
in cash and 50% is delivered in shares
(or fund awards where the executive
director has met the minimum
shareholding requirement) deferred for
up to three years, released on the first,
second and third anniversary of grant
in three equal tranches.
The Committee may award dividend
equivalents on deferred shares in
respect of dividends declared during
the deferral period.
Malus and clawback provisions apply in
certain specified circumstances, further
details of which are provided below.
An annual award of Man Group plc
shares, subject to performance
conditions over a period of at least
three years. An additional holding
period of at least two years will apply
following vesting.
Notional dividends accrue on
performance share awards to the
extent that the performance conditions
are met, delivered as shares or cash
at the discretion of the Remuneration
Committee at the same time as the
delivery of vested shares.
Malus and clawback provisions apply in
certain specified circumstances, further
details of which are provided below.
Savings capped at HM
Revenue & Customs limits.
None.
The maximum award is 250%
of salary.
Threshold performance is
25% of the maximum
The maximum annual grant is
350% of salary.
Threshold performance
results in 0% vesting, rising to
100% vesting for maximum
performance.
The bonus is based on the Remuneration
Committee’s assessment of executive
directors’ performance over a financial
year against objectives, which are based
at least 70% on financial measures
which may include, but are not limited to,
measures of funds under management,
revenue, profit and cash and up to 30%
based on individual contribution and
medium term strategic goals.
Details of the measures and weightings
applicable for the year ending
31 December 2018 are on page 84.
Details of the targets will be disclosed
retrospectively in next year’s annual
report on remuneration, when they are
no longer deemed commercially sensitive
by the Board.
The Committee retains the discretion
to adjust the bonus if it considers that
the formulaic outcome does not reflect
underlying business performance.
The vesting of awards is linked to a range
of measures which may include, but is not
limited to:
– A measure of investment performance
– A profitability measure
– A growth measure (e.g. management fee
EPS and/or increase in net flows) and
– A relative performance measure (e.g.
TSR)
Weightings may vary year-on-year with
no individual metric accounting for less
than 10% or more than 50% of the overall
outcome. Details of the measures for the
awards to be made in March 2019 are set
out on page 84.
The Remuneration Committee has
discretion to amend the performance
conditions, in exceptional circumstances,
if it considers it appropriate to do so,
e.g. in the event of accounting changes,
M&A activities and disposals. Any such
amendments would be fully explained and
disclosed in the next year’s annual report
on remuneration. It has discretion to adjust
the extent to which an award shall vest if
appropriate to reflect the broader financial
performance of the Group.
89
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS’ REMUNERATION POLICY
TABLE R24
Function
Operation
Opportunity
Performance metrics
Shareholding
requirements
In order to align the interests of
executive directors and shareholders,
Man Group requires its executive
directors to maintain a percentage
of salary in Man Group shares.
The Chief Executive Officer
is required to maintain a
shareholding of 300% of
base salary. Other executive
directors are required to
maintain a shareholding of
200% of base salary.
Executive directors are required to build
up this shareholding progressively.
Incumbents will build up to the prescribed
shareholdings with vested shares where
not already at or above this level. The full
requirement must be retained for one year
after departure from Man and at least half
of it for the second year.
Malus and Clawback
The Committee may apply malus and/
or clawback to variable pay in certain
specified circumstances including:
misconduct, material misstatement
of financial results affecting the
assessment of a performance
condition, or where there has been
an error or inaccuracy relating to the
determination of variable pay.
In addition, it can apply malus if the
director fails to meet the required
standards of fitness and propriety,
the director participates in or was
responsible or accountable for a
material failure of risk management, or
the director has caused or contributed
to a material extent to censure by any
regulatory authority or a significant
detrimental impact on the Company’s
reputation.
Notes to the policy table:
In implementing the above remuneration policy, the Remuneration Committee shall have regard to all relevant legal and regulatory requirements, including the principles and provisions of the UK
Corporate Governance Code, the UKLA Listing Rules, the Financial Conduct Authority Remuneration Codes and to leading investor representative body guidelines.
Any commitments made prior to, but due to be fulfilled after, the approval and implementation of the revised remuneration policy approved by shareholders (including under the previously approved
policy) will be honoured. In addition to the elements of remuneration detailed in the policy table, the Remuneration Committee may consider it appropriate to grant an award under a different structure in
order to facilitate the recruitment of an individual, exercising the discretion available under the UKLA Listing Rules (see details in the paragraph ‘Approach to recruitment remuneration’).
Where employees hold units in funds managed by the Group, the fund may rebate fees to the employee.
6.2 Illustrative pay for performance scenarios
The chart below provides an illustration of some of the potential reward opportunities for executive directors in respect of the first year of the new
Directors’ Remuneration Policy showing the potential split between the different elements of remuneration under three different performance scenarios:
‘minimum’, ‘mid-point’ and ‘maximum’.
Maximum
17%
35%
48%
$7,996
CEO
Mid-point
30%
29%
41%
$4,696
Minimum
100%
$1,396
13%
Maximum
17%
35%
48%
$4,345
CFO
Mid-point
30%
29%
41%
$2,545
Minimum
100%
$745
13%
Maximum
17%
0
35%
48%
$5,452
President
Mid-point
30%
29%
41%
$3,202
Minimum
100%
$952
13%
13%
Salary & benefits
Annual Bonus
Long Term Incentive Plan
0
1000
2000
3000
4000
5000
6000
7000
8000
90
Man Group plc Annual Report 2017Corporate governance Assumptions used:
– The ‘minimum’ scenario reflects base salary, pension and benefits as disclosed in the single figure of total remuneration (i.e. fixed remuneration)
which are the only elements of the executive directors’ remuneration packages not linked to performance during the year under review.
– The ‘mid-point’ scenario reflects fixed remuneration as above, plus a target pay-out of 50% of the maximum annual bonus and 50% vesting for the LTIP.
– The ‘maximum’ scenario reflects fixed remuneration as above, plus full pay-out of the both the annual bonus and LTIP.
– The illustrations are based on initial award value and do not, therefore, reflect potential share price appreciation or any dividend equivalent received
over the vesting/deferral periods.
– Annual bonus includes both the cash bonus and the amount of the bonus deferred.
6.3 Performance measures selection and approach to target-setting
Annual objectives are set according to immediate priorities identified by the Board and management and will be reviewed and adjusted annually to reflect
changing priorities. The long term performance metrics are in line with the long term strategic focus of the Company and will be reviewed as required in
line with any changes in strategic direction. Targets will be set by reference to internal budgets and strategic plans, industry backdrop and external
expectations to ensure they represent appropriately stretching levels of performance.
6.4 Differences between executive directors’ and employees’ remuneration
Executive Committee members participate in an annual bonus scheme with significant levels of deferral, to align their remuneration with the long term
interests of share and fund holders. However, in line with market practice in alternative investment funds, their incentive pay-outs are uncapped.
Employee remuneration includes base salary, pension (capped at 14% of salary) and benefits (which include private health, subsidised gym membership,
the opportunity to participate in charitable activities during working hours and a range of flexible benefits which can be purchased from salary), an annual
performance bonus and, for senior contributors, long term share and fund-based deferrals. The level of deferral increases as total compensation
increases. This provides alignment with shareholders and the future performance of the Company and with the interests of investors in funds managed
by the Company.
Sales staff have a specific bonus scheme to incentivise appropriate asset raising and retention, whilst aligning interests on costs.
6.5 Approach to recruitment remuneration
External appointment
APPROACH TO RECRUITMENT REMUNERATION
Component
Base salary
Pension
Benefits
Sharesave
Annual Bonus
Long term Incentive Plan
Notes
TABLE R25
Maximum grant value
$1.1m
Approach
Base salary will be determined to provide competitive total compensation in relation to
relevant market practice, experience and skills of the individual, internal relativities and
their current compensation.
Pension contributions or an equivalent cash supplement will normally be set in line with
existing policy.
14% of salary1
Benefits may include (but are not limited to) private medical insurance, life assurance,
permanent health insurance, Group income protection and any necessary relocation
expenses.
New appointees will be eligible to participate in any all-employee share schemes the
Company offers.
n/a
n/a
The remuneration structure described in the policy table will apply to new appointees with
the relevant maximum being pro-rated to reflect the proportion of employment over the year.
250% of salary
New appointees may be granted awards under the long term incentive plan, on the same
terms as other executive directors, as described in the policy table including in respect of
the first part-year of service.
350% of salary
1 The directors’ maximum pension contribution is aligned to the maximum available to all employees, currently 14% of salary
In determining the appropriate remuneration, the Remuneration Committee will take into consideration all relevant factors (including quantum, nature
of remuneration and the jurisdiction from which the candidate was recruited) to ensure that arrangements are in the best interests of both Man Group
and its shareholders.
With respect to a new appointment, the Remuneration Committee may ‘buy out’ incentive arrangements, including bonuses, forgone on leaving a
previous employer, and awards made under such ‘buy out’ arrangements may be in addition to the remuneration outlined in the table above. In doing so,
the Remuneration Committee will consider relevant factors including any performance conditions attached to those incentive arrangements and the
likelihood of those conditions being met. In defining the size of this ‘buy out’ award, the Remuneration Committee would ensure that its fair value is no
higher than the fair value of the incentive arrangements forgone. The Remuneration Committee may also consider it appropriate to structure any such
‘buy out’ award differently to the structure described in the policy table including whether appropriate performance conditions should apply, exercising
the discretion available under the UKLA Listing Rules.
The Remuneration Committee does not intend that such ‘buy out’ awards will be made as a matter of routine; on the contrary, although the
Remuneration Committee cannot anticipate every circumstance which it might face in the future, it is expected that any such awards made under the
UKLA Listing Rules will only be contemplated in exceptional circumstances, will be reviewed and approved by the full Board and described fully in the
subsequent year’s DRR.
91
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
Internal appointment
For the appointment of a new executive director by way of internal promotion, the Remuneration Committee’s approach will be consistent with the policy
for external appointees detailed above. Where an individual has contractual commitments made prior to their promotion to the Board, the Company will
continue to honour these commitments.
6.6 Service contracts and exit payment policy
SERVICE CONTRACTS
Element
Contract dates
Condition
Luke Ellis: 1 September 2016
Mark Jones: 1 January 2017
Jonathan Sorrell: 28 September 2012
Current appointment
No fixed term
Notice period (by either Company or director)
Luke Ellis: 12 months
Mark Jones: 6 months
Jonathan Sorrell: 6 months
The Company’s policy is that notice periods will not exceed 12 months
Contractual entitlement to fixed bonus or share-
based incentive
None
TABLE R26
Under all contracts the Company can opt to terminate immediately by making a payment
in lieu of the notice period or part of it. Luke Ellis’ contract requires payment of base salary
only in lieu. Jonathan Sorrell’s contract requires payment of base salary plus the value of
pension contributions (or alternative cash allowance) and certain other insured benefits in
lieu. Mark Jones’ contract requires payment of base salary plus a cash sum in lieu of pension
contributions and other insured benefits.
Payments in lieu are to be made in monthly instalments unless the Company and the executive
director agree otherwise.
Unless the Company decides otherwise the executive directors have a duty to mitigate their
losses arising from termination of their employment in which case any replacement earnings
earned in what would otherwise have been the notice period would reduce the obligation on
the Company to make payments in lieu.
The service contracts do not oblige the Company to pay any bonus to executive directors and
bonuses are awarded at the Remuneration Committee’s discretion. Payment of any bonus
is conditional upon the executive director being in employment and not under notice at the
payment date, except in certain “good leaver” circumstances.
Where the director is deemed to be a “good leaver”, deferred bonus awards are retained by
participants and release would follow the normal vesting schedule (except in the case of death
where the Remuneration Committee may allow early vesting). The treatment will be decided
by the Committee taking into account the circumstances of the departure including the
performance of the executive director.
The treatment of long term awards is governed by the relevant Plan rules, as approved by
shareholders. Where an individual’s employment terminates, the LTIP rules provide for unvested
long term incentive awards to lapse except as set out below:
– Under the LTIP rules, where an individual is determined to be a “good leaver”, unvested long term
incentive awards will vest at the normal vesting date subject to performance against applicable
performance conditions and, unless the Committee determines otherwise, pro-rating for time.
Any Committee determination will take into account a number of considerations, in particular
performance and other circumstances relating to their termination of employment.
– Good leaver reasons include death, retirement, ill-health, injury or disability, redundancy, ,sale of
the Company or business in which the individual was employed and cessation of employment
on terms agreed with the Company. The Remuneration Committee may also decide, in its
discretion, to grant good leaver status in other circumstances and will take into account the
reason for leaving and the executive director’s performance up to the date employment ceases.
Where the post-departure shareholding requirements have not been met, after exit post-vesting
holding periods will continue to apply.
The treatment in relation to DEIP awards is as set out in the policy approved in 2015.
Provisions for contract termination
Annual Bonus
Long Term Incentive Plan
92
Man Group plc Annual Report 2017Corporate governance To protect Man Group’s business interests the executive directors’ service contracts contain covenants which restrict the executives’ ability to solicit or
deal with clients and their ability to solicit senior employees. Luke Ellis has also entered into a broader non-compete covenant for an agreed period post
termination.
Further, the Board has the right, at its discretion, to require Jonathan Sorrell and Mark Jones to comply with a broader non-compete covenant for up to
six months post termination to provide additional protection for the Company. If the Board exercises this right, the Company will pay an additional
amount up to six months’ base salary and the value of pension contributions (or alternative cash allowance) and certain other insured benefits so that
they are not left without income during the time when the Board wishes the non-compete to operate. This amount is paid in two equal instalments and is
reduced by any payments made in lieu of notice. The Company may make a contribution to reasonable legal fees and provide outplacement services in
connection with termination of a director’s contract.
Executive directors’ service contracts are available to view at the Company’s registered office.
6.7 External appointments
With the approval of the Board in each case, and subject to the overriding requirements of the Company, executive directors may accept a limited
number of external appointments as non-executive directors of other companies and retain any fees received. Details of external directorships held by
executive directors, including associated fees, are provided in the Directors’ Remuneration report for the relevant year.
6.8 Non-executive directors’ remuneration policy
Non-executive directors have formal letters of appointment. The Chairman has a contract with the Company which provides that his appointment is
terminable on six months’ notice and Dame Katharine Barker’s letter of appointment contains a three month notice period. The letters of appointment of
the other existing non-executive directors do not contain any notice provisions or provision for compensation in the event of early termination, but it is
intended that all future non-executive directors will be given a three month notice period. The Board’s policy is to appoint non-executive directors for an
initial three-year term, subject to retirement and reappointment by shareholders annually at the AGM, which may be followed by a further three years by
mutual agreement. Any further extension will be subject to rigorous review. The initial dates of appointment of the non-executive directors to the Board
are shown on pages 45 to 47 of this 2017 Annual Report, and their current fee levels are provided in the DRR on page 79. Non-executive directors are
encouraged to build a shareholding in the Company.
Letters of appointment for the non-executive directors are available to view at the Company’s registered office.
Details of the policy on fees paid to our non-executive directors are set out in the table below.
NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
TABLE R27
Function
Operation
Opportunity
Fees
To attract and retain
non-executive directors
of the highest calibre and
experience relevant to
Man Group
Fees are reviewed annually by the Board at the year-end
taking into account market benchmarks for non-
executives of companies of similar size and complexity
to Man Group with consideration of sector relevance.
Fee levels will take account of any significant change in
the scope of the role or time commitment required and
are set by reference to an appropriate comparator group.
Non-executive directors receive a base fee for Board
service and additional fees for Board Committee
membership and other responsibilities. They do not
participate in any share option or share incentive plans.
The Chairman’s remuneration is recommended by
the Remuneration Committee and approved by the
Board. Neither the Chairman nor the non-executive
directors take part in discussions or vote on their own
remuneration.
Non-executive directors are reimbursed for expenses,
such as travel and subsistence costs, incurred in
connection with the carrying out of their duties. Any tax
costs associated with these benefits are paid by the
Company.
6.9 Recruitment of non-executive directors
When recruiting a new non-executive director, the Board will utilise the policy as set out in Table R27 above. A base fee in line with the prevailing fee
schedule would be payable for Board membership, with additional fees payable for acting as Senior Independent Director or as a member or Chairman
of a Board Committee.
93
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REMUNERATION REPORT CONTINUED
6.10 Consideration of conditions elsewhere in the Company
In assessing executive director remuneration, internal relativities within the Company are reviewed by the Remuneration Committee. These internal
reviews cover the individual elements of base salaries, benefits and total compensation.
6.11 Consideration of shareholder views
The Remuneration Committee values engagement with shareholders and their representative bodies and has consulted extensively in developing this
policy to be put to shareholders for approval at the 2018 AGM. The consultation covered the structure of remuneration, the appropriate maximum
opportunity, in the context of the current executive remuneration environment and the industry sector, as well as the short and long term measures
and weightings in the incentive arrangements. In arriving at the policy presented for approval here, the views of a majority of shareholders have been
considered and, we believe, reflected in the final Directors’ Remuneration policy.
For and on behalf of the Board
Richard Berliand
Chairman of the Remuneration Committee
28 February 2018
94
Man Group plc Annual Report 2017Corporate governance DIRECTORS’ REPORT
The Directors present their report,
together with the audited consolidated
financial statements, for the year ended
31 December 2017.
Man Group plc is incorporated as a public limited company limited by
shares and is registered in England with the registered number 08172396
(the “Company”). The Company’s registered office is Riverbank House,
2 Swan Lane, London EC4R 3AD.
Directors
Details of the current directors, together with their biographies, can be
found on pages 45 to 47. The following Board changes have occurred
during the year:
Mark Jones
Dame Katharine (Kate) Barker
Phillip Colebatch
Appointed 1 January 2017
Appointed 1 April 2017
Retired 30 September 2017
All of the other directors served for the duration of the year.
Shares
Share capital
Details of movements in issued share capital, together with the rights and
obligations attaching to the Company’s shares, are set out in Note 20 to
the financial statements. This Note also provides information on the
Company’s unexpired authority to purchase its own shares and details
of the shares purchased by the Company during the year.
Substantial voting interests
As at 31 December 2017, the Company had been notified of the
following voting interests in the ordinary share capital of the Company
in accordance with DTR 5 of the FCA’s Disclosure Guidance and
Transparency Rules. Percentages are shown as notified, calculated with
reference to the Company’s disclosed share capital as at the date of the
movement triggering the notification.
Shareholder
Number of
shares notified
to the Company
Percentage of
issued share
capital
Silchester International Investors LLP
85,232,803
Sumitomo Mitsui Trust Holdings, Inc
51,000,000
5.00%
3.02%
Following the year end, on 5 February 2018, BlackRock, Inc. disclosed to
the Company, in accordance with DTR 5, an indirect holding of 83,046,394
ordinary shares, representing 5.06% of the Company’s share capital.
Details of the directors’ interests in the Company’s shares are given on
page 80 of the Annual Report.
As at 27 February 2018, being the latest practicable date prior to the
publication of this report, no change to the shareholdings reported above
had been notified to the Company in accordance with DTR 5.
Powers of directors
The Board is responsible for the management of the business of the
Company and may exercise all the powers of the Company subject to the
provisions of relevant statutes and the Company’s Articles of Association
(the ‘Articles’). A copy of the Articles is available on the Company’s website
and by request from the registered office of the Company. The Articles
may be amended by a special resolution of the shareholders.
Appointment, retirement and replacement of directors
The appointment, retirement and replacement of directors are governed
by the Articles, the UK Corporate Governance Code and the Companies
Act 2006. Under the Articles, the Board has the power to appoint further
directors during the year, but any director so appointed must stand for
reappointment at the next Annual General Meeting (AGM). In accordance
with the Articles, one-third of the Board must retire by rotation at each
AGM and may stand for reappointment. In practice, and in accordance
with the UK Corporate Governance Code, all Board members retire and
offer themselves for reappointment at each AGM.
The Articles give each director the power to appoint any person to be his/
her alternate, such appointment being subject to Board approval where
the proposed alternate is not an existing director of the Company.
Directors’ indemnities and insurance cover
The Company has maintained qualifying third-party indemnity provisions
for the benefit of its directors during the year and these remain in force at
the date of this report. The indemnity is granted by the Company to new
directors on their appointment and covers, to the extent permitted by law,
any third-party liabilities which they may incur as a result of their service
on the Board. The Company arranges directors’ and officers’ liability
insurance to cover certain liabilities and defence costs which the Company
indemnity does not meet. Neither the indemnity nor the insurance provides
any protection in the event of a director being found to have acted
fraudulently or dishonestly in respect of the Company.
Restriction on voting rights
Where shares are held in employee benefit trusts for the satisfaction of
awards made under the Company’s share schemes, under the trust
deeds the trustees have discretion to vote or abstain from voting.
Share transfer restrictions
On 1 January 2017, 5,650,862 ordinary shares in the Company, which
were issued as a partial upfront consideration for the acquisition of
Aalto Invest Holding AG, became subject to share lock-up agreements.
Under the terms of such agreements, and with limited exceptions, the
shares must not be disposed of until 31 December 2018 (second
anniversary of the acquisition).
The Board may decline to register a transfer of any share which is not a
fully paid share. In addition, registration of a transfer of an uncertificated
share may be refused in the circumstances set out in the Uncertificated
Securities Regulations and where the number of joint holders exceeds four.
Change of control
The Company’s employee share and fund incentive schemes contain
provisions whereby, upon a change of control of the Company,
outstanding options and awards would vest and become exercisable,
subject to any prorating that may be applicable.
Independent auditor
The Company’s auditor, Deloitte LLP, has indicated its willingness to
continue in office and a resolution to reappoint Deloitte LLP as auditor
of the Company will be proposed at the 2018 AGM.
95
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report DIRECTORS’ REPORT CONTINUED
Carbon emissions reporting
The information below details our mandatory reporting of greenhouse gas
emissions for the year pursuant to the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013.
Where Man Group is the landlord of a property, and electricity costs are
incurred on behalf of sub-tenants, these costs are on-charged to the
sub-tenants as the users of the electricity. Accordingly, no emissions data
for energy usage incurred on behalf of sub-tenants is included in Man
Group’s reportable emissions above.
Around 69% (2016: 70%) of our overall emissions relate to purchased
electricity and gas usage across our various geographical locations, with
the remaining 31% (2016: 30%) relating to air travel. All emissions are
reported in tonnes of carbon dioxide equivalents (CO2e).
Disclosures of emissions related to business travel are restricted to flight
costs as a result of the CO2e emission convertible data relating to other
means of transport (e.g. taxis) not being available.
Further disclosures
Information fulfilling the further disclosure requirements contained in the
Companies Act 2006, Schedule 7 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008, and
the FCA’s Listing Rules and Disclosure Guidance and Transparency Rules,
where applicable to the Company, can be found in the following sections
of the Annual Report for the year ended 31 December 2017 which are
incorporated into the Directors’ report by reference:
Future developments in the business
Research and development activities
Dividend
Dividend waiver
Employment policy and employee involvement
Financial risk management and financial
instruments
Corporate governance report
Internal control and risk management statements
Directors’ responsibility statement including
disclosure of information to the auditors
Pages
8-21
10-21
29, 117, 145-146
128
36-40
121-122, 135-137
44-55
32
97
For and on behalf of the Board
Rachel Rowson
Company Secretary
28 February 2018
Man Group’s emissions by scope
Scope
Scope 1
Scope 2
Scope 3
Total
Source
Natural gas
Electricity
Air travel
Tonnes of CO2e emissions
Year ended
31 December
2017
Year ended
31 December
2016
265
7,105
3,308
10,679
330
6,070
2,7011
9,101
The emissions we are reporting have been calculated using an intensity
metric which will enable us to monitor emissions independent of activity.
As Man Group is a people-related business, we expect that any changes
to headcount will impact the property space we occupy and the amount
of business travel we use. Therefore, emissions per employee are the most
appropriate metric for our business, as shown in the table below. The
average number of employees in 2017 was 1,313 (2016: 1,2501), as
disclosed in Note 4 to the financial statements.
Note
1 Prior year scope 3 emissions have been remeasured using updated carbon emission factors
to ensure comparability with the current year. Likewise prior year headcount has been
remeasured according to the headcount metric used in the current year.
Emissions per employee
Scope
Scope 1
Scope 2
Scope 3
Emissions per employee
Tonnes of CO2e emissions
Year ended
31 December
2017
Year ended
31 December
2016
0.2
5.4
2.5
8.1
0.3
4.9
2.2
7.4
Increases in Scope 2 emissions are due to taking additional office space
in London in June 2017. Air travel emissions (Scope 3) have increased
primarily due to an increase in air mileage during 2017.
Methodology
For practical reasons, most of the emissions data was gathered for the
first nine months of each year and, as appropriate, extrapolated in order to
calculate the full year emissions. Based on the nature of our emissions and
the consistency month on month, we believe this is an appropriate
representation of the annual emissions.
In order to compile the reportable emissions data from our offices,
electricity and gas meter readings have been obtained from our energy
suppliers. For some of our smaller offices we are not charged for energy
usage separately as these costs are incorporated into the service fees for
our premises. These emissions have not been included in the reported
total above, due to the data being unavailable, and relate to offices for
the use of 23 employees (2016: 16 employees).
96
Man Group plc Annual Report 2017Corporate governance 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.
DIRECTORS’ RESPONSIBILITY STATEMENT
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors are required to prepare
the Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and
Article 4 of the IAS Regulation, and have also elected to prepare the Parent
Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law), including FRS 101 ‘Financial Reporting
Standard 101 Reduced Disclosure Framework’. Under company law the
directors must not approve the accounts unless they are satisfied that they
give a true and fair view of the state of affairs and of the profit or loss of the
Company and Group for that period.
In preparing the Parent Company financial statements, the directors are
required to:
– Select suitable accounting policies and then apply them consistently;
– Make judgements and accounting estimates that are reasonable
and prudent;
– State whether applicable UK Accounting Standards and ‘Financial
Reporting Standard 101 Reduced Disclosure Framework’ have been
followed, subject to any material departures disclosed and explained in
the financial statements; and
– Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
In preparing the Group financial statements, International Accounting
Standard 1 requires that directors:
– Properly select and apply accounting policies;
– Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
– Provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on
the entity’s financial position and financial performance; and
– Make an assessment of the Group’s ability to continue as a
going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s and
Group’s transactions and disclose with reasonable accuracy at any time
the financial position of the Company and Group and enable them to
ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and
Group, and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.
97
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report Audited information
Independent auditor’s report
Group income statement
Group statement of comprehensive income
Group balance sheet
Group cash flow statement
Group statement of changes in equity
Notes to the Group financial statements
Basis of preparation
Significant accounting policies schedule
Revenue
Distribution costs and asset servicing
Compensation
Other costs
Finance expense and finance income
Taxation
Earnings per ordinary share
Dividends
Goodwill and acquired intangibles
Other intangibles
Cash, liquidity and borrowings
Investments in fund products and other investments
Fee and other receivables
Trade and other payables
Provisions
Investments in associates
Leasehold improvements and equipment
Deferred compensation arrangements
Capital management
Pension
Segmental analysis
Geographical disclosure
Foreign currencies
Fair value of financial assets/liabilities
Related party transactions
Financial guarantees and commitments
Other matters
Group investments
Parent Company financial statements
Unaudited information
Five year record
Alternative Performance Measures
Glossary
Note
1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
99
105
105
106
107
108
110
110
111
112
112
112
113
114
114
116
117
117
120
121
122
125
126
126
127
127
127
129
130
134
135
135
135
137
137
138
138
141
144
147
151
Financial
statements
contents
98
Man Group plc Annual Report 2017Financial statements INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAN GROUP PLC
Report on the audit
of the financial statements
Opinion
In our opinion:
– the financial statements give a true and fair view of the state of Man
Group plc (the ‘Parent Company’) and its subsidiaries’ (the ‘Group’)
affairs as at 31 December 2017 and of the Group’s profit for the year
then ended;
– the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
– the Parent Company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice including Financial Reporting Standard 101 “Reduced
Disclosure Framework”; and
– the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of the Parent Company and the
Group which comprise:
– the Group income statement;
– the Group statement of comprehensive income;
– the Group and Parent Company balance sheets;
– the Group cash flow statement;
– the Group and Parent Company statement of changes in equity; and
– the related Notes 1 to 29 for the Group and 1 to 7 for the Parent
Company.
The financial reporting framework that has been applied in the preparation
of the Group financial statements is applicable law and IFRSs as adopted
by the European Union. The financial reporting framework that has been
applied in the preparation of the Parent Company financial statements is
applicable law and United Kingdom Accounting Standards, including FRS
101 “Reduced Disclosure Framework” (United Kingdom Generally
Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for
the audit of the financial statements section of our report.
We are independent of the Group and the Parent Company in accordance
with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We confirm that
the non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
SUMMARY OF OUR AUDIT APPROACH
Key audit
matters
The key audit matters that we identified in the current year
were:
– Accounting for the acquisition of Aalto
– Impairment assessment of GLG and FRM acquired
intangibles
– Valuation of Numeric and Aalto contingent
consideration payable
– Accuracy of accrued performance fee revenues
Within this report, any new key audit matters are identified
and any key audit matters which are the same as
with
the prior year identified with
.
Materiality The materiality that we used in the current year was $15m
(2016: $15m) which was determined on the basis of 5% of
a two-year average of the adjusted profit before tax.
Scoping
We performed a full scope audit on 18 (2016: 16)
subsidiaries and audits of specified account balances within
a further 14 (2016: 12) subsidiaries across seven (2016:
seven) geographic locations.
Together, this accounts for 99% (2016: 98%) of the
Group’s revenue and 98% (2016: 93%) of the Group’s
profit before tax.
Conclusions relating to going concern, principal risks
and viability statement
Going concern
We have reviewed the directors’ statement in Note 1 to the financial
statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s and Company’s
ability to continue to do so over a period of at least 12 months from the
date of approval of the financial statements.
We are required to state whether we have anything material to add or draw
attention to in relation to that statement required by Listing Rule 9.8.6R(3)
and report if the statement is materially inconsistent with our knowledge
obtained in the audit.
We confirm that we have nothing material to report, add or draw attention
to in respect of these matters.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering
whether they were consistent with the knowledge we obtained in the
course of the audit, including the knowledge obtained in the evaluation of
the directors’ assessment of the Group’s and the Company’s ability to
continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
– the disclosures on pages 33-35 that describe the principal risks and
explain how they are being managed or mitigated;
– the directors’ confirmation on page 32 that they have carried out a
robust assessment of the principal risks facing the group, including
those that would threaten its business model, future performance,
solvency or liquidity; or
– the directors’ explanation on page 31 as to how they have assessed
the prospects of the Group, over what period they have done so and
why they consider that period to be appropriate, and their statement as
to whether they have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to
the prospects of the Group required by Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention
to in respect of these matters.
99
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAN GROUP PLC CONTINUED
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing the efforts of
the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
IFRS 10 Consolidated Financial Statements (“IFRS 10”). This year is the
fourth year the Group has adopted the requirements. Based on our
procedures and assessments the Group has suitable processes, policies
and controls to implement the judgements required without significant risk
of material misstatement.
Revenue rebates and distribution cost accruals: 2016 was the first full year
that Man Group’s new system for automating much of this process
operated, resulting in improvements to the control environment. Based on
our procedures and assessments the Group has implemented suitable
automation and controls, therefore there is no longer a significant risk of
material misstatement.
In the prior year, we included two key matters that we have not included in
the current year:
All of the key audit matters identified below have been considered as fraud
risks when designing and performing our audit procedures. Inappropriate
judgement or estimation could result in fraudulent financial reporting.
Consolidation of the Group’s investments in fund products: As discussed
in Note 1, the accounting for the investments requires judgement in
determining whether control exists and hence whether investments are
held on the balance sheet at fair value or are consolidated, as required by
The description of this key matter should be read in conjunction with the
significant issues considered by the Audit & Risk Committee discussed on
page 58.
ACCOUNTING FOR THE ACQUISITION OF AALTO
Key audit matter
description
On 1 January 2017, Man completed the acquisition of Aalto as detailed in Note 10. Accounting for the acquisition
requires significant judgement in determining and subsequently allocating the purchase price in accordance with
IFRS 3 Business Combinations.
How the scope of our
audit responded to the
key audit matter
The purchase price of $78m is the aggregate of up-front cash, up-front shares and the present value of contingent
consideration at the acquisition date. Contingent payments require judgement in classification as either contingent
consideration for the acquisition or remuneration for services.
The acquisition includes four deferred payments over eight years as detailed in Note 25. The total amount of
these payments has an estimated present value of $52m. The present value has been classified as contingent
consideration and included in the purchase price.
The purchase price allocation between net tangible liabilities acquired $(1)m, identifiable intangible assets acquired
$24m and goodwill $55m requires estimation. The intangible assets valuation is dependent on estimated future
cash flows, growth rates based upon management’s view of the future business prospects and the associated
discount rates. A significant portion of the purchase price is allocated to goodwill (71%).
Our procedures included:
Assessing related controls: We performed detailed walkthroughs of the recording and reporting of acquisitions,
assessing the design and implementation of key controls.
Working with specialists: We engaged internal valuation specialists to assist in challenging management’s
assumptions used to calculate the valuation of the intangible assets and the fair value of the contingent
consideration at the acquisition date. Our specialists assisted in evaluating the valuation techniques applied
(discounted cash flows, excess earnings, relief from royalty and replacement cost) and challenging the
reasonableness of valuation assumptions used (including discount rates, growth rates and valuation multiples) by
comparing valuation inputs with relevant industry data.
Tests of detail: We performed a detailed review of the purchase agreement to assess whether all elements of
the purchase price had been accounted for appropriately; we assessed the requirements of IFRS 3 business
combinations to evaluate the classification of the contingent payments as consideration; and we challenged
management on the valuation of acquired intangibles identified given the high percentage of the purchase price that
was allocated to goodwill.
Key observations
From the evidence we obtained we found the classification of contingent payments and the allocation of the
purchase price to be appropriate.
100
Man Group plc Annual Report 2017Financial statements IMPAIRMENT ASSESSMENT OF GLG AND FRM ACQUIRED INTANGIBLES
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
There are five cash generating units (“CGUs”) as detailed in note 10. The valuation of goodwill and acquired
intangibles for CGUs with lower levels of headroom is a key estimate as discussed in Note 1. The previous years’
performance of the GLG and FRM CGUs resulted in a reduction in the calculated value in use of these CGUs as
at 31 December 2016, whereby all goodwill $319m and a significant portion of the acquired intangibles $60m
was impaired with the full charge recognised in the Group income statement. The carrying value of the acquired
intangibles at 31 December 2017 for GLG and FRM is $231m (2016:$294m). The impairment analysis performed by
the Group requires estimation using the key assumptions detailed in Note 10. Based on our professional judgement
the use of reasonable assumptions for GLG and FRM is a key audit matter.
Our procedures included:
Assessing related controls: We performed detailed walkthroughs of the impairment processes, assessing the
design and implementation of key controls. We tested the operating effectiveness of governance controls over
valuation models.
Working with specialists: We engaged internal valuation specialists to assist in challenging management’s
assumptions used to calculate the value in use of the CGUs. Our specialists assisted in evaluating the
reasonableness of the assumptions. With the assistance of specialists, we performed a retrospective review of the
accuracy of previous GLG and FRM forecasts. We compared GLG and FRM forecast Funds Under Management
(“FUM”) FUM flows, performance and margins to recent industry flows and performance, challenging the discount
rate applied through discussions with management based on the results of our reviews.
Tests of detail: We performed an independent sensitivity analysis to determine the impact of reasonably foreseeable
changes to the key assumptions used in the value in use calculations for the GLG and FRM CGUs, to determine
whether such changes would trigger material impairments. We held a series of discussions with key management
across each of the CGUs and the Group who are outside of the finance function, as well as the Board of Man Group,
comparing these discussions with the modelling for consistency. We recalculated management’s reconciliation of the
total valuation of all CGUs to the market value of Man Group based upon the share price at year end.
Key observations
From the evidence we obtained we found the key assumptions used to be appropriate and no impairment of acquired
intangibles was required.
VALUATION OF NUMERIC AND AALTO CONTINGENT CONSIDERATION PAYABLE
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The contingent consideration payable to the former owners of Numeric and Aalto of $175m (2016: $150m) and
$60m respectively is stated at fair value, a key estimation as disclosed in note 1. The key assumptions are largely
the same as those used in performing the impairment analyses discussed in the key matter above and are detailed
in note 25. These assumptions are applied to contractual terms of the acquisition agreements in modelling the fair
value at the year-end. Changes in the valuation of the contingent consideration are recognised in the Group income
statement. Based on our professional judgement the use of reasonable assumptions is a key audit matter.
Our procedures included:
Assessing related controls: We performed detailed walkthroughs of the contingent consideration valuation
processes, assessing the design and implementation of key controls. We tested the operating effectiveness of
governance controls over valuation models.
Working with specialists: We engaged internal valuation specialists to assist in challenging management’s
assumptions used to calculate the fair value. Our specialists assisted in the same areas as discussed in the
previous key audit matter above.
Tests of detail: We compared the key terms of the acquisition agreements to the valuation models. We performed a
retrospective review of the accuracy of previous forecasts where applicable. We held a series of discussions with key
management across each of the CGUs and the Group who are outside of the finance function, as well as the Board
of Man Group, comparing these discussions with the modelling for consistency. We performed an independent
sensitivity analysis to determine the impact of reasonably foreseeable changes to the key assumptions used in the fair
value models, to determine whether such changes would result in material revaluation.
Key observations
From the evidence we obtained, we found the assumptions used in calculating the fair value of the Numeric and Aalto
contingent consideration are within appropriate ranges.
101
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAN GROUP PLC CONTINUED
ACCURACY OF ACCRUED PERFORMANCE FEE REVENUES
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
In the prior year, we identified the accuracy and completeness of internally calculated management and
performance fees and the consistency of calculations with governing documents as a key audit matter for
both management and performance fees. In the current year we have refined this to the accuracy of accrued
performance fees. Management fees continue to be material and we perform significant audit procedures on the
balance. However, management fees are no longer assessed as a key audit matter since the calculation of most
management fees was automated in 2017.
The accounting policy for performance fee revenues is detailed in note 2. Performance fee estimates are manually
calculated due to being complex calculations that are performed less frequently than management fee calculations.
Further, accrued estimates are prior to any invoicing controls. The value of performance fees within Fee and other
receivables (Note 14) is $196m, a material amount.
The accrued fee requires accurate implementation of methodologies per governing documents, including any
judgmental interpretations such as the treatment of client flows around the crystallisation dates or in-period flows
within the calculations, and the use of estimated valuations as fee bases, which can change after the year end.
Our procedures included:
Assessing related controls: We performed detailed walkthroughs of the performance fee estimation processes,
assessing the design and implementation of key controls. We tested the operating effectiveness of the reconciliation
controls over accrued performance fee estimates.
Tests of detail: We independently agreed a sample of calculations to governing documents and source
documentation, verifying the calculation methodology and the accuracy of the inputs used in the calculation (for
example, fee rates, crystallisation dates, fund product profit and relevant benchmarks), challenging any judgements
made when interpreting governing documents through discussions with management. For estimates subsequently
finalised and invoiced between the year end and the signing of the annual report, we assessed the amounts invoiced
against the accrued estimate at the year end.
Key observations
Based on our work, accrued performance fee revenues are not materially misstated.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of
our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
Materiality
$15m (2016: $15m)
$6m (2016: $9.49m)
Basis for determining
materiality
5% of the two-year average adjusted profit
before tax (“PBT”)
3% of Total shareholders’ funds, capped at component
materiality
Group financial statements:
Adjusted PBT is a key alternative performance measure reconciled to statutory profit on page 148 of this annual
report. Adjusted PBT number is a relevant benchmark as it is a key figure used by analysts in assessing the
performance of the business. It is closely correlated with the Group’s cash earnings. We have determined that a
profit-based benchmark is most appropriate for listed investment management companies and this is consistent
with benchmarks used by Man’s peers.
Performance fees are variable and can fluctuate significantly year on year. For the year ended 31 December 2017,
performance fees of $287m have been recorded in comparison to $81m in 2016. As a result, we have taken an
average of the current year and prior year adjusted profit before tax ($384m and $205m respectively) in order to
create a more stable basis. Our materiality is below 1% of the total equity of Man Group.
Parent Company financial statements:
Total shareholders’ funds is generally considered as an appropriate benchmark for holding companies. The
Parent Company does not generate external income and its main purpose is to hold investments in the underlying
subsidiaries of the Group. We have also considered the year on year movement on this balance and deemed it to
be a constant base, therefore this is a suitable benchmark to use.
As this yielded a materiality in excess of the component materiality, we applied the component materiality. We
perform a full scope audit of the Parent Company as part of our audit of the Group. The materialities of components
of the Group are determined with reference to each components’ contribution to Group PBT on an absolute basis.
Rationale for the
benchmark applied
102
Man Group plc Annual Report 2017Financial statements Materiality
PBT $384m
Profit before tax
Group materiality $15m
Component materiality
range $0.2m to $9.75m
Audit Committee reporting
threshold $0.75m
98%
Full scope audit
Specified audit procedures
Defined procedures
91%
7%
2%
PBT
Group Materiality
Total assets
We agreed with the Audit & Risk Committee that we would report to the
Committee all audit differences in excess of $750k (2016: $750k) for the
Group and $300k (2016: $470k) for the Parent Company, as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit & Risk Committee on
disclosure matters that we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our audit
We perform our global scoping assessment on an individual entity by
entity basis to determine the ‘significant components’ or balances which
may be subject to testing. In doing so, we perform both a quantitative and
qualitative assessment of all entities within the consolidated Group. Our
quantitative assessment is primarily based on each entity’s PBT and
revenue, however a further assessment is performed to determine whether
sufficient coverage has been obtained. Our qualitative assessment is
based on our understanding of the entities obtained from prior years’ and
current year’s events and any significant risks associated with each entity.
Specific to our considerations is management’s strategy for the Group and
we continue to re-assess where we focus our efforts as the business
continues to evolve.
Based on that assessment, which is consistent with the prior year, we
focused our Group audit scope primarily on the audit work at seven
geographical locations. This included the full audit of 18 (2016: 16)
subsidiaries across the UK, the US, Switzerland, Ireland, the Cayman
Islands and the Channel Islands. A further 14 (2016: 12) subsidiaries
across the UK, the US and Australia were subject to an audit of specified
account balances where the extent of our testing was based on our
assessment of the risks of material misstatement and of the materiality of
Man Group’s operations at those locations. All other subsidiaries were
subject to analytical review procedures.
These seven (2016: seven) geographical locations represent the principal
business units and account for 98% (2016: 95%) of Man Group’s total
assets, 99% (2016: 98%) of Man Group’s revenue and 98% (2016: 93%) of
the Group’s profit before tax on an absolute basis. They were also
selected to provide an appropriate basis for undertaking audit work to
address the risks of material misstatement identified above. Our
assessment of the principal business units has been updated to include
GPM as a result of the Aalto acquisition in the current year. Our audit work
at the 32 (2016: 28) subsidiaries was executed at levels of materiality
applicable to each individual entity which were lower than Group
materiality and ranged from $0.2m to $9.75m (2016: $7.3m to $14.6m).
There has been no change in our approach to the testing at the Parent
Company level.
98%
Full scope audit
Specified audit procedures
Defined procedures
92%
6%
2%
Revenue
99%
Full scope audit
Specified audit procedures
Defined procedures
92%
7%
1%
Having now performed the audit of Man Group for four years, the Group
audit team has developed a programme of planned visits that has been
designed so that the Senior Statutory Auditor or a senior member of the
Group audit team visits each of the locations where the Group audit scope
is focused on a rotational basis. During the current year visits were made
to New York and Boston in addition to the UK. Regular communications
were also maintained with the remaining geographical locations. Books
and records for subsidiaries located within Ireland, the Cayman Islands,
Australia and the Channel Islands are maintained within the UK and are
audited by the Group audit team.
Other information
The directors are responsible for other information. The other information
comprises the information included in the annual report, other than the
financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
103
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAN GROUP PLC CONTINUED
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
Report on other legal and regulatory
requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In this context, matters that we are specifically required to report to you as
uncorrected material misstatements of the other information include where
we conclude that:
– Fair, balanced and understandable – the statement given by the
directors that they consider the annual report and financial statements
taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
performance, business model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
– Audit committee reporting – the section describing the work of the
audit committee does not appropriately address matters
communicated by us to the audit committee; or
– Directors’ statement of compliance with the UK Corporate Governance
Code – the parts of the directors’ statement required under the Listing
Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.
We have nothing to report in respect of these matters.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the
directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
104
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for
the financial year for which the financial statements are prepared is
consistent with the financial statements; and
– the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the
Parent Company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic
report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
– we have not received all the information and explanations we require
for our audit; or
– adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
– the Parent Company financial statements are not in agreement with
the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our
opinion certain disclosures of directors’ remuneration have not been made
or the part of the directors’ remuneration report to be audited is not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit & Risk committee, we were
appointed by the Board of Directors on 19 March 2014 to audit the financial
statements for the year ending 31 December 2014 and subsequent financial
periods. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is four years, covering the years
ending 31 December 2014 to 31 December 2017.
Consistency of the audit report with the additional report to the
audit committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
David Barnes
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
28 February 2018
Man Group plc Annual Report 2017Financial statements GROUP INCOME STATEMENT
$m
Revenue:
Gross management and other fees
Performance fees
Income or gains on investments and other financial instruments
Third-party share of gains relating to interests in consolidated funds
Revaluation of contingent consideration
Reassessment of litigation provision
Distribution costs
Asset servicing
Amortisation of acquired intangible assets
Compensation
Other costs
Impairment of goodwill and acquired intangibles
Share of post-tax profit of associates
Finance expense
Finance income
Profit/(loss) before tax
Tax (expense)/credit
Statutory profit/(loss) attributable to owners of the Parent Company
Earnings/(loss) per share:
Basic (cents)
Diluted (cents)
GROUP STATEMENT OF COMPREHENSIVE INCOME
$m
Statutory profit/(loss) attributable to owners of the Parent Company
Other comprehensive (expense)/income:
Remeasurements of post-employment benefit obligations
Current tax (debited)/credited on pension scheme
Deferred tax credited on pension scheme
Items that will not be reclassified to profit or loss
Cash flow hedges:
Valuation gains/(losses) taken to equity
Transfer to Group income statement
Deferred tax (debited)/credited on cash flow hedge movements
Net investment hedge
Foreign currency translation
Recycling of FX revaluation to the Group income statement on liquidation of subsidiaries
Items that may be reclassified subsequently to profit or loss
Other comprehensive income/(expense) (net of tax)
Note
2
2
13.1
13.2
25
16
3
3
10
4
5
10
17
6
6
7
8
Year ended
31 December
2017
Year ended
31 December
2016
781
287
1,068
64
(14)
(15)
24
(56)
(37)
(84)
(478)
(173)
–
8
(38)
3
272
(17)
255
15.5
15.3
746
81
827
52
(15)
40
–
(61)
(33)
(94)
(405)
(176)
(379)
2
(32)
2
(272)
6
(266)
(15.8)
(15.8)
Year ended
31 December
2017
Year ended
31 December
2016
255
(266)
3
(5)
1
(1)
18
9
(5)
(4)
12
1
31
30
(17)
4
3
(10)
(35)
23
2
1
(7)
2
(14)
(24)
Total comprehensive income/(expense) attributable to owners of the Parent Company
285
(290)
105
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
GROUP BALANCE SHEET
$m
Assets
Cash and cash equivalents
Fee and other receivables
Investments in fund products and other investments
Pension asset
Investments in associates
Leasehold improvements and equipment
Goodwill and acquired intangibles
Other intangibles
Deferred tax assets
Non-current assets held for sale
Total assets
Liabilities
Trade and other payables
Provisions
Current tax liabilities
Third-party interest in consolidated funds
Borrowings
Deferred tax liabilities
Non-current liabilities held for sale
Total liabilities
Net assets
Equity
At
31 December
2017
At
31 December
2016
Note
12
14
13
21
17
18
10
11
7
13
15
16
7
13
12
7
13
379
491
729
32
29
44
1,024
23
81
2,832
145
2,977
843
34
21
99
150
48
1,195
66
1,261
1,716
426
257
794
27
31
44
1,024
17
63
2,683
263
2,946
647
51
6
240
149
47
1,140
132
1,272
1,674
Capital and reserves attributable to owners of the Parent Company
1,716
1,674
The financial statements were approved by the Board of Directors and authorised for issue on 28 February 2018 and signed on its behalf by:
Luke Ellis
Chief Executive Officer
Mark Jones
Chief Financial Officer
106
Man Group plc Annual Report 2017Financial statements
GROUP CASH FLOW STATEMENT
$m
Cash flows from operating activities
Statutory profit/(loss)
Adjustments for non-cash items:
Income tax expense/(credit)
Net finance expense
Share of post-tax profit of associates
Revaluation of contingent consideration
Depreciation of leasehold improvements and equipment
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Share-based payment charge
Fund product based payment charge
Impairment of goodwill and acquired intangibles
Other non-cash movements
Changes in working capital:
(Increase)/decrease in receivables
Decrease/(increase) in other financial assets1
Increase/(decrease) in payables
Cash generated from operations
Interest paid
Income tax paid
Cash flows from operating activities
Cash flows from investing activities
Purchase of leasehold improvements and equipment
Purchase of other intangible assets
Payment of contingent consideration in relation to acquisitions
Acquisition of subsidiaries and other intangibles2
Interest received
Proceeds from sale of associate
Dividends received from associates
Cash flows from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Purchase of own shares by the Employee Trusts and Partnerships
Share repurchase programme (including costs)
Dividends paid to Company shareholders
Cash flows from financing activities
Net decrease in cash
Cash at the beginning of the year
Effect of foreign exchange movements
Cash at year end3
Year ended
31 December
2017
Year ended
31 December
2016
Note
255
(266)
17
35
(8)
15
12
84
6
19
40
–
(5)
470
(241)
–
41
270
(10)
(29)
231
(12)
(12)
(11)
2
3
2
8
(20)
7
(19)
(92)
(158)
(262)
(51)
426
4
379
(6)
30
(2)
(40)
11
94
4
18
37
379
35
294
91
(63)
(182)
140
(11)
(38)
91
(11)
(8)
(25)
(18)
2
–
1
(59)
5
(18)
(35)
(158)
(206)
(174)
607
(7)
426
12
Notes:
1
2 The 2017 cash received relates to the cash acquired as part of the Aalto acquisition on 1 January 2017 (Note 10). The 2016 payment relates to cash paid into an intermediary holding account in
Includes $14 million of restricted net cash outflows (2016: $16 million net inflows) relating to consolidated fund entities (Note 13.2).
advance of the acquisition of Aalto.
Includes $23 million (2016: $37 million) of restricted cash relating to consolidated fund entities (Note 13.2).
3
107
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
GROUP STATEMENT OF CHANGES IN EQUITY
$m
Share capital and capital reserves
Revaluation reserves and retained earnings
Capital and reserves attributable to owners of the Parent Company
Share capital and capital reserves
Year ended
31 December
2017
Year ended
31 December
2016
1,220
496
1,716
1,205
469
1,674
$m
At 1 January 2017
Purchase and cancellation of own shares
Issue of ordinary shares: Aalto acquisition
Issue of ordinary shares: Partnership Plans and Sharesave
At 31 December 2017
Revaluation reserves and retained earnings
$m
At 1 January 2017
Statutory profit
Other comprehensive income/(expense)
Revaluation of defined benefit pension scheme
Current tax debited on pension scheme
Deferred tax credited on pension scheme
Fair value gains on cash flow hedges1
Transfer cash flow hedge to Group income statement
Deferred tax debited on cash flow hedge movements
Currency translation difference
Share-based payments charge
Deferred tax credited on share-based payments
Purchase of own shares by the Employee Trusts
Disposal of own shares by the Employee Trusts
Share repurchases
Dividends
At 31 December 2017
Note:
1 Details of the Group’s hedging arrangements are provided in Note 12.
Share
capital
Share
premium
account
Capital
redemption
reserve
Merger
reserve
Reorgani-
sation reserve
58
(2)
–
–
56
19
–
–
7
26
5
2
–
–
7
491
–
8
–
499
632
–
–
–
632
Profit
and loss
account
Own shares
held by
Employee
Trusts
Cumulative
translation
adjustment1
Cash flow
hedge
reserve1
Available-for-
sale reserve
564
255
3
(5)
1
–
–
–
–
13
2
–
(15)
(101)
(158)
559
(43)
–
–
–
–
–
–
–
(4)
–
–
(14)
15
–
–
(46)
(39)
–
–
–
–
–
–
–
13
–
–
–
–
–
–
(26)
(15)
–
–
–
–
18
9
(5)
–
–
–
–
–
–
–
7
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
Total
1,205
–
8
7
1,220
Total
469
255
3
(5)
1
18
9
(5)
9
13
2
(14)
–
(101)
(158)
496
The proposed final dividend would reduce shareholders’ equity by $94 million (2016: $75 million) subsequent to the balance sheet date (Note 9). Further
details of the Group’s share capital and reserves are included in Note 20.
108
Man Group plc Annual Report 2017Financial statements Share capital and capital reserves
$m
At 1 January 2016
Purchase and cancellation of own shares
Issue of ordinary shares: Aalto acquisition
Issue of ordinary shares: Partnership Plans and Sharesave
At 31 December 2016
Revaluation reserves and retained earnings
$m
At 1 January 2016
Statutory loss
Other comprehensive income
Revaluation of defined benefit pension scheme
Current tax credited on pension scheme
Deferred tax credited on pension scheme
Fair value losses on cash flow hedges
Transfer cash flow hedge to Group income statement
Deferred tax credited on cash flow hedge movements
Currency translation difference
Share-based payments charge
Current tax credited on share-based payments
Deferred tax debited on share-based payments
Purchase of own shares by the Employee Trusts
Disposal of own shares by the Employee Trusts
Share repurchases
Dividends
At 31 December 2016
Share
capital
59
(1)
–
–
58
Profit
and loss
account
1,105
(266)
(17)
4
3
–
–
–
–
17
1
(2)
–
(22)
(101)
(158)
564
Share
premium
account
Capital
redemption
reserve
Merger
reserve
Reorganisation
reserve
14
–
–
5
19
4
1
–
–
5
491
–
–
–
491
632
–
–
–
632
Own shares
held by
Employee
Trusts
Cumulative
translation
adjustment
Cash flow
hedge
reserve
Available-for-
sale reserve
(62)
–
–
–
–
–
–
–
10
–
–
–
(13)
22
–
–
(43)
(25)
–
–
–
–
–
–
–
(14)
–
–
–
–
–
–
–
(39)
(5)
–
–
–
–
(35)
23
2
–
–
–
–
–
–
–
–
(15)
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
Total
1,200
–
–
5
1,205
Total
1,015
(266)
(17)
4
3
(35)
23
2
(4)
17
1
(2)
(13)
–
(101)
(158)
469
109
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS
1. Basis of preparation
Accounting policies
The audited consolidated financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) and
interpretations (IFRICs) as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Man’s
principal accounting policies have been consistently applied across the Group in the preparation of the financial statements. Accounting policies are
included in the relevant sections, and significant policies are outlined on page 111. The impact, if any, of new accounting standards and amendments
applicable to the year ended 31 December 2017 and accounting standards that are not yet effective are detailed on pages 111 to 112.
Consolidated group and presentation currency
The consolidated group is Man Group plc (the Company) and its subsidiaries (together the Group or Man). The stand-alone Parent Company financial
statements of Man Group plc have been included as separate financial statements on pages 141 to 143. Man’s presentation currency is United States
Dollars (USD).
The consolidated financial information contained within these financial statements incorporates the results, cash flows and financial position of the
Company and its subsidiaries (Note 29) for the year to 31 December 2017. Subsidiaries are entities (including structured entities) controlled by Man and
are consolidated from the date on which control is transferred to Man until the date that control ceases. Control exists when Man has the power to direct
the relevant activities, exposure to significant variable returns and the ability to utilise power to affect those returns. All intercompany transactions,
balances, income and expenses between Group entities are eliminated on consolidation.
Business combinations (acquisitions) are accounted for using the acquisition method. The acquisition date is the date on which Man effectively obtains
control of the acquiree. The cost of an acquisition is measured as the fair value at the acquisition date of assets transferred, liabilities incurred and equity
instruments issued by the Group. The fair value of an acquisition is calculated at the acquisition date by recognising the acquiree’s identifiable assets and
liabilities at their fair values at that date, and costs relating to acquisitions are recognised in the Group income statement as incurred. Any contingent
consideration will be recognised at fair value at the acquisition date, with any subsequent changes to the fair value of the contingent consideration
recognised in the Group income statement.
Man’s relationship with independent fund entities
Man acts as the investment manager/advisor to fund entities. Man assesses such relationships on an ongoing basis to determine whether each fund
entity is controlled by the Group and therefore consolidated into the Group’s results. Having considered all significant aspects of Man’s relationships
with fund entities, the directors are of the opinion that, although Man manages the assets of certain fund entities, where Man does not hold an
investment in the fund entity the characteristics of control are not met, and that for most fund entities: the existence of independent boards of directors
at the fund entities; rights which allow for the removal of the investment manager/advisor; the influence of investors; limited exposure to variable returns;
and the arm’s length nature of Man’s contracts with the fund entities, indicate that Man does not control the fund entities and their associated assets,
liabilities and results should not be consolidated into the Group financial statements. Assessment of the control characteristics for all relationships with
fund entities led to the consolidation of nine funds for the year ended 31 December 2017 (2016: 11), as detailed in Note 13. An understanding of the
aggregate funds under management (FUM) and the fees earned from fund entities is relevant to an understanding of Man’s results and earnings
sustainability, and this information is provided in the Chief Financial Officer’s review on pages 25 to 27.
Judgemental areas and accounting estimates
The most significant area of judgement is whether the Group controls certain funds through its investments in fund products and is required to
consolidate them (Note 13.2), with our key judgements outlined above within ‘Man’s relationship with independent fund entities’. In addition, we have
used judgement in assessing the purchase price of the January 2017 acquisition of Aalto (Note 10) in order to determine whether each component
should be accounted for as purchase consideration or as post-acquisition compensation costs. In assessing the key criteria as set out in IFRS 3
‘Business Combinations’ we have concluded that all of the purchase price, including the deferred components, should be accounted for as purchased
consideration for the following primary reasons: (i) the sellers will receive all of the purchase price whether they remain employed by Man or not (subject
to certain industry standard non-compete clauses); and (ii) Aalto management will be compensated for services at market rates for their services
provided to Man as part of their employment contracts, in addition to deferred purchase consideration.
Furthermore, the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date that may have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, include the determination of
fair values for contingent consideration in relation to the Numeric and Aalto acquisitions (Note 25), the valuation of goodwill and acquired intangibles for
CGUs with lower levels of headroom (Note 10) and recognition of deferred tax assets in relation to US tax assets (Note 7). The key assumptions and
range of possible outcomes are discussed in the relevant notes.
These judgements and estimates have been an area of focus for the Group Board, and in particular the Audit and Risk Committee, during the year.
The report of the Chairman of the Audit and Risk Committee discusses the involvement of the Committee in this evaluation on page 58.
Going concern
Man’s business activity is discussed on pages 1 to 43, together with the significant risk factors (pages 30 to 35). Man’s liquidity and capital positions
are set out in Note 12 and 20 respectively. The directors monitor Man’s capital and liquidity positions and forecasts throughout the year, and in addition
they have approved a budget, medium-term financial plan, and a capital and liquidity plan, which cover the foreseeable future and include rigorous
analysis of stressed capital and liquidity scenarios. The directors have concluded that there is a reasonable expectation that Man has adequate
resources to continue in operational existence for the foreseeable future. Accordingly, the Group and Parent Company financial statements have been
prepared on a going concern basis using the historical cost convention, except for the measurement at fair value of certain financial instruments that
are held at fair value through profit or loss or available-for-sale. The directors have also made a longer-term viability statement, as set out on page 31.
110
Man Group plc Annual Report 2017Financial statements 1. Basis of preparation continued
Financial reporting controls
Details of the Group’s systems of internal control are included on page 32.
Significant accounting policies schedule
Policy
Revenue and rebates
Distribution costs and asset servicing
Taxation
Goodwill and acquired intangibles
Investments in fund products
Deferred compensation arrangements
Pension benefits
Note
Page
2
3
7
10
13
19
21
112
112
114-116
117-120
122-125
127-129
130-134
Impact of new accounting standards
A number of new or amendments to existing standards and interpretations have been issued by the International Accounting Standards Board (IASB),
one of which is mandatory for the year beginning 1 January 2017, with the remainder becoming effective in future years.
Amendments to IAS 7 Disclosure Initiative was adopted by Man in the current year, which have not had a significant impact.
The following standards and interpretations relevant to the Group’s operations were issued by the IASB but are not yet mandatory:
– IFRS 9 – Financial Instruments: IFRS 9 is effective for annual periods beginning on or after 1 January 2018. IFRS 9 replaces the classification and
measurement models for financial instruments in IAS 39 (Financial Instruments: recognition and measurement) with three classification categories:
amortised cost, fair value through profit or loss and fair value through other comprehensive income. Under IFRS 9, the Group’s business model and
the contractual cash flows arising from its investments in financial instruments will determine the appropriate classification. The Group has assessed
its balance sheet assets in accordance with the new classification requirements. The $3 million of investments held as Available For Sale (AFS) is
expected to be classified as fair value through profit or loss as the AFS category will no longer exist (Note 13). The accumulated gain in the AFS
reserve of $2 million is therefore expected be reclassified to retained earnings on transition, and any future revaluations will be recognised directly
in the income statement (currently these are recorded in the AFS reserve in equity). There will be no other changes in the classification and
measurement for any of the Group’s financial assets or liabilities.
In addition, IFRS 9 introduces an expected loss model for the assessment of impairment of financial assets. The current (incurred loss) model under
IAS 39 requires the Group to recognise impairment losses when there is objective evidence that an asset is impaired. Under the expected loss model,
impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is not applicable for
investments held at fair value through profit or loss or investments in associates. Therefore the assets on the Group’s balance sheet to which the
expected loss model applies are loans to funds (Note 13.3) and fee receivables (Note 14), which do not have a history of credit risk or expected future
recoverability issues. Therefore, no change to the carrying values of the Group’s assets is expected as a result of adoption of the new standard.
The new hedging requirements under IFRS 9, which are optional to adopt, are designed to provide some increased flexibility in relation to hedge
effectiveness in order to better align hedge accounting with a company’s risk management policies. The Group has elected to apply the IFRS 9
hedge accounting requirements for this reason. IFRS 9 also requires increased disclosures in relation to the Group’s risk management strategy and
the impact of hedge accounting on the financial statements. The Group’s IAS 39 cash-flow and net investment hedge relationships (Note 12) qualify
as continuing hedging relationships under IFRS 9, and there is no material change to existing hedge effectiveness assessments as a result. No
additional hedge relationships are currently expected to be designated as a result of the adoption of IFRS 9.
The Group does not anticipate that IFRS 9 will have a material impact on its reported results.
– IFRS 15 – Revenue from Contracts with Customers: IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and replaces IAS 18
Revenue and IAS 11 Construction Contracts and related interpretations. IFRS 15 establishes a single, principles-based revenue recognition model to
be applied to all contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods
or services. Specifically, IFRS 15 introduces a five-step approach to revenue recognition: (1) identify the contract with the customer; (2) identify the
performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the
contract; and (5) recognise revenue when or as the entity satisfies a performance obligation. IFRS 15 is more prescriptive in terms of its recognition
criteria, with certain specific requirements in respect of variable fee income such that it is only recognised where the amount of revenue would not be
subject to significant future reversals. New disclosure requirements are also introduced.
The Group has considered these changes in light of the terms of our existing investment management agreements, and assessed the timing of
management and performance fee recognition. Management fee revenues are recorded on a monthly basis as the underlying management activity
(service) takes place, and do not include performance or other obligations (excluding standard duty of care requirements). Performance fee revenues
are recognised when they crystallise, at which time they are payable by the client and cannot be clawed-back. There are no other performance
obligations or services provided which suggest these have been earned either before or after crystallisation date. As a result of this assessment
the Group has not identified any material changes to current revenue recognition principles.
The Group does not anticipate that IFRS 15 will have a material impact on its reported results.
111
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
1. Basis of preparation continued
– IFRS 16 – Leases: IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 Leases and related
interpretations. This introduces a comprehensive model for the identification of lease arrangements and accounting treatment for both lessors
and lessees, which distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. There is
substantially no change to the accounting requirements for lessors. IFRS 16 requires operating leases, where the Group is the lessee, to be included
on the Group’s balance sheet, recognising a right-of-use (ROU) asset and a related lease liability representing the present value obligation to make
lease payments. Certain optional exemptions are available under IFRS 16 for short-term (less than 12 months) and low-value leases. The ROU asset
will be assessed for impairment annually (incorporating any onerous lease assessments) and depreciated on a straight-line basis, adjusted for any
remeasurements of the lease liability. The lease liability will subsequently be adjusted for lease payments and interest, as well as the impact of any
lease modifications. IFRS 16 also requires extensive disclosures detailing the impact of leases on the Group’s financial position and results.
The adoption of IFRS 16 will result in a significant gross-up of the Group’s reported assets and liabilities on the balance sheet, in particular as our
sub-lease arrangements (Note 27.3) are not expected to be eligible for offset against the ROU asset and related lease liability. The rental expense
which is currently recognised within occupancy costs in the Group’s income statement (Note 5) will no longer be incurred and instead depreciation
expense (of the ROU asset) and interest expense (unwind of the discounted lease liability) will be recognised. This will also result in a different total
annual expense profile under the new standard (with the expense being front-loaded in the earlier years of the lease term as the discount unwind
on the lease liability reduces over time). The Group has considered the available transition options, and has provisionally decided to apply modified
retrospective option 1 and currently estimates that the impact will be a gross-up of up to £200 million ($270 million) for ROU lease assets and
associated deferred tax assets and £260 million ($350 million) in relation to lease liabilities, with up to £60 million ($80 million) deducted from
brought-forward reserves on transition date in 2019. The initial reserves impact will be offset over time by a lower annual Group income statement
charge, as the total charge over the life of each lease is the same as under the current IAS 17 requirements (Note 27).
No other standards or interpretations issued and not yet effective are expected to have an impact on the Group‘s financial statements.
2. Revenue
Fee income is Man’s primary source of revenue, which is derived from the investment management agreements that are in place with the fund entities.
Fees are generally based on an agreed percentage of net asset value (NAV) or FUM and are typically charged in arrears. Management fees net of
rebates, which include all non-performance related fees, are recognised in the year in which the services are provided.
Performance fees net of rebates relate to the performance of the funds managed during the year and are recognised when the fee can be reliably
estimated and has crystallised. This is generally at the end of the performance period or upon early redemption by a fund investor. Until the performance
period ends, market movements could significantly move the NAV of the fund products. For AHL, GLG, FRM and GPM strategies, Man will typically only
earn performance fee income on any positive investment returns in excess of the high water mark, meaning we will not be able to earn performance fee
income with respect to positive investment performance in any year following negative performance until that loss is recouped, at which point a fund
investor’s investment surpasses the high water mark. Numeric performance fees are earned only when performance is in excess of a predetermined
strategy benchmark (positive alpha), with performance fees being generated for each strategy either based on achieving positive alpha (which resets
at a predetermined interval, i.e. every one to three years) or, in the case of alternatives, exceeding high water mark.
Rebates relate to repayments of management and performance fees charged, typically to institutional investors, and are presented net within gross
management and other fees and performance fees in the Group income statement.
Analysis of FUM, margins and performance is provided in the Chief Financial Officer’s Review on pages 25 to 27.
3. Distribution costs and asset servicing
Distribution costs are paid to external intermediaries for marketing and investor servicing, largely in relation to retail investors. Distribution costs are variable
with FUM and the associated management fee revenue. Distribution costs are expensed over the period in which the service is provided. Distribution costs
have decreased, despite growth in FUM, largely as a result of the continued mix shift towards institutional assets and the roll-off of guaranteed product FUM.
Asset servicing includes custodial, valuation, fund accounting and registrar functions performed by third-parties under contract to Man, on behalf of the
funds, and is recognised in the period in which the service is provided. The cost of these services vary based on transaction volumes, the number of
funds, and fund NAVs.
4. Compensation
$m
Salaries
Variable cash compensation
Share-based payment charge
Fund product based payment charge
Social security costs
Pension costs
Restructuring costs (adjusting item per page 148)
Total compensation costs
112
Year ended
31 December
2017
Year ended
31 December
2016
148
220
19
40
38
9
4
478
159
141
18
37
23
10
17
405
Man Group plc Annual Report 2017Financial statements
4. Compensation continued
Compensation is the Group’s largest cost and an important component of Man’s ability to retain and attract talent. In the short term, the variable
component of compensation adjusts with revenues and profitability.
Total compensation costs, excluding restructuring, have increased by 22% compared to 2016, largely due to the increase in management and
performance fee revenues year on year, as reflected in increased variable cash compensation and associated social security costs. The compensation
ratio, as outlined on page 150, has decreased to 44% from 48% in 2016 primarily as a result of the higher level of performance fee revenue.
Salaries have decreased from prior year largely as a result of a more favourable hedged Sterling to USD rate in 2017 (1.36) compared to the hedged rate
in 2016 (1.51), which had a $12 million impact compared to prior year. As a result of cost saving initiatives the underlying salaries costs have remained
largely stable despite growth in the business, inflation and an increase in headcount.
Salaries, variable cash compensation and social security costs are charged to the Group income statement in the period in which the service is
provided, and include partner drawings. The accounting for share-based and fund product based compensation arrangements is detailed in Note 19.
Pension costs relate to Man’s defined contribution and defined benefit plans (Note 21).
Restructuring costs in 2017 of $4 million (2016: $17 million) relate to termination expenses incurred due to the restructuring of certain areas of the
business which commenced in 2016 and were completed in 2017. Compensation costs incurred as part of restructuring are accounted for in full at the
time the obligation arises, and include payments in lieu of notice, enhanced termination costs, and accelerated share-based and fund product based
charges.
Average headcount
The table below provides average headcount by function, including directors, employees, partners and contractors:
Investment management
Sales and marketing
Support functions
Average headcount
5. Other costs
$m
Occupancy
Technology and communications
Temporary staff, recruitment, consultancy and managed services
Legal fees and other professional fees
Benefits
Travel and entertainment
Audit, accountancy, actuarial and tax fees
Insurance
Marketing and sponsorship
Other cash costs, including irrecoverable VAT
Restructuring (adjusting item per page 148)
Acquisition and disposal related other costs (adjusting item per page 148)
Total other costs before depreciation and amortisation
Depreciation and amortisation
Total other costs
Year ended
31 December
2017
Year ended
31 December
2016
450
183
680
402
198
650
1,313
1,250
Year ended
31 December
2017
Year ended
31 December
2016
33
28
20
17
13
11
7
4
5
10
7
–
155
18
173
34
27
19
18
15
11
8
6
6
10
4
4
162
14
176
Other costs, before depreciation and amortisation, have decreased to $155 million from $162 million in 2016, which largely reflects a $9 million impact of
the more favourable hedged Sterling to USD rate in 2017. The underlying cost base has remained stable despite inflation and growth in the business,
reflecting continued efforts to remain disciplined on costs.
Other restructuring costs of $7 million in 2017 largely relate to onerous property leases arising as a result of finalisation of the 2016 restructuring plan
following the centralisation of our London resources into one location. Other restructuring costs of $4 million in 2016 largely related to a reassessment of
our onerous property lease provision relating to Riverbank House, which was recorded as an adjusting item upon initial recognition.
Auditors’ remuneration, including advisory and professional services, is disclosed in the Corporate Governance section on page 60.
113
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
6. Finance expense and finance income
$m
Finance expense:
Interest payable on borrowings (Note 12)
Revolving credit facility costs and other (Note 12)
Unwind of contingent consideration discount (adjusting item per page 148)
Total finance expense
Finance income:
Interest on cash deposits and US Treasury bills
Total finance income
7. Taxation
$m
Analysis of tax expense/(credit):
Current tax:
UK corporation tax on profits/(losses)
Foreign tax
Adjustments to tax charge in respect of previous years
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Recognition of US deferred tax asset
Total deferred tax
Total tax expense/(credit)
Year ended
31 December
2017
Year ended
31 December
2016
(9)
(3)
(26)
(38)
3
3
(9)
(4)
(19)
(32)
2
2
Year ended
31 December
2017
Year ended
31 December
2016
39
5
(6)
38
(4)
(17)
(21)
17
18
5
(6)
17
(17)
(6)
(23)
(6)
Man is a global business and therefore operates across many different tax jurisdictions. Income and expenses are allocated to these different
jurisdictions based on transfer pricing methodologies set in accordance with the laws of the jurisdictions in which Man operates and international
guidelines as laid out by the OECD. The effective tax rate results from the combination of taxes paid on earnings attributable to the tax jurisdictions in
which they arise. The majority of the Group’s profit was earned in the UK, Switzerland and the US. The Group’s US tax rate is effectively nil as a result
of accumulated US tax assets, as detailed on page 116.
The current effective tax rate of 6% (2016: 2%) differs from the applicable underlying statutory tax rates principally as a result of the incremental
recognition of the US deferred tax asset of $17 million (2016: $6 million), as detailed on page 115, the release of a non-taxable litigation provision (Note 16)
and the reassessment of tax exposures globally during the year. In 2016 the 2% effective tax rate differed to the applicable underlying statutory tax rates
principally as a result of the impairment of the GLG and FRM goodwill and intangibles being largely non-deductible for tax purposes, which was partially
offset by the incremental recognition of the US deferred tax asset of $6 million, and the reassessment of tax exposures in Europe and Asia-Pacific during
the year. The effective tax rate is otherwise consistent with this earnings profile.
Accounting for tax involves a level of estimation uncertainty given the application of tax law requires a degree of judgement, which tax authorities may
dispute. Tax liabilities are recognised based on the best estimates of probable outcomes, with regard to external advice where appropriate. The principal
factors which may influence our future tax rate are changes to tax regulation in the territories in which we operate, the mix of income and expense by
jurisdiction, and the timing of recognition of available tax assets.
The current tax liabilities of $21 million (2016: $6 million), as shown on the Group balance sheet, comprise a gross current tax liability of $24 million (2016:
$9 million) net of a current tax asset of $3 million (2016: $3 million).
114
Man Group plc Annual Report 2017Financial statements
7. Taxation continued
The tax on Man’s total profit before tax is lower (2016: credit on loss before tax is lower) than the amount that would arise using the theoretical effective
tax rate applicable to the profits/(losses) of the consolidated companies as follows:
$m
Profit/(loss) before tax
Theoretical tax expense/(credit) at UK rate: 19.25% (2016: 20.00%)
Effect of:
Overseas tax rates compared to UK
Adjustments to tax charge in respect of previous periods
Recognition of US deferred tax asset
Impairment of goodwill and other adjusting items (page 148)
Share-based payments
Other
Tax expense/(credit)
Year ended
31 December
2017
Year ended
31 December
2016
272
52
(10)
(9)
(17)
–
–
1
17
(272)
(54)
11
(7)
(6)
43
2
5
(6)
The effect of overseas tax rates compared to the UK includes the impact of the 0% effective tax rate of our US business.
In the current year the adjustments to the tax charge in respect of previous periods primarily relates to a $7 million credit mainly due to reassessment of
tax exposures globally. In 2016, adjustments in respect of previous periods primarily related to a $6 million credit following the reassessment of tax
exposures in Europe and Asia-Pacific.
The impairment of goodwill and other adjusting items in 2016 reflects that there is no tax relief for the impairment of goodwill recognised in jurisdictions
outside the US.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the rates expected to be
applied when the deferred tax asset or liability is realised.
Movements in deferred tax are as follows:
$m
Deferred tax liability
At 1 January
Acquisition of Aalto balance sheet
(Charge)/credit to the Group income statement
Deferred tax liability at 31 December
Deferred tax asset
At 1 January
Credit to the Group income statement
(Charge)/credit to other comprehensive income and equity
Deferred tax asset at 31 December
The deferred tax liability of $48 million (2016: $47 million) largely relates to deferred tax arising on acquired intangible assets.
The deferred tax asset comprises:
$m
US tax assets
Defined benefit pension schemes
Employee share schemes
Tax allowances over depreciation
Other
Deferred tax asset at 31 December
Year ended
31 December
2017
Year ended
31 December
2016
(47)
(2)
1
(48)
63
20
(2)
81
–
(69)
22
(47)
59
1
3
63
31 December
2017
31 December
2016
42
12
14
9
4
81
25
11
10
9
8
63
115
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
7. Taxation continued
The deferred tax asset income statement credit of $20 million (2016: $1 million) relates to the recognition of the US deferred tax asset of $17 million
(2016: $6 million), an increase in the deferred tax asset on employee share schemes of $2 million (2016: $3 million decrease), no change in the
deferred tax asset arising on tax allowances over depreciation (2016: decrease of $2 million) and an increase in the deferred tax asset on other
temporary differences of $1 million (2016: $nil). The debit to other comprehensive income and equity of $2 million (2016: $3 million credit) relates
to movements in the pension accrual, unrealised cash flow hedge balances and employee share schemes.
The Group has accumulated deferred tax assets in the US of $124 million (2016: $192 million). The decrease of $68 million is principally as a result of
the reduction in future tax rates in the US arising from the enactment of the 2017 Tax Cuts and Jobs Act, which reduced the US federal tax rate from
35% to 21%, effective from 1 January 2018. These assets principally comprise accumulated operating losses from existing operations of $61 million
(2016: $103 million) and future amortisation of goodwill and intangibles assets generated from acquisitions of $48 million (2016: $72 million) that will be
available to offset future taxable profits in the US. From the maximum available deferred tax assets of $124 million (2016: $192 million), a deferred tax
asset of $42 million has been recognised on the Group balance sheet (2016: $25 million), representing amounts which can be offset against probable
future taxable profits. The increase of $17 million from that recognised at 31 December 2016 represents projected year on year growth in our US
business, partially offset by the reduction in the US federal tax rate from 1 January 2018. Probable future taxable profits are considered to be forecast
profits for the next three years only, consistent with the Group’s business planning horizon. As a result of the recognised deferred tax asset and the
remaining unrecognised available US deferred tax assets of $82 million (2016: $167 million), Man does not expect to pay federal tax on any taxable
profits it may earn in the US for a number of years. Accordingly, any movements in this US tax asset are classified as an adjusting item (page 148). The
gross amount of losses for which a deferred tax asset has not been recognised is $48 million (2016: $160 million), which will expire over a period of 11
to 19 years.
8. Earnings per ordinary share (EPS)
The calculation of basic EPS is based on post-tax profit of $255 million (2016: loss of $266 million), and ordinary shares of 1,640,137,392 (2016:
1,679,099,266), being the weighted average number of ordinary shares in issue during the period after excluding the shares owned by the Man
Employee Trusts. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential
ordinary shares, being ordinary shares of 1,659,830,089 (2016: 1,695,995,147).
The details of movements in the number of shares used in the basic and dilutive EPS calculation are provided below.
Number of shares at beginning of year
Issues of shares
Repurchase of own shares
Number of shares at period end
Shares owned by Employee Trusts
Basic number of shares
Share awards under incentive schemes
Employee share options
Diluted number of shares
The basic and diluted earnings per share figures are provided below.
$m
Basic and diluted post-tax earnings
Basic earnings per share cents
Diluted earnings per share cents
Year ended 31 December 2017
Year ended 31 December 2016
Total
number
(million)
1,700.8
2.6
(23.5)
1,679.9
(19.6)
1,660.3
Total
number
(million)
1,679.9
10.1
(46.4)
1,643.6
(20.3)
1,623.3
Weighted
average
(million)
1,679.9
8.4
(28.3)
1,660.0
(19.9)
1,640.1
17.8
1.9
1,659.8
Weighted
average
(million)
1,700.8
1.9
(2.3)
1,700.4
(21.3)
1,679.1
15.9
1.0
1,696.0
Year ended
31 December
2017
Year ended
31 December
2016
255
15.5
15.3
(266)
(15.8)
(15.8)
116
Man Group plc Annual Report 2017Financial statements
9. Dividends
$m
Ordinary shares
Final dividend paid for the year to 31 December 2016 – 4.5 cents (2015: 4.8 cents)
Interim dividend paid for the six months to 30 June 2017 – 5.0 cents (2016: 4.5 cents)
Dividends paid
Proposed final dividend for the year to 31 December 2017 – 5.8 cents (2016: 4.5 cents)
Year ended
31 December
2017
Year ended
31 December
2016
77
81
158
94
83
75
158
75
Details of dividends waived in the period are included in Note 19. Dividend distribution to the Company’s shareholders is recognised directly in equity in
Man’s financial statements in the period in which the dividend is paid or, if required, approved by the Company’s shareholders. Details of the Group’s
dividend policy are included in the Chief Financial Officer’s Review on page 29.
10. Goodwill and acquired intangibles
$m
Net book value at beginning of
the year
Acquisition of business1
Amortisation
Impairment expense2
Currency translation
Net book value at year end
Allocated to cash generating
units as follows:
AHL
GLG
FRM
Numeric
GPM
Year ended 31 December 2017
Investment
management
agreements
Goodwill
Distribution
channels
Brand
names
Year ended 31 December 2016
Investment
management
agreements
Distribution
channels
Brand
names
Total
Goodwill
588
55
–
–
5
648
459
–
–
134
55
405
10
(75)
–
–
340
–
188
22
121
9
16
14
(6)
–
–
24
–
12
–
–
12
15
–
(3)
–
–
12
–
8
1
3
–
1,024
79
(84)
–
5
1,024
459
208
23
258
76
907
–
–
(319)
–
588
454
–
–
134
–
545
–
(86)
(54)
–
405
–
238
28
139
–
23
–
(4)
(3)
–
16
–
16
–
–
–
22
–
(4)
(3)
–
15
–
11
1
3
–
Total
1,497
–
(94)
(379)
–
1,024
454
265
29
276
–
Notes:
1 Acquisition of business relates to the acquisition of Aalto on 1 January 2017.
2 The 2016 impairment of $379 million relates to GLG ($281 million) and FRM ($98 million).
Goodwill
Goodwill represents the excess of consideration transferred over the fair value of identifiable net assets of the acquired business at the date
of acquisition. Goodwill is carried on the Group balance sheet at cost less accumulated impairment, has an indefinite useful life, is not subject to
amortisation and is tested for impairment annually, or whenever events or circumstances indicate that the carrying amount may not be recoverable.
Investment management agreements (IMAs), distribution channels and brand names
IMAs, distribution channels and brand names are recognised at the present value of the expected future cash flows and are amortised on a straight-line
basis over their expected useful lives, which are between three and 13 years (IMAs and brands), and six and 12 years (distribution channels).
Amortisation of acquired intangible assets of $84 million (2016: $94 million) primarily relates to the investment management agreements recognised on
the acquisition of GLG and Numeric.
Allocation of goodwill to cash generating units
For statutory accounting impairment review purposes, the Group has identified five cash generating units (CGUs): AHL, GLG, FRM, Numeric and GPM.
As a result of the acquisition of Aalto in 2017, the Group formally identified a new CGU, Global Private Markets (GPM). Details of the Aalto acquisition are
provided on page 120.
Calculation of recoverable amounts for cash generating units
An impairment expense is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (CGUs). The recoverable amounts of the Group’s CGUs are assessed each year using a value in use
calculation. The value in use calculation gives a higher valuation compared to a fair value less cost to sell approach, as this would exclude some of the
revenue synergies available to Man through its ability to distribute products using its well established distribution channels, which may not be fully
available to other market participants.
117
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
10. Goodwill and acquired intangibles continued
The value in use calculations at 31 December 2017 use cash flow projections based on the Board approved financial plan for the year to 31 December
2018 and a further two years of projections (2019 and 2020), plus a terminal value. The valuation analysis is based on best practice guidance whereby a
terminal value is calculated at the end of a short discrete budget period and assumes, after this three year budget period, no growth in asset flows above
the long-term growth rate. In order to determine the value in use of each CGU, it is necessary to notionally allocate the majority of the Group’s cost base
relating to operations, product structuring, distribution and support functions, which are managed on a centralised basis.
The value in use calculations for AHL, GLG, FRM, Numeric and GPM (established as a result of the acquisition of Aalto in January 2017) are presented on
a post-tax basis, consistent with the prior year, given most comparable market data is available on a post-tax basis. The value in use calculations
presented on a post-tax basis are not significantly different to their pre-tax equivalent.
The assumptions applied in the value in use calculation are derived from past experience and assessment of current market inputs. A bifurcated
discount rate has been applied to the modelled cash flows to reflect the different risk profile of net management fee income and net performance fee
income. The discount rates are based on the Group’s weighted average cost of capital using a risk free interest rate, together with an equity risk premium
and an appropriate market beta derived from consideration of Man’s beta, similar alternative asset managers, and the asset management sector as a
whole. The terminal value is calculated based on the projected closing FUM at 31 December 2020 and applying a mid-point of a range of historical
multiples to the forecast cash flows associated with management and performance fees.
The recoverable amount of each CGU has been assessed at 31 December 2017. The key assumptions applied to the value in use calculations for each
of the CGUs are provided below.
Key assumptions:
Compound average annualised growth in FUM (over three years)
Discount rate
– Management fees1
– Performance fees2
Terminal value (mid-point of range of historical multiples)3
– Management fees
– Performance fees
AHL
11%
11%
17%
13.0x
5.5x
GLG
4%
11%
17%
13.0x
5.5x
FRM
10%
11%
17%
5.9x
3.9x
Numeric
7%
11%
17%
13.0x
5.5x
GPM
37%
15%
21%
13.0x
5.5x
Notes:
1 The pre-tax equivalent of the net management fees discount rate is 13%, 13%, 13%, 14% and 18% for each of the AHL, GLG, FRM, Numeric and GPM CGUs, respectively.
2 The pre-tax equivalent of the net performance fees discount rate is 20%, 20%, 20%, 21% and 25% for each of the AHL, GLG, FRM, Numeric and GPM CGUs, respectively.
3 The implied terminal growth rates are 3%, 3%, -10%, 3% and 7% for each of the AHL, GLG, FRM, Numeric and GPM CGUs, respectively.
The results of the valuations are further explained in the following sections, including sensitivity tables which show scenarios whereby the key
assumptions are changed to stressed assumptions, indicating the modelled headroom or impairment that would result. Each assumption, or set of
assumptions, is stressed in isolation. The results of these sensitivities make no allowance for actions that management would take if such market
conditions persisted.
AHL cash generating unit
The AHL value in use calculation at 31 December 2017 indicates a value of $3.0 billion, with around $2.5 billion of headroom over the carrying value
of the AHL business. Therefore, no impairment charge is deemed necessary at 31 December 2017 (2016: nil). The valuation at 31 December 2017 is
around $0.5 billion higher than the value in use calculation at 31 December 2016, primarily due to higher opening FUM largely as a result of better than
forecast performance in 2017.
Sensitivity analysis:
Key assumption stressed to:
Modelled headroom/(impairment) ($m)
Compound average annualised
growth in FUM1
Management fee/
performance fee
Management fee/
performance fee
Discount rates (post-tax)
Multiples (post-tax)
13%
2,813
(18%)
–
10%/16%
2,5882
12%/18% 14.0x/6.5x
2,7783
2,4522
12.0x/4.5x
2,2603
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment
would arise.
2 An increase/decrease in the value in use calculation of $68 million.
3 An increase/decrease in the value in use calculation of $259 million.
GLG cash generating unit
In 2016 the GLG CGU was impaired by $281 million, primarily due to lower performance and net flows compared to that previously forecast as well as
a weakening of industry growth forecasts during the year. This impaired the total GLG goodwill balance of $222 million and further impaired the other
acquired intangibles balances relating to investment management agreements, distribution channels and brands by a total of $59 million.
The GLG value in use calculation at 31 December 2017 indicates a value of $387 million, with around $140 million of headroom over the carrying value
of the GLG business. Therefore, no impairment charge is deemed necessary at 31 December 2017. The valuation at 31 December 2017 is around $100
million higher than the value in use calculation at 31 December 2016 largely due to a better than forecast inflows. The headroom has also increased as a
result of amortisation of acquired intangibles of $57 million during the year, which lowers the carrying value.
118
Man Group plc Annual Report 2017Financial statements 10. Goodwill and acquired intangibles continued
Sensitivity analysis:
Key assumption stressed to:
Modelled headroom/(impairment) ($m)
Compound average
annualised growth in FUM1
Management fee/
performance fee
Management fee/
performance fee
Discount rates (post-tax)
Multiples (post-tax)
6%
226
0%
–
10%/16%
1502
12%/18% 14.0x/6.5x
1723
1322
12.0x/4.5x
1103
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment
would arise.
2 An increase/decrease in the value in use calculation of $9 million.
3 An increase/decrease in the value in use calculation of $31 million.
FRM cash generating unit
In 2016 the FRM CGU was impaired by $98 million, largely as a result of acceleration in the FUM mix shift towards lower margin mandates and reduced
prospects for the traditional fund of funds business. This impaired the total FRM goodwill balance of $97 million, and further impaired the other acquired
intangibles balances relating to investment management agreements and brands by a total of $1 million.
The FRM value in use calculation at 31 December 2017 indicates a value of $37 million, with $5 million of headroom over the carrying value of the FRM
business. Therefore, no impairment charge is deemed necessary at 31 December 2017. The valuation at 31 December 2017 is largely in line with the
value in use calculation at 31 December 2016. The headroom has increased as a result of amortisation of acquired intangibles of $6 million during the
year, which lowers the carrying value.
Sensitivity analysis:
Key assumption stressed to:
Modelled headroom/(impairment) ($m)
Compound average
annualised growth in FUM1
Discount rates (post-tax)
Management fee/
performance fee
Multiples (post-tax)
Management fee/
performance fee
12%
11
8%
–
10%/16%
52
12%/18%
42
6.9x/4.9x
83
4.9x/2.9
23
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment
would arise.
2 An increase/decrease in the value in use calculation of less than $1 million.
3 An increase/decrease in the value in use calculation of $3 million.
Numeric cash generating unit
The Numeric value in use calculation at 31 December 2017 indicates a value of around $600 million, with around $340 million of headroom over the
carrying value of the Numeric business. Therefore, no impairment charge is deemed necessary at 31 December 2017 (2016: nil). The valuation at
31 December 2017 is around $170 million higher than the value in use calculation at 31 December 2016, primarily as a result of higher opening FUM due
to stronger performance than previously forecast during 2017.
Sensitivity analysis:
Key assumption stressed to:
Modelled headroom/(impairment) ($m)
Compound average
annualised growth in FUM1
Management fee/
performance fee
Management fee/
performance fee
Discount rates (post-tax)
Multiples (post-tax)
9%
401
(17%)
–
10%/16%
3562
12%/18% 14.0x/6.5x
3823
3262
12.0x/4.5x
2983
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment
would arise.
2 An increase/decrease in the value in use calculation of $15 million.
3 An increase/decrease in the value in use calculation of $42 million.
GPM cash generating unit
The GPM CGU was established in 2017 as a result of the acquisition of Aalto (as detailed on page 120). The GPM value in use calculation at
31 December 2017 indicates a value of around $110 million, with around $40 million of headroom over the carrying value of the GPM business.
Therefore, no impairment charge is deemed necessary at 31 December 2017.
Sensitivity analysis:
Key assumption stressed to:
Modelled headroom/(impairment) ($m)
Compound average
annualised growth in FUM1
Management fee/
performance fee
Management fee/
performance fee
Discount rates (post-tax)
Multiples (post-tax)
39%
44
23%
–
14%/20%
412
16%/22% 14.0x/6.5x
453
352
12.0x/4.5x
313
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment
would arise.
2 An increase/decrease in the value in use calculation of $3 million.
3 An increase/decrease in the value in use calculation of $7 million.
119
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
10. Goodwill and acquired intangibles continued
Acquisition of Aalto
On 1 January 2017, Man acquired the entire issued share capital of Aalto, a US and Europe based real asset focused investment manager with
$1.8 billion of funds under management at the date of acquisition. The acquisition consideration is structured to align Aalto’s interests with those of Man,
and comprises of an initial payment of $18 million in cash, including $1 million for acquired working capital, and $8 million in shares, and four deferred
payments. The deferred payments are dependent on levels of run rate management fees measured following one, four, six and eight years from
completion and are capped at $207 million in aggregate. The net present value of the aggregate deferred payments at completion was $52 million.
The $8 million fair value of the 5.7 million ordinary shares issued as part of the contingent consideration paid for Aalto was measured on the basis of
quoted prices at the time of issue. The deferred payments are equivalent to an earn-out (contingent consideration) and deemed to be a financial liability
measured initially at fair value with any subsequent fair value movements recognised through the Group income statement (Note 25).
Values for the acquired business at the date of acquisition are set out below:
$m
Intangible assets
Cash and receivables
Loans and payables
Deferred tax liability
Net assets acquired
Goodwill on acquisition
Net assets acquired including goodwill
Contingent consideration
Cash consideration
Value of shares issued
Total consideration
Book value
Fair value
adjustments
Fair
value
–
5
(4)
–
1
24
–
–
(2)
22
24
5
(4)
(2)
23
55
78
52
18
8
78
The fair value adjustments relate to the recognition of investment management agreements of $10 million and customer relationships of $14 million.
These intangible assets are recognised at the present value of the expected future cash flows generated from the assets and are amortised on a
straight-line basis over their expected useful lives of eight and six years respectively. Given the funds are close-ended only the future cash flows from
funds existing at acquisition date are included within the investment management agreements intangible, and therefore this balance reflects a finite
product portfolio and period.
The high proportion of acquired goodwill in comparison to identified other intangible assets is due to the nature of the acquired business. The goodwill
balance of $55 million primarily represents direct and efficient access to the private real estate markets, the highly skilled and experienced Aalto team
and the tailor made infrastructure and strong relationships to expand Man’s current offering to its existing clients. None of the goodwill recognised is
expected to be deductible for tax purposes.
Acquisition related costs included in the Group’s income statement for the year ended 31 December 2017 amounted to less than $1 million. Aalto
contributed $12 million of management fee revenue, $4 million of performance fee revenue and $3 million to the Group’s profit before tax for the year
ended 31 December 2017.
11. Other intangibles
$m
Net book value beginning of the year
Additions
Disposals/redemptions
Amortisation
Net book value at year end
Year ended
31 December
2017
Year ended
31 December
2016
17
14
(2)
(6)
23
14
9
(2)
(4)
17
Other intangibles relate to capitalised computer software. Capitalised computer software includes costs that are directly associated with the
procurement or development of identifiable and unique software products, which will generate economic benefits exceeding costs beyond one year and
is subject to regular impairment reviews. Capitalised computer software is amortised on a straight-line basis over its estimated useful life (three years),
which is included in Other costs in the Group income statement. Additions relate to investment in software across Man’s operating platforms.
120
Man Group plc Annual Report 2017Financial statements
12. Cash, liquidity and borrowings
$m
Borrowings: 2024 fixed rate reset callable guaranteed
subordinated notes
Cash and cash equivalents1
Undrawn committed revolving loan facility
Total liquidity
31 December 2017
31 December 2016
Total
150
356
500
856
Less than
1 year
Greater than
3 years
–
356
–
356
150
–
500
500
Total
149
389
500
889
Less than
1 year
Greater than
3 years
–
389
–
389
149
–
500
500
Note:
1 Excludes $23 million (2016: $37 million) of restricted cash held by consolidated fund entities (Note 13.2).
Liquidity resources support ongoing operations and potential liquidity requirements under stressed scenarios. The amount of potential liquidity
requirements is modelled based on scenarios that assume stressed market and economic conditions. The funding requirements for Man relating to the
investment management process are discretionary. The liquidity profile of Man is monitored on a daily basis and the stressed scenarios are updated
regularly. The Board reviews Man’s funding resources at each Board meeting and on an annual basis as part of the strategic planning process. Man’s
available liquidity is considered sufficient to cover current requirements and potential requirements under stressed scenarios.
In September 2014, Man issued $150 million ten-year fixed rate reset callable guaranteed subordinated notes (Tier 2 notes), with associated issuance
costs of $1 million. The Tier 2 notes were issued with a fixed coupon of 5.875% until 15 September 2019. The notes may be redeemed in whole at Man’s
option on 16 September 2019 at their principal amount, subject to FCA approval. If the notes are not redeemed at this time then the coupon will reset to
the five-year mid-swap rate plus 4.076% and the notes will be redeemed on 16 September 2024 at their principal amount.
Borrowings are initially recorded at fair value net of transaction costs incurred, and are subsequently measured at amortised cost. The difference
between the amount repayable at maturity on the borrowings and the carrying value is amortised over the period up to the expected maturity of the
associated debt in accordance with the effective interest rate method.
Cash and cash equivalents at year end comprises cash at bank on hand of $175 million (2016: $222 million), short-term deposits of $181 million (2016:
$102 million) and $nil US Treasury bills (2016: $65 million). Cash ring-fenced for regulated entities totalled $37 million (2016: $28 million). Cash is invested
in accordance with strict limits consistent with the Board’s risk appetite, which consider both the security and availability of liquidity. Accordingly, cash is
held in on-demand deposit bank accounts and short-term bank deposits, and at times invested in short-term US Treasury bills. At 31 December 2017,
the $356 million cash balance (excluding US Treasury bills and cash held by consolidated fund entities) is held with 20 banks (2016: $324 million with
18 banks). The single largest counterparty bank exposure of $84 million is held with an A+ rated bank (2016: $88 million with a BBB+ rated bank). At
31 December 2017, balances with banks in the AA ratings band aggregate to $97 million (2016: $109 million) and balances with banks in the A ratings
band aggregate to $239 million (2016: $127 million).
In October 2016 the Group reduced the previous $1 billion syndicated revolving loan facility to $500 million. The $500 million facility was undrawn at
31 December 2017 (undrawn at 31 December 2016). The facility was put in place as a five-year facility and included the option for Man to request the
banks to extend the maturity date by one year on each of the first and second anniversaries. The participant banks have the option to accept or decline
Man’s request. On the first and second anniversaries in 2016 and 2017, the banks were asked to extend the maturity date of the facility by one year and
banks with participations totalling 98% of the facility accepted the request on both anniversaries. As a result of the maturity extension, $10 million is
scheduled to mature in June 2020 and the remaining $490 million matures in June 2022. To maintain maximum flexibility, the facility does not include
financial covenants.
Disclosures in relation to financial guarantees and commitments are included in Note 27.
Foreign exchange and interest rate risk
Man is subject to risk from changes in interest rates and foreign exchange rates on monetary assets and liabilities.
In respect of Man’s monetary assets and liabilities which earn/incur interest indexed to floating rates, as at 31 December 2017 a 50bp increase/decrease
in these rates, with all other variables held constant, would have resulted in a $1 million increase/decrease (2016: $1 million increase/decrease) in net
interest income.
A 10% strengthening/weakening of the USD against all other currencies, with all other variables held constant, would have resulted in a foreign exchange
loss/gain of $1 million (2016: $3 million loss/gain), with a corresponding impact on equity. This exposure is based on USD balances held by non-USD
functional currency entities and non-USD balances held by USD functional currency entities within the Group.
121
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
12. Cash, liquidity and borrowings continued
In certain circumstances, the Group uses derivative financial instruments to hedge its risk associated with foreign exchange movements. Where fixed
foreign currency denominated costs are hedged, the associated derivatives may be designated as cash flow hedges. Effective unrealised gains or
losses on these instruments are recognised within the cash flow hedge reserve in equity and, when realised, these are reclassified to the Group income
statement in the same line as the hedged item. The realisation of foreign currency operating cash flows and the associated forward foreign currency
derivative contracts generally arise on a monthly basis. The fair value of derivatives held in relation to the Group’s cash flow hedges at 31 December 2017
is an asset of $9 million (2016: liability $18 million).
13. Investments in fund products and other investments
$m
Loans to fund products
Investments in fund products
Other investments
Investments in line-by-line consolidated funds
$m
Loans to fund products
Investments in fund products
Other investments
Investments in line-by-line consolidated funds
31 December 2017
Financial
assets at fair
value through
profit or loss
Loans and
receivables
Available-for-
sale financial
assets
Total
investments in
fund products
and other
investments
Net non-
current assets
held for sale
Total
investments
–
249
–
452
701
25
–
–
–
25
–
–
3
–
3
25
249
3
452
729
–
79
–
–
79
25
328
3
452
808
31 December 2016
Financial
assets at fair
value through
profit or loss
Loans and
receivables
Available-for-
sale financial
assets
Total
investments in
fund products
and other
investments
Net non-
current assets
held for sale
Total
investments
–
275
–
490
765
26
–
–
–
26
–
–
3
–
3
26
275
3
490
794
–
131
–
–
131
26
406
3
490
925
Man’s seeding investments are included in various Group balance sheet line items. In summary, the total seeding investments portfolio is made up
as follows:
$m
Investments in fund products
Less those used to hedge deferred compensation awards
Consolidated net investments in funds – held for sale
Consolidated net investments in funds – line-by-line consolidation
Loans to funds
Seeding investments portfolio
Note
13.1
13.1
13.2
13.2
13.3
31 December
2017
31 December
2016
249
(76)
79
203
25
480
275
(75)
131
285
26
642
122
Man Group plc Annual Report 2017Financial statements 13. Investments in fund products and other investments continued
13.1. Investments in fund products
Man uses capital to invest in our fund products as part of our ongoing business to build our product breadth and to trial investment research
developments before we market the products broadly to investors. These seeding investments are generally held for less than one year. Where Man is
deemed not to control the fund, these are classified as investments in fund products. Investments in fund products are classified at fair value through
profit or loss, with net gains due to movements in fair value of $58 million for the year ended 31 December 2017 (2016: $55 million) recognised through
income or gains on investments and other financial instruments. Purchases and sales of investments are recognised on trade date.
The fair values of investments in fund products are derived from the reported NAVs of each of the fund products, which in turn are based upon
the value of the underlying assets held within each of the fund products and the anticipated redemption horizon of the fund product. The valuation
of the underlying assets within each fund product is determined by external valuation service providers based on an agreed valuation policy and
methodology. Whilst these valuations are performed independently of Man, Man has established oversight procedures and due diligence processes to
ensure that the NAVs reported by the external valuation service providers are reliable and appropriate. Man makes adjustments to these NAVs where the
anticipated redemption horizon, events or circumstances indicate that the NAVs are not reflective of fair value. The fair value hierarchy of financial assets
is disclosed in Note 25.
Investments in fund products expose Man to market risk and therefore this process is subject to limits consistent with the Board’s risk appetite. The
largest single investment in fund products is $79 million (2016: $186 million). The market risk from seeding investments is modelled using a value at risk
methodology using a 95% confidence interval and one-year time horizon. The value at risk is estimated to be $29 million at 31 December 2017 (2016:
$72 million).
Fund investments for deferred compensation arrangements
At 31 December 2017, investments in fund products included $76 million (2016: $75 million) of fund products related to deferred compensation
arrangements. Employees are subject to mandatory deferral arrangements and as part of these arrangements employees can elect to have their deferral
in a designated selection of Man fund products. Changes in the fair value of the fund product awards are recognised over the relevant vesting period,
which means the compensation expense changes based on the value of the fund products. The associated fund product investments are held to offset
this change in compensation during the vesting period and at vesting the value of the fund investment is delivered to the employee. The fund product
investments are recorded at fair value with any gains or losses during the vesting period recognised as income or gains on investments and other
financial instruments in the Group income statement.
13.2. Consolidation of investments in funds
Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the Group (Note 1). The fund
is consolidated into the Group’s results from the date control commences until it ceases. In 2017, nine (2016: 11) investments in funds have met the
control criteria and have therefore been consolidated (Note 29), either classified as held for sale or consolidated on a line-by-line basis as detailed below.
Held for sale
Where the Group acquires the controlling stake and actively markets the products to third-party investors, allowing the Group to redeem their share,
and it is considered highly probable that it will relinquish control within one year from the date of initial investment, the investment in the controlled fund is
classified as held for sale. The seeded fund is recognised on the Group balance sheet as non-current assets and liabilities held for sale, with the interests
of any other parties included within non-current liabilities held for sale. Amounts recognised are measured at the lower of the carrying amount and fair
value less costs to sell.
The non-current assets and liabilities held for sale are as follows:
$m
Non-current assets held for sale
Non-current liabilities held for sale
Investments in fund products held for sale
31 December
2017
31 December
2016
145
(66)
79
263
(132)
131
Investments cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time they are classified as financial
assets at fair value through profit or loss (Note 13.1). Loss of control may eventuate through sale of the investment or a dilution in the Group’s holding.
If a held for sale fund remains under the control of the Group for more than one year, and it is unlikely that the Group will reduce or no longer control its
investment in the short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis. Three investments in funds
which were classified as held for sale in 2016 have been consolidated on a line-by-line basis for the year ended 31 December 2017 (2016: three held for
sale funds at 31 December 2015).
123
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
13. Investments in fund products and other investments continued
Line-by-line consolidation
The investments relating to the five (2016: six) funds which are controlled and are consolidated on a line-by-line basis are included within the Group
balance sheet and income statement as follows:
$m
Balance sheet
Cash and cash equivalents
Transferable securities1
Fees and other receivables
Trade and other payables
Net assets of line-by-line consolidated fund entities
Third-party interest in consolidated funds
Net investment held by Man
Income statement
Net gains on investments2
Management fee expenses3
Performance fee expenses3
Other costs4
Net gains of line-by-line consolidated fund entities
Third-party share of gains relating to interests in consolidated funds
Gains attributable to net investment held by Man
31 December
2017
31 December
2016
23
452
1
(174)
302
(99)
203
57
(9)
(5)
(2)
41
(14)
27
37
490
–
(2)
525
(240)
285
45
(9)
(2)
(3)
31
(15)
16
Included within Investments in fund products and other investments.
Included within Income or gains on investments and other financial instruments.
Notes:
1
2
3 Relates to management and performance fees paid by the funds to Man during the year, and are eliminated within gross management and other fees and performance fees, respectively, in the
Group income statement. The management fees elimination includes $3 million (2016: $4 million) in relation to the third-party share of these investments and therefore represents externally
generated management fees. The performance fee elimination includes $2 million (2016: $nil) in relation to third-party share which represents performance fees generated externally.
Includes $1 million (2016: $2 million) in relation to the third-party share of these investments and therefore represents costs incurred externally.
4
13.3. Loans to fund products
Loans to fund products are short-term advances primarily to Man guaranteed products, which are made to assist with the financing of the leverage
associated with the structured products. The loans are repayable on demand and are carried at amortised cost using the effective interest rate method.
The average balance during the year is $28 million (2016: $33 million). The liquidity requirements of guaranteed products together with commitments to
provide financial support (Note 27) which give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity requirements are
met by available cash resources, or the syndicated revolving credit facility.
Loans to fund products expose Man to credit risk and therefore the credit decision making process is subject to limits consistent with the Board’s risk
appetite. The carrying value represents Man’s maximum exposure to this credit risk. Loans are closely monitored against the assets held in the funds.
The largest single loan to a fund product at 31 December 2017 is $12 million (2016: $4 million). Fund entities are not externally rated, however our internal
modelling suggests that fund products have a probability of default that is equivalent to a credit rating of A.
13.4. Structured entities
Man has evaluated all exposures and concluded that where Man holds an investment, loan, fees receivable and accrued income, guarantee or
commitment with an investment fund or a collateralised loan obligation, this represents an interest in a structured entity as defined by IFRS 10
‘Consolidated financial statements’.
As with structured entities, investment funds are designed so that their activities are not governed by way of voting rights and contractual arrangements
are the dominant factor in affecting an investor’s returns. The activities of these entities are governed by investment management agreements or, in the
case of a collateralised loan obligation, the indenture.
The key considerations in assessing whether the Group controls a structured entity, and therefore should be consolidated into the Group’s financial
statements, are outlined in Note 1. Consolidated structured entities are detailed in Note 13.2.
124
Man Group plc Annual Report 2017Financial statements 13. Investments in fund products and other investments continued
Man’s maximum exposure to loss from unconsolidated structured entities is the sum total of any investment held, fee receivables, accrued income,
and loans to the fund entities, and is $578 million for the year ended 31 December 2017 (2016: $420 million). Man’s interest in and exposure to
unconsolidated structured entities is as follows:
31 December 2017
Alternative
Absolute return
Total return
Multi-manager solutions
Long only
Systematic
Discretionary
Guaranteed
Total
31 December 2016
Alternative
Absolute return
Total return
Multi-manager solutions
Long only
Systematic
Discretionary
Guaranteed
Total
Total
FUM
($bn)
29.2
16.5
16.0
26.8
20.4
0.2
109.1
Total
FUM
($bn)
25.4
6.6
11.8
21.4
15.3
0.4
80.9
Less
infrastructure
mandates and
consolidated
fund entities1
($bn)
Total FUM
unconsolidated
structured
entities
($bn)
Net
management
fee margin2
(%)
Fair value of
investment
held
($m)
Number
of funds
Fee
receivables
and accrued
income
($m)
Loans
to funds
($m)
Maximum
exposure
to loss
($m)
0.2
–
7.7
0.1
0.1
–
8.1
29.0
16.5
8.3
26.7
20.3
0.2
101.0
129
45
80
104
49
14
421
1.38
0.56
0.45
0.36
0.67
5.04
64
105
2
1
61
–
233
181
21
15
75
26
2
320
–
–
–
–
–
25
25
245
126
17
76
87
27
578
Less
infrastructure
mandates and
consolidated
fund entities2
($bn)
Total FUM
unconsolidated
structured
entities
($bn)
Net
management
fee margin2
(%)
Fair value of
investment held
($m)
Number
of funds
Fee
receivables
and accrued
income
($m)
Loans
to funds
($m)
Maximum
exposure
to loss
($m)
0.5
–
5.0
0.1
0.1
–
5.7
24.9
6.6
6.8
21.3
15.2
0.4
75.2
121
21
91
108
39
25
405
1.47
0.47
0.63
0.36
0.67
4.28
145
68
2
1
44
–
260
61
7
15
32
15
4
134
–
–
–
–
–
26
26
206
75
17
33
59
30
420
Notes:
1 For infrastructure mandates where we do not act as investment manager or advisor Man’s role in directing investment activities is diminished and therefore these are not considered to be structured
entities.
2 Net management fee margins are the categorical weighted average (see page 26). Performance fees can only be earned after a high water mark is achieved. For performance fee eligible funds,
performance fees are within the range of 10% to 20%.
Support by way of loans provided to unconsolidated structured entities is detailed in Note 13.3, and is included within the maximum exposure to loss
above. Furthermore, on occasion Man agrees to purchase illiquid investments from the funds at market rates in order to facilitate investor withdrawals.
Man has not provided any other non-contractual support to unconsolidated structured entities. Further information about risks relating to investment
funds can be found in Principal risks and mitigants on pages 33 to 35.
14. Fee and other receivables
$m
Fee receivables
Accrued income
Prepayments
Derivative financial instruments
Other receivables
31 December
2017
31 December
2016
53
267
16
9
146
491
30
114
14
2
97
257
Fee and other receivables are initially recorded at fair value and subsequently measured at amortised cost using the effective interest rate method.
Fee receivables and accrued income represent management and performance fees from fund products and are received in cash when the funds’
net asset values are determined. The majority of fees are deducted from the NAV of the respective funds by the independent administrators and
therefore the credit risk of fee receivables is minimal. No balances are overdue or delinquent at year end. The increase in accrued income in 2017
primarily relates to the increase in performance fee income which crystallised on 31 December 2017. Performance fees receivable at year end are
$196 million (2016: $32 million).
125
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
14. Fee and other receivables continued
Details of derivatives used to hedge foreign exchange risk are included in Note 12. Other derivative financial instruments, which consist primarily of
foreign exchange contracts, are measured at fair value through profit or loss. All derivatives are held with external banks with ratings of BBB+ (2016:
BBB+) or higher and mature within one year. During the year, there were $1 million net realised and unrealised losses arising from derivatives (2016:
$4 million gains). The notional value of all derivative financial assets is $262 million (2016: $58 million).
Other receivables principally includes balances relating to the Open Ended Investment Collective (OEIC) funds business, fund redemption proceeds and
other deposits. For the OEIC funds businesses, Man acts as the intermediary for the collection of subscriptions due from customers and payable to the
funds, and for redemptions receivable from funds and payable to customers. At 31 December 2017, the amount included in other receivables is $38 million
(2016: $16 million). The unsettled fund payable is recorded in trade and other payables (Note 15). Other receivables includes $11 million relating to fund
disposal proceeds (2016: $1 million). At 31 December 2017, $8 million (2016: $8 million) of other receivables are expected to be settled after 12 months.
15. Trade and other payables
$m
Accruals
Trade payables
Contingent consideration
Derivative financial instruments
Other payables
31 December
2017
31 December
2016
334
3
243
10
253
843
253
3
161
22
208
647
Accruals primarily relate to compensation accruals. Contingent consideration relates to the amounts payable in respect of acquisitions (Note 25).
Other payables include the remaining October 2017 announced share repurchase liability of $74 million (2016: $65 million), as detailed in Note 20,
payables relating to the OEIC funds business of $35 million (2016: $17 million) and servicing fees payable to distributors.
Details of derivatives used to hedge foreign exchange risk are included in Note 12. The notional value of derivative financial liabilities at 31 December 2017
is $388 million (2016: $334 million). All derivative contracts mature within one year.
The other payables balance in 2017 includes $52 million relating to the third-party share of payables for line-by-line consolidated funds, largely as a result
of the December 2017 compulsory redemption for our largest seeding position by all investors (Note 13.2).
Trade and other payables are initially recorded at fair value and subsequently measured at amortised cost. Included in trade and other payables at
31 December 2017 are balances of $213 million (2016: $155 million) which are expected to be settled after more than 12 months, which largely relate
to contingent consideration. Man’s policy is to meet its contractual commitments and pay suppliers according to agreed terms.
16. Provisions
$m
As 1 January 2017
Charged/(credited) to the income statement:
Charge in the year
Unused amounts reversed
Exchange difference
Used during the year/settlements
At 31 December 2017
Onerous
property lease
contracts
Litigation Restructuring
Other
27
6
–
3
(6)
30
24
–
(24)
–
–
–
–
4
–
–
(4)
–
–
4
–
–
–
4
Total
51
14
(24)
3
(10)
34
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be
required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. All provisions are current, other than onerous
property lease contracts as outlined below, given the Group does not have the unconditional right to defer settlement. Provisions for restructuring are
recognised when the obligation arises, following communication of the formal plan.
The $6 million charge for onerous property lease contracts is included within other costs as detailed in Note 5. Provisions for onerous property
lease contracts represent the present value of the future lease payments that the Group is presently obliged to make under non-cancellable onerous
operating lease contracts, less the future benefit expected to be generated from these, including sub-lease revenue where applicable. The unexpired
terms of the onerous leases range from one to 18 years, with all onerous property lease contracts therefore non-current.
The credit of $24 million in relation to litigation provisions is as a result of the reassessment of the Group’s exposure to claims and other settlements.
126
Man Group plc Annual Report 2017Financial statements 17. Investments in associates
Associates are entities in which Man holds an interest and over which it has significant influence but not control, and are accounted for using the equity
method. In assessing significant influence Man considers the investment held and its power to participate in the financial and operating policy decisions
of the investee through its voting or other rights. Further details of Man’s equity investment holdings are included in Note 29.
Under the equity method associates are carried 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 interests in these entities.
An impairment assessment of the carrying value of associates is performed annually or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, and any impairment is expensed in the Group income statement.
Man’s investments in associates are as follows:
$m
At beginning of the year
Share of post-tax profit/(loss)
Dividends received
Sale of investment in associate
At year end
Year ended 31 December 2017
Year ended 31 December 2016
Nephila
Holdings Ltd
Other
Total
Nephila
Holdings Ltd
Other
Total
30
7
(8)
–
29
1
1
–
(2)
–
31
8
(8)
(2)
29
28
3
(1)
–
30
2
(1)
–
–
1
30
2
(1)
–
31
Nephila Holdings Limited is an alternative investment manager based in Bermuda specialising in the management of funds which underwrite natural
catastrophe reinsurance and invest in insurance-linked securities and weather derivatives. Man has not provided any financial support to associates
during the year to 31 December 2017 (2016: nil).
Commission income relating to sales of Nephila Holdings Limited products totalled $4 million for the year ended 31 December 2017 (2016: $12 million),
an arrangement which ceased during the year, and is included within gross management and other fees in the Group income statement.
18. Leasehold improvements and equipment
$m
Net book value at beginning of the year
Additions
Depreciation expense
Net book value at year end
Year ended 31 December 2017
Year ended 31 December 2016
Leasehold
improvements
Equipment
Total
Leasehold
improvements
Equipment
29
5
(6)
28
15
7
(6)
16
44
12
(12)
44
32
3
(6)
29
12
8
(5)
15
Total
44
11
(11)
44
All leasehold improvements and equipment are recorded at cost less depreciation and impairment. Cost includes the original purchase price of the asset
and costs directly attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated using the straight-line method
over the asset’s estimated useful life, which for leasehold improvements is over the shorter of the life of the lease and the improvement (up to 24 years)
and for equipment is between three and ten years.
19. Deferred compensation arrangements
Man operates equity-settled share-based payment schemes as well as fund product based compensation arrangements.
For compensation plans whereby deferred compensation is invested in fund products managed by Man, the fair value of the employee services received
in exchange for the fund units is recognised as an expense over the vesting period, with a corresponding liability. The total amount to be expensed is
determined by reference to the fair value of the awards, which is remeasured at each reporting date, and equates to the fair value of the underlying fund
products at settlement date.
During the year, $59 million (2016: $55 million) relating to share-based payment and deferred fund product plans is included within compensation costs
(Note 4), consisting of share-based payments of $19 million (2016: $18 million) and deferred fund product plans of $40 million (2016: $37 million). The
unamortised deferred compensation at year end is $51 million (2016: $43 million) and has a weighted average remaining vesting period of 2.2 years
(2016: 1.9 years).
127
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
19. Deferred compensation arrangements continued
19.1 Employee Trusts
The Employee Trusts have the obligation to deliver shares, options and fund product based payments which have been granted to employees.
Man contributed funds of $22 million in 2017 (2016: $38 million) in order for the Trusts to meet their current period obligations.
The Employee Trusts are fully consolidated into Man and shares held are treated as treasury shares for EPS purposes (Note 8). The shares held by
the Employee Trusts are deducted from Tier 1 Capital (Note 20). The Employee Trusts are controlled by independent trustees and their assets are held
separately from those of Man. At 31 December 2017, the net assets of the Employee Trusts amounted to $73 million (2016: $69 million). These assets
include 20,272,423 (2016: 19,614,073) ordinary shares in the Company, $10 million notional value options over Man shares (2016: $10 million), and
$25 million of fund units (2016: $24 million) to deliver against the future obligations. The shares are recorded at cost and shown as a deduction from
shareholders’ funds. During the year the trustees of one of the Employee Trusts waived all of the interim dividend for the year ended 31 December 2017
on each of the 19,455,899 ordinary shares registered in its name at the relevant date for eligibility for the interim dividend (2016 interim dividend: waived
on all 20,732,057 shares) and all of the final dividend for the year ended 31 December 2016 on each of 19,278,617 of the ordinary shares registered in its
name at the relevant date for eligibility for the final dividend (2015 final dividend: waived on all 21,180,272 shares).
19.2 Share-based payments
Share-based payments are remuneration payments to selected employees that take the form of an award of shares in Man Group plc. Awards typically vest
over three years, although conditions vary between different types of award. In respect of equity-settled share-based payment schemes, the fair value of
the employee services received in exchange for the share awards and options granted is recognised as an expense, with the corresponding credit being
recognised in equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share awards and options at
grant date. The fair value of the share awards and options granted in exchange for employee services is calculated using the Black-Scholes valuation model
that takes into account the effect of both financial and demographic assumptions. Forfeiture and early vesting are based on historical observable data.
Changes to the original estimates, if any, are included in the Group income statement, with a corresponding adjustment to equity.
Share options
The fair values of share options granted in the year under the Sharesave share option scheme, and the assumptions used in the calculations, are
as follows:
Grant date
Weighted average share price at grant date ($)1
Weighted average exercise price at grant date ($)2
Share options granted in the period
Vesting period (years)
Expected share price volatility (%)
Dividend yield (%)
Risk-free rate (%)
Expected option life (years)
Number of options assumed to vest
Average fair value per option granted ($)
Notes:
1 Sterling share price each year of £1.67 and £1.16, respectively.
2 Sterling exercise price each year of £1.32 and £0.90, respectively.
12/09/2017
2.2
1.7
1,899,586
3–5
45
6
0.3
3.3
1,447,617
0.5
15/09/2016
1.5
1.2
3,589,100
3–5
45
6
0.2
3.3
2,732,645
0.4
The expected share price volatility is based on historical volatility over the past ten years. The expected option life is the average expected period to
exercise. The risk-free rate of return is the yield on zero-coupon US and UK (where appropriate) government bonds of a term consistent with the
assumed option life.
Movements in the number of share options outstanding are as follows:
Year ended 31 December 2017
Year ended 31 December 2016
Weighted
average
exercise price
($ per share)
3.6
1.8
1.3
2.8
1.1
3.7
4.0
Weighted
average
exercise price
($ per share)
4.3
1.2
1.9
2.5
1.2
4.2
4.7
Number
46,035,268
3,589,100
(1,571,532)
(2,704,615)
(351,192)
44,997,029
38,830,924
Number
44,997,029
1,899,586
(780,814)
(9,678)
(1,647,342)
44,458,781
38,924,702
Share options outstanding at beginning of the year
Granted
Forfeited
Expired
Exercised
Share options outstanding at year end
Share options exercisable at year end
128
Man Group plc Annual Report 2017Financial statements 19. Deferred compensation arrangements continued
The share options outstanding at year end have a weighted average exercise price and expected remaining life as follows:
Range of exercise prices ($ per share)
1.01–5.00
31 December 2017
31 December 2016
Weighted
average
exercise price
($ per share)
Weighted
average
expected
remaining life
Number of
share options
Weighted
average
exercise price
($ per share)
Weighted
average
expected
remaining life
3.7
2.9
44,997,029
4.2
3.8
Number of
share options
44,458,781
Share awards
The fair values of share awards granted in the year and the assumptions used in the calculations are as follows:
Deferred share plan
Grant dates
Share awards granted in the year
Average fair value per share award granted ($)
Deferred Executive Incentive Plan
Grant dates
Share awards granted in the year
Average fair value per share award granted ($)
Movements in the number of share awards outstanding are as follows:
Share awards outstanding at beginning of the year
Granted
Forfeited
Exercised
Share awards outstanding at year end
Share awards exercisable at year end
20. Capital management
1/3/2017 – 20/12/2017
14,115,446
1.8
10/3/2016 – 15/12/2016
9,842,529
2.1
13/3/2017
904,273
1.8
10/3/2016
1,322,497
2.2
Year ended
31 December
2017
Number
Year ended
31 December
2016
Number
22,523,365
15,019,719
(677,853)
(8,227,320)
24,261,290
11,165,026
(2,309,994)
(10,592,957)
28,637,911
22,523,365
447,775
650,191
Details of the Group’s capital management and dividend policy are provided within the Chief Financial Officer’s Review on pages 28 and 29.
Share capital and capital reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction
from the proceeds, net of tax.
Own shares held through the Employee Trusts (Note 19) are recorded at cost, including any directly attributable incremental costs (net of tax), and are
deducted from equity attributable to the Company’s equity holders until the shares are transferred to employees or sold. Where such shares are
subsequently sold, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in
equity attributable to the Company’s equity holders.
Ordinary shares
Ordinary shares have a par value of 33/7 US cents per share (2016: 33/7 US cents per share) and represent 99.9% of issued share capital. All issued
shares are fully paid. The shares have attached to them full voting, dividend and capital distribution (including on wind up) rights. They do not confer any
rights of redemption. Ordinary shareholders have the right to receive notice of, attend, vote and speak at general meetings. A holder of ordinary shares is
entitled to one vote per ordinary share held when a vote is taken on a poll and one vote only when a vote is taken on a show of hands.
During the year ended 31 December 2017 $92 million (2016: $35 million) of shares were repurchased at an average price of 154.6 pence (2016: 119.7
pence), buying back 46.4 million shares (2016: 23.5 million shares), which had an accretive impact on EPS (Note 8) of 1.7% (2016: increased the statutory
loss per share by 0.1%). This relates to the completion of the remaining $65 million of the share repurchase announced in October 2016, as well as the
partial completion of $27 million of the anticipated $100 million share repurchase (plus costs of $1 million) announced in October 2017. As at 27 February
2018, Man Group had an unexpired authority to repurchase up to 217,850,114 of its ordinary shares. A special resolution will be proposed at the
forthcoming Annual General Meeting (AGM), pursuant to which the Company will seek authority to repurchase up to 163,339,181 of its ordinary shares,
representing 10% of the issued share capital at 27 February 2018.
129
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
20. Capital management continued
Deferred sterling shares
50,000 unlisted deferred sterling shares, representing 0.1% of the Company’s issued share capital with a par value of £1 per share, were issued due to
the redenomination of the ordinary share capital into USD. These shares are necessary for the Company to continue to comply with Section 763 of the
Companies Act 2006. The deferred sterling shares are freely transferable and have no rights to participate in the profits of the Company, to attend,
speak or vote at any general meeting and no right to participate in any distribution in a winding up except for a return of the nominal value in certain
limited circumstances.
Issued and fully paid share capital
At 1 January
Purchase and cancellation of own shares
Issue of ordinary shares: Partnership Plans
and Sharesave
Issue of shares relating to acquisition of Aalto
(Note 10)
At 31 December
21. Pension
Year ended 31 December 2017
Year ended 31 December 2016
Ordinary
shares
Number
Unlisted
deferred sterling
shares Number
Nominal
value
$m
Ordinary
shares
Number
1,679,920,894
(46,427,274)
50,000
–
58
(2)
1,700,811,013
(23,474,213)
4,448,807
5,650,862
–
–
–
–
2,584,094
–
Unlisted
deferred
sterling shares
Number
50,000
–
–
–
1,643,593,289
50,000
56
1,679,920,894
50,000
Nominal
value
$m
59
(1)
–
–
58
Man operates 12 (2016: 12) defined contribution plans and two (2016: two) funded defined benefit plans.
Defined contribution plans
Man pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Man has no further
payment obligation once the contributions have been paid. Defined contribution pension costs totalled $8 million for the year to 31 December 2017
(2016: $10 million) and are recognised as pension costs in the Group income statement when they are due.
Defined benefit plans
A defined benefit plan creates a financial obligation to provide funding to the pension plan to provide a retired employee with pension benefits usually
dependent on one or more factors such as age, years of service and compensation. As with the vast majority of similar arrangements, Man ultimately
underwrites the risks related to the defined benefit plans. The risks that this exposes Man to include:
– Uncertainty in benefit payments: The value of Man’s liabilities for post-retirement benefits will ultimately depend on the amount of benefits paid out.
This in turn will depend on the level of inflation (for those benefits that are subject to some form of inflation protection) and how long individuals live.
– Volatility in asset values: Man is exposed to future movements in the values of assets held in the plans to meet future benefit payments.
– Uncertainty in cash funding: Movements in the values of the obligations or assets may result in Man being required to provide higher levels of cash.
The two defined benefit plans operated are the Man Group plc Pension Fund in the UK (the UK Plan) and the Man Group Pension Plan in Switzerland
(the Swiss Plan). At 31 December 2017, the UK plan comprised 93% (31 December 2016: 93%) of the Group’s total defined benefit pension obligations.
The UK Plan is operated separately from Man and managed by independent trustees. The trustees are responsible for payment of the benefits and
management of the UK Plan’s assets. Under UK regulations, Man and the trustees of the UK Plan are required to agree a funding strategy and
contribution schedule for the UK Plan.
130
Man Group plc Annual Report 2017Financial statements 21. Pension continued
In order to maintain flexibility with regards to the funding of the UK Plan, Man set up the Man Group Reservoir Trust (the Reservoir Trust) in 2010. Man
contributed $76 million (£50 million) of assets to the Reservoir Trust on 31 March 2010 and has committed to ensure the Reservoir Trust value remains at
least £69 million from 1 April 2013 or at the level of the funding deficit in the UK Plan, if lower. The Reservoir Trust gave the pension trustees comfort that
Man could fund a deficit at 31 December 2017 and in the event that the UK Plan was fully funded, allowed Man to recover the assets so that the UK Plan
was not over funded.
The Reservoir Trust is treated as an asset of the UK Plan as: (1) the Reservoir Trust is legally separate from Man and exists solely to fund employee
benefits; (2) the assets of the Reservoir Trust are passed to the UK Plan in the event of any default or insolvency situation, such that they are not available
to Man’s creditors; and (3) the funding position of the UK Plan is in deficit.
The Reservoir Trust assets are due to be transferred to the Man Group plc Pension Fund before 31 March 2018.
The latest funding valuation of the UK Plan was carried out by independent qualified actuaries as at 31 December 2014 and indicated a deficit of £11
million, after including £59m of assets in the Reservoir Trust. To remove the funding deficit, Man agreed to make a cash payment of £11.8m to the UK
Plan during 2015 along with a further payment in March 2018 from the Reservoir Trust to cover any remaining funding deficit. No cash contributions were
made to the UK Plan in the year to 31 December 2017. A funding update as at 31 December 2017 will be available later in 2018. The assets of the
Reservoir Trust may be required to cover any remaining funding deficit. If following this payment there is still a funding deficit and therefore the UK Plan
assets are insufficient to pay the benefits due, Man may need to make further contributions.
The actuarial valuation with an effective date of 31 December 2017 is currently underway. As part of this valuation, a new recovery plan may be agreed.
For the UK Plan, the Group has concluded that it has no requirement to adjust the balance sheet to recognise either a current surplus or a minimum
funding requirement on the basis that the Group has an unconditional right to a refund of a current or projected future surplus at some point in the future.
For the Swiss Plan, there is an asset restriction at the 2017 year end. The Swiss Plan holds some of its assets in an “employer contribution reserve”,
which can be used to reduce the Group’s future contributions into the Plan. As the employer contribution reserve is less than the measured surplus
as at 31 December 2017, the surplus has been restricted to the value of the employer contribution reserve.
The UK Plan was closed to new members in May 1999 and to future accrual in May 2011. Employed members of the UK Plan retain enhanced benefits,
including a link to salary, on their accrued benefits in the Plan. Future benefits are provided via a defined contribution plan.
In Switzerland, the Group operates a retirement foundation with assets which are held separately from the Group. This foundation covers the majority
of employees in Switzerland and provides benefits on a cash balance basis.
Each employee has a retirement account to which the employee and the Group make contributions at rates set out in the plan rules based on a
percentage of salary. Every year the pension fund commission (composed of employer and employee representatives) decides the level of interest, if any,
to apply to retirement accounts based on their agreed policy. At retirement an employee can take their retirement account as a lump sum or have this
paid as a pension.
The amounts recognised in the Group balance sheet are determined as follows:
$m
Present value of funded obligations
Fair value of plan assets
Surplus
Amount not recognised due to asset ceiling – Swiss Plan (see above)
Net pension asset in the Group balance sheet at year end
31 December
2017
31 December
2016
(464)
499
35
(3)
32
(426)
455
29
(2)
27
The increase in the net pension asset from 31 December 2016 to 31 December 2017 is driven by the UK Plan, largely as a result of assets performing
above the liability growth rate (discount rate) and changes to the expected mortality rates, partially offset by a decrease in the discount rate assumption
(due to a fall in corporate bond yields).
Our economic capital model includes capital in respect of a possible deficit in the pension plans.
131
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
21. Pension continued
Pensions: actuarial information
Changes in the present value of the defined benefit obligations are as follows:
$m
Present value of funded obligations at beginning of the year
Currency translation difference
Current service cost (employer portion)
Interest cost
Employee contributions
Remeasurements due to:
– changes in financial assumptions
– changes in demographic assumptions
– experience adjustments
Actual benefit payments
Past service costs
Curtailments and settlements
Present value of funded obligations at year end
Changes in the fair value of plan assets are as follows:
$m
Fair value of plan assets at beginning of the year
Currency translation difference
Interest income on plan assets
Actual return on plan assets less interest on plan assets
Employer contributions/(repayments)
Employee contributions
Benefits paid
Assets distributed on curtailments and settlements
Fair value of plan assets at year end
The plan assets primarily relate to investments in bonds, liability-driven investments (LDIs) and diversified growth funds.
The change in the net asset/(liability) recognised on the Group balance sheet is as follows:
$m
Net pension asset at start of the year
Total pension credit
Amount recognised outside profit and loss
Employer contributions
Currency translation difference
Net pension asset at end of the year
The amounts recognised in the Group income statement are as follows:
$m
Current service cost (employer portion)
Interest on net pension asset
Past service cost/(credit)
Gains on settlement/curtailment
Total credit
Year ended
31 December
2017
Year ended
31 December
2016
426
38
2
11
1
15
(8)
–
(18)
–
(3)
464
422
(66)
2
13
1
76
1
(1)
(16)
–
(6)
426
Year ended
31 December
2017
Year ended
31 December
2016
455
40
12
11
–
1
(18)
(2)
499
471
(75)
15
60
3
1
(16)
(4)
455
Year ended
31 December
2017
Year ended
31 December
2016
27
–
3
–
2
32
48
2
(17)
3
(9)
27
Year ended
31 December
2017
Year ended
31 December
2016
2
(1)
–
(1)
–
2
(2)
–
(2)
(2)
The $1 million (2016: $2 million) gains on settlement/curtailment credit in 2017 relates to the restructuring and has been classified as an adjusting item
(page 148).
There are no contributions expected to be paid during the year ending 31 December 2018.
132
Man Group plc Annual Report 2017Financial statements 21. Pension continued
The amounts recognised in other comprehensive income are as follows:
$m
Net actuarial gains/(losses) in the year due to:
– changes in financial assumptions
– changes in demographic assumptions
– experience adjustments on benefit obligations
Actual return on plan assets less interest on plan assets
Adjustment to recognise the effect of the asset ceiling
Amount recognised in other comprehensive income
The most significant actuarial assumptions used in the valuations of the two plans are:
Discount rate
Price inflation
Future salary increases
Interest crediting rate
Social security increases
Pension in payment increases
Deferred pensions increases
Year ended
31 December
2017
Year ended
31 December
2016
(15)
8
–
11
(1)
3
(76)
(1)
1
60
(1)
(17)
UK Plan
Swiss Plan
31 December
2017
% p.a.
31 December
2016
% p.a.
31 December
2017
% p.a.
31 December
2016
% p.a.
2.4
3.3
3.3
–
–
3.7
5.0
2.6
3.3
3.3
–
–
3.7
5.0
0.8
1.3
1.3
0.8
1.0
–
–
0.8
1.2
1.2
0.8
1.0
–
–
At 31 December 2017, mortality rates in the UK Plan are assumed to be in line with 100% of the S2NA Light tables for all members with pensions of
more than £50,000 pa at 31 December 2014 and S2NA tables for all other members (2016: same as at 31 December 2017). These mortality tables are
assumed to be projected by year of birth with allowance for future improvements in longevity in line with the 2016 CMI projections with a long term rate of
improvement of 1.25% pa for males and females (2016: projected by year of birth with allowance for future improvements in longevity in line with the 2015
CMI projections with a long term rate of improvement of 1.25% pa for males and females).
At 31 December 2017 and 31 December 2016 the mortality rates in the Swiss Plan are assumed to be in line with the Swiss BVG 2015
generational tables.
Illustrative life expectancies are set out in the table below (the UK Plan life expectancies are based on the S2NA tables).
Years
Life expectancy of male aged 60 at accounting date
Life expectancy of male aged 60 in 20 years
Life expectancy of female aged 60 at accounting date
Life expectancy of female aged 60 in 20 years
UK Plan
Swiss Plan
31 December
2017
31 December
2016
31 December
2017
31 December
2016
27.0
28.5
29.0
30.6
27.2
29.0
29.4
31.4
27.2
29.1
29.4
31.3
27.1
29.0
29.3
31.2
The table below illustrates the impact on the assessed value of the benefit obligations from changing the actuarial assumptions (in isolation). The
calculations to produce the below figures have been carried out using the same method and data as Man’s pension figures. Each assumption has been
varied individually and a combination of changes in assumptions could produce a different result.
As at 31 December 2017:
$m
Discount rate decreased by 0.1% p.a.
Inflation rate increased by 0.1% p.a.
One year increase in assumed life expectancy
UK Plan
Swiss Plan
Increase in obligation
8
2
15
1
–
1
The duration of a pension plan is the average term over which the plan’s benefits are expected to fall due, weighted by the present value of each
expected benefit payment. The duration of the UK Plan is approximately 18 years, and the duration of the Swiss Plan is approximately 22 years.
133
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
21. Pension continued
The assets held by the two plans as at 31 December 2017 are as follows:
Swiss equities
Non-Swiss equities
Index-linked government bonds
Absolute return bonds
Swiss bonds
Non-Swiss bonds
Property
Hedge funds
LDI
Diversified growth funds
Cash
Other
Reservoir Trust (fund of hedge funds)
Total assets
UK Plan
Swiss Plan
$m
–
–
45
49
–
–
–
–
121
106
46
–
95
462
%
$m
%
–
–
10
10
–
–
–
–
26
23
10
–
21
3
6
–
–
5
7
4
1
–
–
9
2
–
9
17
–
–
13
21
11
1
–
–
24
4
–
100
37
100
The plans do not invest directly in property occupied by Man or in Man’s own transferable financial securities.
The UK Plan’s investment strategy is set by the trustees of the plan. The current strategy is broadly split into “growth” and “matching” portfolios. The
growth portfolio is invested in diversified growth funds. The matching portfolio is invested primarily in government and corporate bonds (the latter through
the “Absolute return bonds” holding), and liability driven investment (“LDI”) funds.
The government bond assets and diversified growth funds have prices quoted in active markets and the absolute return bonds and LDI are primarily
unquoted. At 31 December 2017, around 65% of the plan assets relate to those with quoted prices and 35% with unquoted prices (2016: around 65%
quoted and 35% unquoted). The actual return on plan assets for the year to 31 December 2017 was $23 million (2016: $75 million).
Part of the investment objective of the UK Plan is to minimise fluctuations in the plan’s funding levels due to changes in the value of the liabilities. This is
primarily achieved through the use of the LDI funds, whose main goal is to hedge movements in the liabilities due to changes in interest rate and inflation
expectations. The current investment strategy aims to hedge around 100% of the movement in the “technical provisions” funding measure, as opposed
to the IAS19 accounting measure, due to both interest rate and inflation expectation changes.
LDI primarily involves the use of government bonds (including re-purchase agreements) and derivatives such as interest rate and inflation swaps. There
are no annuities or longevity swaps. These instruments are typically priced and collateralised daily by the UK Plan’s LDI manager and / or central clearing
houses. Given that the purpose of LDI is to hedge corresponding liability exposures, the main risk is that the investments held move differently to the
liability exposures. This risk is managed by the Trustees, their advisers and the UK Plan’s LDI manager, who regularly assess the position.
As the Swiss Plan is essentially a defined contribution plan with guarantees, the assets held aim to be at least as much as the total of the member
account balances at any point in time. Member account balances cannot reduce, but interest is only applied to the account balances when sufficient
surplus assets are available. As such there is no specific asset/liability matching strategy in place, but if the liabilities (the sum of the member account
balances) ever exceed the value of the assets, the Company will consider how to remove a deficit as quickly as possible.
22. Segmental analysis
The criteria for identifying an operating segment is that it is a component of Man whose results are regularly reviewed by the Board and the Senior
Management Executive Committee to make decisions about resources to be allocated to the segment and to assess its performance. Management
information regarding revenues, gross management fee margins, investment performance and distribution costs relevant to the operation of the
investment managers, products and the investor base are reviewed by the Board and the Senior Management Executive Committee. A centralised
shared infrastructure for operations, product structuring, distribution and support functions for each of the five investment managers which Man
incorporates (AHL, GLG, FRM, Numeric and GPM) means that operating costs are not allocated to constituent parts of the investment management
business. As a result, performance is assessed, resources are allocated and other strategic and financial management decisions are determined by the
Board and the Senior Management Executive Committee on the basis of the investment management business of Man as a whole. Accordingly, we
operate and report as a single segment investment management business, together with relevant information regarding FUM flows, gross margins and
distribution costs, to allow for analysis of the direct contribution of products and the respective investor base.
134
Man Group plc Annual Report 2017Financial statements 23. Geographical disclosure
$m
Cayman Islands
Ireland
United Kingdom and the Channel Islands
United States of America
Other countries
Year ended 31 December 2017
Year ended 31 December 2016
Revenues by
fund location
Non-current
assets
Revenues by
fund location
Non-current
assets
428
198
110
127
205
–
–
153
865
102
1,068
1,120
297
155
109
90
176
827
1
–
74
941
100
1,116
Disclosure of revenue by geographic location is based on the registered domicile of the fund entity paying Man fees. Revenue from any single fund
during the year did not exceed 10% of total revenues. Non-current assets are allocated based on where the assets are located, and include investments
in associates, leasehold improvements and equipment, and goodwill and other intangible assets.
24. Foreign currencies
The majority of revenues, assets, liabilities and financing are denominated in USD and therefore Man’s presentation currency is USD.
For consolidated entities with a USD functional currency, monetary assets and liabilities denominated in foreign currencies are translated at each
balance sheet date rate. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing
at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.
Transactions denominated in foreign currencies are converted at the spot rate at the date of the transaction or, if appropriate, the average rate for
the month in which the transaction occurs. Resulting exchange differences are recognised in the Group income statement.
For consolidated entities that have a functional currency other than USD, the assets and liabilities are translated into USD at the balance sheet date rate.
Income and expenses are translated at the average rate for the period in which the transactions occur. Resulting exchange differences are recorded in
other comprehensive income.
25. Fair value of financial assets/liabilities
Man discloses the fair value measurement of financial assets and liabilities using three levels, as follows:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value of financial assets and liabilities can be analysed as follows:
$m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31 December 2017
31 December 2016
Financial assets held at fair value:
Investments in fund products and
other investments (Note 13)
Investments in line-by-line
consolidated funds (Note 13)
Derivative financial instruments
(Note 14)
Financial liabilities held at fair value:
Derivative financial instruments
(Note 15)
Contingent consideration (Note 15)
3
–
–
3
–
–
–
137
452
9
598
10
–
10
112
–
–
112
–
243
243
252
452
9
713
10
243
253
3
–
–
3
–
–
–
207
490
2
699
22
–
22
68
–
–
68
–
161
161
278
490
2
770
22
161
183
During the year, there were no significant changes in the business or economic circumstances that affected the fair value of Man’s financial assets
and no significant transfers of financial assets or liabilities held at fair value between categories. For investments in fund products, Level 2 investments
comprise holdings primarily in unlisted, open-ended, active and liquid funds, such as seeding investments, which have daily or weekly pricing derived
from third-party information.
A transfer into Level 3 would be deemed to occur where the level of prolonged activity, as evidenced by subscriptions and redemptions, is deemed
insufficient to support a Level 2 classification. This, as well as other factors such as a deterioration of liquidity in the underlying investments, would result
in a Level 3 classification. The material holdings within this category are priced on a recurring basis based on information supplied by third-parties, with a
liquidity premium adjustment applied based on the expected timeframe for exit. Reasonable changes in the liquidity premium assumptions would not
have a significant impact on the fair value.
135
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
25. Fair value of financial assets/liabilities continued
The fair values of non-current assets and liabilities held for sale (Note 13.2) are equal to the carrying values of $145 million (2016: $263 million) and $66
million respectively (2016: $132 million), and would be classified within Level 2. The fair value of borrowings (Note 12) is $156 million (2016: $157 million)
and would have been classified as Level 1.
The basis of measuring the fair value of Level 3 investments is outlined in Note 13.1. The movements in Level 3 financial assets and financial liabilities
measured at fair value are as follows:
$m
Level 3 financial assets/(liabilities) held at fair value
At beginning of the year
Assets reclassified from held for sale
Purchases/(losses)
Total gains/(losses) in the Group statement of comprehensive income
Profit/(loss) included in income statement
Included in other comprehensive income
Sales or settlements
At year end
Total gains/(losses) for the year included in the Group statement of comprehensive income
for assets/(liabilities) held at year end
Year ended 31 December 2017
Year ended 31 December 2016
Financial
assets at fair
value through
profit or loss
Financial
liabilities at
fair value
through profit
or loss
Financial assets
at fair value
through profit
or loss
Financial
liabilities at fair
value through
profit or loss
68
–
47
5
5
–
(8)
112
5
(161)
–
(52)
(41)
(41)
–
11
(243)
(41)
62
11
8
1
1
–
(14)
68
1
(206)
–
–
20
20
–
25
(161)
20
The financial liabilities in Level 3 primarily relate to the contingent consideration payable to the former owners of Numeric and Aalto, with the other
contingent consideration relating to smaller acquisitions including FRM, Pine Grove, and BAML fund of funds.
$m
Numeric
Aalto
Other
Total
Numeric
Other
Total
Year ended 31 December 2017
Year ended 31 December 2016
Contingent consideration payable
At beginning of the year
Purchases
Revaluation of contingent consideration
Unwind of contingent consideration discount
(Note 6)
Finance expense
Sales or settlements
At year end
150
–
15
18
–
(8)
175
–
52
1
7
–
–
60
11
–
(1)
1
–
(3)
8
161
52
15
26
–
(11)
243
164
–
(28)
18
–
(4)
150
42
–
(12)
1
1
(21)
11
206
–
(40)
19
1
(25)
161
The revaluation of contingent consideration in the Group income statement is an adjustment to the fair value of expected acquisition earn-out payments.
The $15 million increase in the fair value of contingent consideration is largely as a result of better than expected Numeric performance during 2017. The
$28 million reduction in the fair value of the Numeric contingent consideration in 2016 was largely due to a decrease in the forecast management fees on
long only products and net inflows.
The Numeric contingent consideration relates to an ongoing 18.3% equity interest of Numeric management in the business and profit interests of 16.5%,
pursuant to a call and put option arrangement. The call and put option structure means that it is virtually certain that Man will elect to, or be obliged to,
purchase the interests held by Numeric management at five (call option) or five and a half (put option) years post-closing (5 September 2014). The
maximum aggregate amount payable by Man in respect of the option consideration is capped at $275 million.
The Aalto contingent consideration is dependent on levels of run rate management fees measured following one, four, six and eight years from
completion. The maximum aggregate amount payable by Man is capped at $207 million.
The fair values are based on discounted cash flow calculations, which represent the expected future profits of each business as per the earn-out
arrangements. The fair values are determined using a combination of inputs, such as weighted average cost of capital, net management fee margins,
performance, operating margins and the growth in FUM, as applicable. The post-tax discount rates applied are 11% for management fees and 17% for
performance fees for Numeric and Other, and 15% for Aalto.
The most significant inputs into the valuations at 31 December 2017 are as follows:
Weighted average net management fee margin (over the remaining earn-out period)
Compound growth in average FUM (over the remaining earn-out period)
Numeric
0.4%
7%
Aalto
0.8%
19%
136
Man Group plc Annual Report 2017Financial statements 25. Fair value of financial assets/liabilities continued
Changes in inputs would result in the following increase/(decrease) in the fair value of the contingent consideration creditor at 31 December 2017, with a
corresponding (expense)/gain in the Group income statement:
Weighted average net management fee margin
0.1% increase
0.1% decrease
Compound growth in average FUM
1% increase
1% decrease
Numeric
Aalto
51
(51)
6
(6)
6
(10)1
4
(3)
Note:
1 Any increase in net management fee margins would have less of an impact on the contingent consideration given the calculation is close to the maximum capped earn-out for the year 1 payment.
26. 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
Salaries and other short-term employee benefits1
Share-based payments
Fund product based payment charge
Pension costs (defined contribution)
Total
Note:
1
Includes salary, benefits and cash bonus.
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
42,456
8,636
7,743
577
59,412
24,263
7,114
9,589
290
41,256
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.
27. Financial guarantees and commitments
27.1 Daylight settlement facilities
From time to time Man provides a guarantee over certain bank accounts of structured product entities to secure daylight settlement facilities which
allow for the efficient movement of cash during the trading day. In aggregate these guarantees had a notional amount of $50 million (2016: $50 million).
Ordinarily no net exposure exists at the end of any given day and the fair value of these commitments has been determined to be nil (2016: nil).
27.2 Intra-day and overnight credit facilities
Man guarantees the obligations under a $500 million intra-day (2016: $500 million) and $25 million overnight credit facilities (2016: $25 million), used
to settle the majority of the Group’s banking arrangements. As at 31 December 2017, the exposure under the intra-day facility is nil (2016: nil) and the
overnight facility exposure is nil (2016: nil). The fair value of these commitments has been determined to be nil (2016: nil).
27.3 Operating lease commitments
$m
Operating lease commitments
Including offsetting non-cancellable
sublease arrangements
31 December 2017
Within
1 year
1–5
years
After
5 years
27
20
56
73
292
15
Total
375
108
Within
1 year
25
19
31 December 2016
1–5
years
57
66
After
5 years
265
30
Total
347
115
Rent and associated expenses for all leases are recognised on a straight-line basis over the life of the respective lease. The operating lease commitments
primarily include the agreements for lease contracts for the headquarters at Riverbank House, London (expiring in 2035) and our main New York office
(expiring in 2022), which aggregate to $332 million (2016: $312 million).
137
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
28. Other matters
Man Group is subject to various other claims, assessments, regulatory enquiries and investigations in the normal course of its business. The directors
do not expect such matters to have a material adverse effect on the financial position of the Group.
29. Group investments
Details of the Group’s subsidiaries and consolidated structured entities, which have been consolidated into the Group’s results, and details of
investments in associates are provided below. The country of operation is the same as the country of incorporation, the year end is 31 December,
and effective Group interest represents both the percentage held and voting rights, unless otherwise stated.
Subsidiaries
Principal operating subsidiaries
Asset management
AHL Partners LLP1
GLG Partners LP
Man Investments (CH) AG
Numeric Investors LLC2
Group services company
E D & F Man Limited
Man Investments AG
Man Investments Holdings Inc.
Group treasury and holding company
Man Investments Finance Limited
Group holding and other subsidiaries
Man Group plc
Man Strategic Holdings Limited
Man Group UK Limited
Man Group Holdings Limited
Aalto Invest AG
Aalto Invest Cayman Limited
Aalto Invest Holding AG
Aalto Invest UK Ltd
E. D. & F. Man Investments B.V.
E D & F Man Investments Limited
FA Sub 2 Limited
FA Sub 3 Limited
Financial Risk Management Limited
FRM Holdings Limited
FRM Investment Management GP (USA) LLC
FRM Investment Management Limited
FRM Investment Management (USA) LLC
FRM Thames Fund General Partner 1 Limited
GLG Capital Management LLC
GLG Holdings Inc.
GLG Holdings Limited
GLG Inc.
GLG LLC
GLG Partners GP LLC
GLG Partners Hong Kong Limited
GLG Partners Inc.
GLG Partners Intermediate GP Ltd
GLG Partners Limited
GLG Partners Services Limited
GLG Partners Services LP
GLG Partners UK Group Ltd
GLG Partners UK Holdings Ltd
GLG Partners UK Ltd
138
Registered address
Direct or
indirect
Country of
incorporation
Effective Group
interest %
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Huobstrasse 3, 8808 Pfäffikon SZ
4001 Kennett Pike, Suite 302, Wilmington DE, 19807
UK
Indirect
Indirect
UK
Indirect Switzerland
US
Indirect
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Huobstrasse 3, 8808 Pfäffikon SZ
4001 Kennett Pike, Suite 302, Wilmington DE 19807
UK
Indirect
Indirect Switzerland
US
Indirect
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Indirect
UK
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Huobstrasse 3, 8808 Pfäffikon SZ
PO Box MP10085, Governors Square, Unit 5-202,
West Bay Road, Grand Cayman, KY1-1001
Huobstrasse 3, 8808 Pfäffikon SZ
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Beurs – World Trade Center, Beursplein 37,
3011 AA, Rotterdam
15 Esplanade, St Helier, JE1 1RB
PO Box 92, Road Town, Tortola, VG 1110
PO Box 92, Road Town, Tortola, VG 1110
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Gaspé House, 66-72 Esplanade, St Helier, JE2 3QT
4001 Kennett Pike, Suite 302, Wilmington DE 19807
P.O. Box 173, Royal Chambers, St Julian’s Avenue,
St Peter Port, GY1 4HG
4001 Kennett Pike, Suite 302, Wilmington DE 19807
89 Nexus Way, Camana Bay, P.O. BOX 31106,
Grand Cayman, KY1-1205
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
Wickhams Cay, PO Box 662, Road Town, Tortola
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
Unit 2206-2207, 22/F Man Yee Building,
No. 68 Des Voeux Road, Central
4001 Kennett Pike, Suite 302, Wilmington DE 19807
PO Box 309, Ugland House, South Church Street,
George Town, Grand Cayman, KY1-1104
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Po Box 309, Ugland House, South Church Street,
George Town, Grand Cayman, KY1-1104
Po Box 309, Ugland House, South Church Street,
George Town, Grand Cayman, KY1-1104
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
UK
UK
Direct
UK
Indirect
UK
Indirect
Indirect Switzerland
Cayman
Indirect
Indirect Switzerland
UK
Indirect
Indirect Netherlands
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Jersey
BVI
BVI
UK
Jersey
US
Guernsey
US
Cayman
US
Indirect
US
Indirect
BVI
Indirect
US
Indirect
US
Indirect
Indirect
US
Indirect Hong Kong
Indirect
Indirect
Indirect
Indirect
US
Cayman
UK
Cayman
Indirect
Cayman
Indirect
Indirect
Indirect
UK
UK
UK
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Man Group plc Annual Report 2017Financial statements 29. Group investments continued
Registered address
Direct or
indirect
Country of
incorporation
Effective Group
interest %
Group holding and other subsidiaries
Knox Pines Limited
Man Asset Management (Cayman) Limited
Man Asset Management (Ireland) Limited
Man Australia GP Limited
Man Australia LP
Man (Europe) AG
Man Fund Management (Guernsey) Limited
Man Fund Management Limited
Man Fund Management Netherlands BV
Man Fund Management UK Limited
Man GLG Credit Advisers AG
Man GLG Partners LLP
(previously Laurel Heights LLP)1
Man Global Private Markets (USA) Inc.
Man Global Private Markets SLP LLC
Man Group Japan Limited
Man Group Services Limited
Man Investments Australia Limited
Man Investments Finance Inc.
Man Investments Holdings Limited
Man Investments (Hong Kong) Limited
Man Investments Inc.
Man Investments Limited
Man Investment Management
(Shanghai) Co., Ltd
Man Investments (Shanghai) Limited
Man Investments (USA) Corp.
Man Investments USA Holdings Inc.
Man Litchfield Inc.
Man Mash Limited
Man Principal Strategies Corp
Man Solutions Limited
Man UK Strategies Limited
Man Valuation Services Limited
Man Washington Inc.
Mount Garnet Limited
Mount Granite Limited
Numeric Holdings LLC2
Numeric Midco LLC2
RBH Holdings (Jersey) Limited
RMF Co-Investment Limited
Seabrook Holding Inc
Silvermine Capital Management LLC
Empyrean Re (Canada) Inc. (in liquidation)
Man Financial Australia Pty Limited
(in liquidation)
Man Investments Middle East Limited
(in liquidation)
Wickhams Cay, PO Box 662, Road Town, Tortola
89 Nexus Way, Camana Bay, P.O. BOX 31106,
Grand Cayman, KY1-1205
70 Sir John Rogerson’s Quay, Dublin 2
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Level 27, Chifley Tower, 2 Chifley Square, Sydney,
NSW 2000
Austrasse 56, 9490, Vaduz, Liechtenstein
P.O. Box 173, Royal Chambers, St Julian’s Avenue,
St Peter Port, GY1 4HG
70 Sir John Rogerson’s Quay, Dublin 2
Beurs – World Trade Center, Beursplein 37,
3011 AA, Rotterdam
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Huobstrasse 3, 8808 Pfäffikon SZ
Riverbank House, 2 Swan Lane, London, EC4R 3AD
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
P.O. Box 173, Royal Chambers, St Julian’s Avenue,
St Peter Port, GY1 4HG
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Level 27, Chifley Tower, 2 Chifley Square, Sydney,
NSW 2000
4001 Kennett Pike, Suite 302, Wilmington DE 19807
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Unit 2206-2207, 22/F Man Yee Building,
No.68 Des Voeux Road, Central
15 North Mill Street, Nyack, NY 10960, United States
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Room 1857, No. 222 Yan An East Road, Huangpu District,
Shanghai, 200002
Room 1818, Bund Centre, No. 222 Yan An East Road,
Shanghai, 200002
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
Riverbank House, 2 Swan Lane, London, EC4R 3AD
4001 Kennett Pike, Suite 302, Wilmington DE 19807
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
Riverbank House, 2 Swan Lane, London, EC4R 3AD
4001 Kennett Pike, Suite 302, Wilmington DE 19807
Wickhams Cay, PO Box 662, Road Town, Tortola
Wickhams Cay, PO Box 662, Road Town, Tortola
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
13 Castle Street, St. Helier, JE4 5UT
Po Box 309, Ugland House, South Church Street,
George Town, Grand Cayman, KY1-1104
4001 Kennett Pike, Suite 302, Wilmington DE 19807
4001 Kennett Pike, Suite 302, Wilmington DE 19807
70 York Street, Suite 1202, Toronto, ON M5J 1S9
Level 27, Chifley Tower, 2 Chifley Square,
Sydney, NSW 2000
Indirect
Indirect
Indirect
Indirect
Indirect
BVI
Cayman
Ireland
UK
Australia
Indirect Liechtenstein
Guernsey
Indirect
Indirect
Ireland
Indirect Netherlands
UK
Indirect
Indirect Switzerland
UK
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
US
US
Guernsey
UK
Australia
US
Indirect
Indirect
UK
Indirect Hong Kong
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
US
UK
China
China
US
US
US
UK
US
UK
UK
UK
US
BVI
BVI
US
US
Jersey
Cayman
US
US
Canada
Australia
Office 307, Level 3, Precinct Building 4, DIFC,
Indirect
UAE
PO Box 73221, Dubai
Notes:
1 The financial year end is 31 March.
2 Numeric Management hold an 18.3% equity interest in the business as part of the acquisition contingent consideration, which is deemed to be a financial liability (Note 25).
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
139
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
29. Group investments continued
Consolidated structured entities
The following investment funds, which the Group is deemed to control, have been consolidated (Note 13):
Strategy
Man Numeric European Equity1
Man GLG European Income Opportunities1
Man GLG Iberian Opportunities Fund1
Man Alternative Risk Premia1
Man GLG Select Opportunities2
Man GLG Pan-European Equity Growth2
Man GLG Global European Alpha Alternative2
Man GLG Global Emerging Markets Bond2
Man Numeric Global Equity2
Country of
incorporation/
principal place
of operation
% of net asset
value held
Registered address
70 Sir John Rogerson's Quay, Dublin 2, Ireland
70 Sir John Rogerson's Quay, Dublin 2, Ireland
70 Sir John Rogerson's Quay, Dublin 2, Ireland
70 Sir John Rogerson's Quay, Dublin 2, Ireland
c/o Maples Corporate Services Limited, PO Box 309, Ugland House,
Grand Cayman KY 1-11-4,Cayman Islands
70 Sir John Rogerson's Quay, Dublin 2, Ireland
70 Sir John Rogerson's Quay, Dublin 2, Ireland
70 Sir John Rogerson's Quay, Dublin 2, Ireland
70 Sir John Rogerson's Quay, Dublin 2, Ireland
Ireland
Ireland
Ireland
Ireland
Cayman
Ireland
Ireland
Ireland
Ireland
100
31
44
78
70
70
55
71
76
Notes:
1 Classified as non-current assets and liabilities held for sale (Note 13.2).
2 Consolidated on a line-by-line basis (Note 13.2).
Investments in associates
Country of
incorporation/
principal place
of operation
% of net asset
value held
Registered address
Nephila Holdings Limited
Victoria Place, 3rd Floor, West, 31 Victoria Street, Hamilton, HM10
Bermuda
181
Note:
1 18% represents Man’s ownership of class B common shares. Man’s participation in the profits of Nephila is governed by the share class rights and therefore does not relate proportionately to the
ownership interest held. Man considers that this equity interest, Man’s ability to veto Nephila’s annual business plan, and the presence of a Man member on the Nephila board of directors provides
Man with the power to participate in the financial and operating policy decisions, and equates to significant influence.
140
Man Group plc Annual Report 2017Financial statements
PARENT COMPANY FINANCIAL STATEMENTS
Balance sheet
$m
Fixed assets
Investment in subsidiaries
Current assets
Debtors
Creditors – amounts falling due within one year
Other creditors and accruals
Net current assets
Creditors – amounts falling after more than one year
Borrowings
Total assets less current liabilities
Capital and reserves
Called up share capital
Share premium account
Capital reserve
Merger reserve
Profit and loss account
Total shareholders’ funds
At 31
December
2017
At 31
December
2016
Note
2
3
4
5
2,439
2,439
275
(85)
190
161
(84)
77
(150)
(149)
2,479
2,367
56
26
7
499
1,891
2,479
58
19
5
491
1,794
2,367
The profit after tax for the year was $356 million (2016: $138 million). During the year the Company received dividend income of $372 million from
subsidiaries (2016: $154 million). In accordance with Section 408 of the Act, a separate profit and loss account has not been presented for the Company.
Details of audit fees are included on page 60.
The financial statements of the Company (registered number 08172396) were approved by the Board of directors and authorised for issue on
28 February 2018 and were signed on its behalf by:
Luke Ellis
Chief Executive Officer
Mark Jones
Chief Financial Officer
Statement of changes in equity
$m
At 1 January 2016
Issue of ordinary share capital
Repurchase of shares
Profit for the financial year/total comprehensive income
Dividends
At 31 December 2016
Issue of ordinary share capital
Repurchase of shares
Profit for the financial year/total comprehensive income
Dividends
At 31 December 2017
56
26
The allotted and fully paid share capital of the Company is detailed in Note 20 of the Group financial statements.
Called up share
capital
Share premium
account
Capital reserve Merger reserve
Profit and loss
account
59
–
(1)
–
–
58
–
(2)
–
–
14
5
–
–
–
19
7
–
–
–
4
–
1
–
–
5
–
2
–
–
7
491
–
–
–
–
491
8
–
–
–
1,915
–
(101)
138
(158)
1,794
–
(101)
356
(158)
Total
2,483
5
(101)
138
(158)
2,367
15
(101)
356
(158)
499
1,891
2,479
141
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1. Basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 2006.
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 as issued by the Financial Reporting Council, and
accordingly chooses to apply the Financial Reporting Standard 101 (FRS 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting
Council to these financial statements. In doing so, the Company applies the requirements of IFRS 1.6-33 and related appendices.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based
payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash-flow
statement and certain related party transactions. Where required, equivalent disclosures are given in the Group financial statements.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in
Note 1 to the Group financial statements, except as noted below.
The Company’s financial statements are prepared on a going concern basis. For further details, refer to Note 1 to the Group financial statements.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the spot rate at the date of the transaction. Foreign exchange gains and
losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies
at period end exchange rates, are recognised in the profit and loss account.
Dividends
Dividend distributions to the Company’s shareholders are recognised directly in equity in the period in which the dividend is paid or approved by the
Company’s shareholders, if required. Dividends received from subsidiary undertakings are recognised as income in the period in which they are
received. Refer to Note 9 to the Group financial statements for details of dividends paid during the year.
2. Investments in subsidiaries
$m
Shares in Group undertakings
At 1 January and 31 December
2017
2016
2,439
2,439
The Company’s shares in subsidiary undertakings are stated in the balance sheet of the Company at cost less accumulated impairment of $nil (2016:
$nil). A complete list of the Company’s direct and indirect subsidiaries are provided in Note 29 to the Group financial statements.
3. Debtors – amounts falling due within one year
$m
Current tax asset
Amounts owed by Group undertakings
4. Creditors – amounts falling due within one year
$m
Amounts owed to Group undertakings
Other creditors
31 December
2017
31 December
2016
4
271
275
4
157
161
31 December
2017
31 December
2016
9
76
85
16
68
84
Other creditors includes $74 million relating to the share repurchase which was partially completed during the year (see Note 20 to the Group
financial statements).
142
Man Group plc Annual Report 2017Financial statements 5. Creditors – amounts falling due after more than one year
Borrowings relate to the 2024 fixed rate reset callable guaranteed subordinated notes issued by the Company, as detailed in Note 12 to the Group
financial statements.
6. Directors’ remuneration
Details of the individual directors’ emoluments and interests are disclosed in the Directors’ Remuneration report on pages 65 to 94. The directors of the
Company were paid by another Group company in the year.
7. Statutory and other information
Shares in the Company are awarded to directors and employees through the Group’s share schemes. Details relating to these share grants are provided
in Note 19 to the Group financial statements.
143
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report FIVE YEAR RECORD
UNAUDITED
$m
Income statement
Gross management and other fees
Performance fees
Profit before adjusting items
Adjusting items1
Pre-tax profit/(loss)
Tax (expense)/credit
Profit/(loss) for the year
Adjusted net management fee profit before tax
Adjusted net performance fee profit before tax
Year to
31 December
2017
Year to
31 December
2016
Year to
31 December
2015
Year to
31 December
2014
Year to
31 December
2013
781
287
384
(112)
272
(17)
255
203
181
746
81
205
(477)
(272)
6
(266)
178
27
833
302
400
(216)
184
(13)
171
194
206
810
340
481
(97)
384
(19)
365
198
283
967
193
297
(241)
56
16
72
175
122
Earnings per share (diluted)
15.3
(15.8)
10.0
20.5
2.9
Balance sheet ($m)
Net cash
Net assets
Other statistics
Post-tax return on equity (%)
Cash flow from operating activities (before working capital movements) ($m)
Ordinary dividends per share (cents)
Funds under management ($bn)
Average headcount2
Sterling/USD exchange rates
Average
Year end
229
1,716
277
1,674
458
2,215
589
2,434
992
2,407
15.2
(12.5)
7.5
15.8
431
10.8
109.1
245
9.0
80.9
402
10.2
78.7
463
10.1
72.9
2.1
222
7.9
54.1
1,313
1,250
1,183
1,078
1,258
0.7759
0.7396
0.7384
0.8093
0.6544
0.6786
0.6072
0.6419
0.6388
0.6040
Notes:
1 Statutory profit/(loss) before tax is adjusted to give a fuller understanding of the underlying profitability of the business. See page 148 for details of alternative performance measures.
2 The average headcount includes directors, employees, partners and contractors.
144
Man Group plc Annual Report 2017Financial statements
SHAREHOLDER INFORMATION
In this section we have provided some key
information to assist you in managing your
shareholding in Man. If you have a question
that is not answered below, you can contact
us by email: shareholder@man.com
Useful websites
References are made throughout this section to two websites which you
will find useful for managing your shareholding in Man and for finding out
more about the Company:
Man (www.man.com)
The Man corporate website contains a wealth of information about
the Company including details of the industry in which we operate, our
strategy and business performance, recent news from Man and corporate
responsibility initiatives. The Investor Relations section is a key tool for
shareholders with information on share price and financial results, reports
and presentations. This section of the website also contains information
on dividends and shareholder meeting details as well as useful Frequently
Asked Questions.
Equiniti Shareview (www.shareview.co.uk/shareholders)
Man’s register of shareholders is maintained by Equiniti, the Company’s
Registrars. Many aspects of managing your shares such as checking your
current shareholding, managing dividend payments, and updating your
contact details can be carried out by registering on the Equiniti Shareview
website. To do this you will need your Shareholder Reference which can
be found on your share certificate or dividend confirmation.
Dividends
Final dividend for the year ended 31 December 2017
4.18 pence per share
The directors have recommended a final dividend of 4.18 pence per share
in respect of the year ended 31 December 2017. Payment of this dividend
is subject to approval at the 2018 Annual General Meeting (AGM). Key
dates relating to this dividend are given below:
Ex-dividend date
Record date
DRIP election date
AGM (to approve final dividend)
Payment date
CREST accounts credited with DRIP shares
DRIP share certificates received
26 April 2018
27 April 2018
27 April 2018
11 May 2018
18 May 2018
23 May 2018
24 May 2018
Dividend policy
Man’s dividend policy is to pay out at least 100% of adjusted management
fee earnings per share in each financial year by way of ordinary dividend.
In addition, the Group expects to generate significant surplus capital over
time, primarily from net performance fee earnings. Available surpluses,
after taking into account our required capital (including accruals for future
earn-out payments), potential strategic opportunities and a prudent
buffer, will be distributed to shareholders over time by way of higher
dividend payments and/or share repurchases. As announced at the
time of our trading statement for the quarter ended 30 September 2017,
the Company is undertaking a share repurchase programme pursuant
to which up to a maximum of $100 million of surplus capital is being
returned to shareholders. Details of the number of shares repurchased
during 2017 can be found in Note 20 of the financial statements.
Dividend payment methods
You can choose to receive your dividend in a number of ways. Dividends
will automatically be paid to you by cheque and sent to your registered
address unless you have chosen one of the options below:
1. Direct payment to your bank: We recommend that you apply for
cash dividends to be paid directly into your UK bank or building society
account to speed up the payment process and to avoid the risk of
cheques becoming lost or delayed in the post. The associated dividend
confirmation will be sent direct to your registered address. To switch
to this method of payment simply download a dividend mandate form
from the Dividends section of our corporate website. Alternatively,
dividend mandate forms are available from the Equiniti Shareview
website. If you have any queries please contact Equiniti on 0371 384
21121 (+44 121 415 7592 if calling from outside the UK), who will be
able to assist.
2. Overseas payment service2: If you live overseas, Equiniti offers an
overseas payment service which is available in certain countries.
This may make it possible to receive dividends directly into your bank
account in your local currency. Further information can be found on the
Equiniti Shareview website or via the Equiniti helpline 0371 384 21121
(+44 121 415 7592 if calling from outside the UK).
3. Dividend Reinvestment Plan (DRIP): The Company is pleased to
offer a DRIP which gives shareholders the opportunity to build their
shareholding in the Company in a convenient and cost-effective way.
Instead of receiving your dividend in cash, you receive as many whole
shares as can be bought with your dividend, taking into account
related purchase costs; any residual cash is then carried forward
and added to your next dividend. If you wish to join the DRIP, you
can download copies of the DRIP terms and conditions and the DRIP
mandate form from the Dividends section of the Man website. Simply
complete the DRIP mandate form and return it to Equiniti. Should you
have any questions regarding the DRIP, or to request a paper mandate
form, please contact Equiniti on 0371 384 21121 (+44 121 415 7592 if
calling from outside the UK). Please note that if you wish to join the
DRIP in time for the payment of the forthcoming final dividend for
the year ended 31 December 2017, Equiniti must have received your
instruction by 5.00pm on 27 April 2018. Instructions received after this
date will be applied to the next dividend payment.
Notes:
1 Lines are open from 8.30am to 5.30pm, each business day.
2 Please note that a payment charge will be deducted from each individual payment before
conversion to your local currency.
145
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report SHAREHOLDER INFORMATION CONTINUED
Dividends paid in the 2017/18 tax year
Interim dividend for the year ended 31 Dec 2017
Final dividend for the year ended 31 Dec 2016
Dividend
no
O/21
O/20
Payment
date
Amount per
share (p)
Ex-dividend
date
Record
date
06/09/17
12/05/17
3.79
3.62
17/08/17
20/04/17
18/08/17
21/04/17
DRIP share
price
(p)
164.9191
161.5239
DRIP purchase
date
06/09/17
12/05/17
Dividend history
To help shareholders with their tax affairs, details of dividends paid in
the 2017/18 tax year can be found above. Please note that the dividend
amounts are declared in US Dollars but paid in Sterling. For details of
historical payments, please refer to the Dividends section of our corporate
website which can be found under Investor Relations.
Changes to tax on dividend income
HM Revenue and Customs has announced that, from 6 April 2018, the tax
free dividend allowance will be reduced from £5,000 to £2,000 per annum.
For further information, and to see how you might be affected by the
changes, please refer to the HMRC website.
Shareholder communications
Annual and Interim Reports
Man publishes an Annual and Interim Report every year. The Annual
Report is sent to shareholders in March through the post unless the
shareholder has chosen to receive shareholder communications
electronically (see ‘E-communications’ below). The Interim Report is
published on the website in early August and printed copies are available
on request from the Company Secretary.
E-communications
You can help Man to reduce its printing and postage costs as well as its
carbon footprint by signing up to receive communications electronically
rather than receiving printed documents such as Annual Reports and
Notices of AGMs in the post. To sign up for e-communications, simply
register on the Equiniti Shareview website. You will need your Shareholder
Reference, which can be found on your share certificate, dividend
confirmation or proxy card, in order to register. Once registered, you will
need to change your mailing preference to e-communications and provide
your email address. You will then receive an email each time a shareholder
communication or document becomes available on the Man website.
Managing your shareholding
Online, by post, or by phone
Many aspects of your shareholding can be managed by registering on the
Equiniti Shareview website. For enquiries about your shareholding you can
also contact Equiniti in writing at Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA, or by telephone on 0371 384 21121,
quoting Reference No 874. Callers from outside the UK should telephone
+44 121 415 7592. Please quote your Shareholder Reference when
contacting Equiniti.
Share dealing service
Equiniti provides a share dealing facility through which you can buy or
sell Man Group plc shares in the UK. The service is provided by Equiniti
Financial Services Limited and can be accessed via the dealing section
of the Equiniti Shareview website (www.shareview.co.uk/dealing). To use
Equiniti’s telephone dealing service, please call 03456 037 037 between
8.00am and 4.30pm Monday to Friday. You can also buy and sell shares
through any authorised stockbroker or bank that offers a share dealing
service in the UK, or in your country of residence if outside the UK.
Be a ScamSmart investor – avoid investment and pension scams
Even seasoned investors have been caught out by sophisticated share
or investment scams where smooth-talking fraudsters cold call from
‘boiler rooms’ to offer them worthless, overpriced or even non-existent
shares, or to buy shares they currently hold at a price higher than the
market value. All shareholders are advised to be extremely wary of any
unsolicited advice, offers to buy shares at a discount, or offers of free
reports about the Company. It is estimated that £200 million is lost in this
way in the UK each year, with an average loss of £20,000 per investor.
The Financial Conduct Authority (FCA) provides helpful information
about such scams on its website, including practical tips on how to
protect your savings and how to report a suspected investment scam.
Man encourages its shareholders to read the information on the site which
can be accessed at www.fca.org.uk/scamsmart. You can also call the
FCA Consumer Helpline on 0800 111 6768.
How your details are protected from cybercrime
Man takes the protection of its shareholders’ personal data from the
ever-increasing threat of cybercrime very seriously. Shareholder details are
maintained by Equiniti, our Registrars, who safeguard this information to
the highest standards. Equiniti’s security measures include multiple levels
of firewall, no wireless access to the corporate network, and regular
external vulnerability scans and system penetration tests.
Company contact details
Registered office
Man Group plc
Riverbank House
2 Swan Lane
London
EC4R 3AD
Telephone: 020 7144 1000
Web: www.man.com
Registered in England and Wales with registered no: 08172396
Investor Relations
investor@man.com
Head of Investor Relations – Fiona Smart
Company Secretariat
shareholder@man.com
Company Secretary – Rachel Rowson
Company advisers
Independent auditor
Deloitte LLP
Corporate brokers
Credit Suisse
JP Morgan Cazenove
Corporate Communications
Finsbury
Registrars
Equiniti
146
Man Group plc Annual Report 2017Financial statements ALTERNATIVE PERFORMANCE MEASURES
We assess the performance of the Group using a variety of
alternative performance measures. We discuss the Group’s
results on an ‘adjusted’ basis as well as a statutory basis. The
rationale for using adjusted measures is explained below.
We also explain financial performance using measures that are not defined
under IFRS and are therefore termed ‘non-GAAP’ measures. These
non-GAAP measures are explained below. The alternative performance
measures we use may not be directly comparable with similarly titled
measures by other companies.
Funds under management (FUM)
FUM is the assets that the Group manages for investors in fund entities.
FUM is a key indicator of our performance as an investment manager and
our ability to remain competitive and build a sustainable business. FUM is
measured based on management fee earning capacity. Average FUM
multiplied by our net management fee margin (see below) equates to our
management fee earning capacity. FUM is shown by product groupings
that have similar characteristics (as shown on page 25). Management
focus on the movements in FUM split between the following categories:
Net inflows/outflows
Net inflows/outflows are a measure of our ability to attract and retain
investor capital. Net flows are calculated as sales less redemptions.
Further details are included on page 23.
Investment movement
Investment movement is a measure of the performance of the funds we
manage for our investors. It is calculated as the fund performance of each
strategy multiplied by the FUM in that strategy. Further details are included
on page 22.
FX and other movements
Some of the Group’s FUM is denominated in currencies other than USD.
FX movements represent the impact of translating non-USD denominated
FUM into USD. Other movements principally relate to maturities and
leverage movements.
Asset weighted outperformance versus benchmark
The asset weighted outperformance relative to peers for the period
stated is calculated using the asset weighted average performance
relative to peers for all strategies where we have identified and can
access an appropriate peer composite. The performance of our
strategies is measured net of management fees charged and, as
applicable, performance fees charged. As at 31 December 2017 it
covers 87% of the FUM of the Group and excludes infrastructure
mandates, Global Private Markets and collateralised loan obligations.
Asset weighted outperformance versus benchmark will be
added as a new KPI for the 2018 financial year (page 22).
Net management fee revenue and margins
Margins are an indication of the revenue margins negotiated with our
institutional and retail investors net of any distribution costs paid to
intermediaries and are a primary indicator of future revenues. Net
management fee revenue is defined as gross management fee revenue
and share of post-tax profits of associates less distribution costs, plus
management fees relating to consolidated fund entities (Note 13.2 to the
Group financial statements) which represent the third party share and are
therefore externally generated. Net management fee margin is calculated
as net management fee revenue, excluding share of post-tax profits of
associates, divided by average FUM. Net management fee revenue and
margins are shown on page 26.
Core net management fee revenue
Core net management fee revenue excludes net management fee revenue
relating to guaranteed products, sales commission income from Nephila
(Note 17) and share of post-tax profits of associates. These items have
been excluded in order to better present the core profitability of the Group
given the roll-off of the legacy guaranteed product FUM, income from the
Nephila sales commission agreement which ended during 2017, and share
of post-tax profits of associates which is generated externally. The detailed
calculation of core net management fee revenue is shown on page 26.
Run rate net management fee revenue and margins
In addition to the net management fee revenue and margins for the year,
as detailed above, we also use run rate net management fee revenue and
run rate margins as at the end of the year. These measures give the most
up to date indication of our revenue streams at the period end date. The
run rate net management fee margin is calculated as net management
fee revenue for the last quarter divided by the average FUM for the last
quarter on a fund by fund basis. Run rate net management fee revenue
is calculated as the run rate net management fee margin applied to the
closing FUM as at the period end, plus our share of post-tax profits of
associates for the previous 12 months.
Adjusted profit before tax and adjusted earnings per share
Adjusted profit before tax is a measure of the Group’s underlying
profitability. The directors consider that in order to assess underlying
operating performance, the Group’s profit period on period is most
meaningful when considered on a basis which excludes acquisition and
disposal related items (including non-cash items such as amortisation
of acquired intangible assets and deferred tax movements relating to the
recognition of tax assets in the US), impairment of assets, costs relating
to substantial restructuring plans, and certain significant event driven gains
or losses, which therefore reflects the revenues and costs that drive the
Group’s cash flows and inform the base on which the Group’s variable
compensation is assessed. The directors are consistent in their approach
to the classification of adjusting items period to period, maintaining an
appropriate symmetry between losses and gains and the reversal of
any accruals previously classified as adjusting items.
Adjusted earnings per share (EPS) is calculated as adjusted profit after tax
divided by the weighted average diluted number of shares.
147
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
The reconciliation of statutory profit before tax to adjusted profit before tax, and the reconciliation of statutory diluted EPS to the adjusted EPS measures
are shown below.
$m
Statutory profit/(loss) before tax
Adjusting items:
Acquisition and disposal related
Amortisation of acquired intangible assets
Revaluation of contingent consideration
Unwind of contingent consideration discount
Impairment of goodwill and acquired intangibles
Other costs
Reassessment of litigation provision
Compensation – restructuring
Other costs – restructuring
Adjusted profit before tax
Tax on adjusted profit
Adjusted profit after tax
Further details on adjusting items are included within the related notes to the Group financial statements.
The impact of adjusting items on the Group’s tax expense/credit is outlined below:
$m
Statutory tax expense/(credit)
Less tax credit/(expense) on adjusting items:
Amortisation of acquired intangible assets
Impairment of goodwill and acquired intangibles
Compensation – restructuring
Other costs – restructuring
Tax adjusting item (Note 7 to the Group financial statements)
Tax expense on adjusted profit before tax
Made up of:
Tax expense on adjusted management fee profit before tax
Tax expense on adjusted performance fee profit before tax
Note to the
Group financial
statements
Year ended
31 December
2017
Year ended
31 December
2016
272
(272)
10
25
6
10
5
16
4
5
84
15
26
–
–
(24)
4
7
384
(47)
337
94
(40)
19
379
4
–
17
4
205
(28)
177
Year ended
31 December
2017
Year ended
31 December
2016
17
10
–
1
2
17
47
24
23
(6)
15
9
3
1
6
28
25
3
Certain adjusting items are included within the notes to the Group financial statements, which can be reconciled to their adjusted equivalents as
outlined below:
$m
Total compensation costs (Note 4)
Adjusting items (as above)
Total compensation costs excluding adjusting items
Made up of:
Fixed compensation (includes salaries and associated social security costs, and pension costs)
Variable compensation (includes variable cash compensation, share-based payment charge, fund product payment
charge and associated social security costs)
Total other costs (Note 5)
Adjusting items (as above)
Total other costs excluding adjusting items
Total finance expense (Note 6)
Total finance income (Note 6)
Net finance expense, including adjusting items
Adjusting items (as above)
Net finance expense excluding adjusting items
148
Year ended
31 December
2017
Year ended
31 December
2016
478
(4)
474
174
300
173
(7)
166
38
(3)
35
(26)
9
405
(17)
388
182
206
176
(8)
168
32
(2)
30
(19)
11
Man Group plc Annual Report 2017Financial statements Adjusted management fee EPS
Man’s dividend policy is disclosed on page 29. Dividends paid to shareholders (or adjusted management fee EPS) are determined based on the adjusted
management fee profit before tax. Adjusted management fee EPS is calculated using post-tax profits excluding performance fees and adjusting items,
divided by the weighted average diluted number of shares.
The reconciliation from EPS (Note 8 to the Group financial statements) to adjusted EPS is provided below:
Statutory profit/(loss) after tax
Effect of potential ordinary shares1
Adjusting items
Tax adjusting items
Adjusted profit after tax
Less adjusted performance fee profit
Adjusted management fee profit after tax
Year ended 31 December 2017
Year ended 31 December 2016
Basic and
diluted post-
tax earnings
$m
Basic
earnings
per share
cents
Diluted
earnings
per share
cents
Basic and
diluted post-
tax earnings
$m
Basic
earnings
per share
cents
Diluted
earnings
per share
cents
255
–
112
(30)
337
(158)
179
15.5
–
6.8
(1.8)
20.5
(9.6)
10.9
15.3
–
6.8
(1.8)
20.3
(9.5)
10.8
(266)
–
477
(34)
177
(24)
153
(15.8)
–
28.4
(2.1)
10.5
(1.4)
9.1
(15.8)
0.1
28.1
(2.0)
10.4
(1.4)
9.0
Note:
1 As their inclusion would decrease the loss per share in 2016, potential ordinary shares have not been treated as dilutive and have therefore been excluded from the diluted statutory EPS calculation.
Adjusted management fee and performance fee profit before tax
Adjusted profit before tax is split between adjusted management fee profit before tax and adjusted performance fee profit before tax to separate out the
variable performance fee related earnings of the business from the underlying management fee earnings of the business, as follows:
$m
Gross management and other fees1
Share of post-tax profit of associates
Less:
Distribution costs
Asset servicing
Compensation
Other costs1
Net finance expense
Adjusted management fee profit before tax
Exclude: Net management fees from guaranteed products,
commission income and share of post-tax profits of associates
Core management fee profit before tax
Performance fees
Gains on investments and other financial instruments2
Less:
Compensation
Finance expense
Adjusted performance fee profit before tax
Year ended
31 December
2017
Year ended
31 December
2016
784
8
(56)
(37)
(331)
(165)
–
203
(25)
178
289
44
(143)
(9)
181
750
2
(61)
(33)
(312)
(166)
(2)
178
(46)
132
81
31
(76)
(9)
27
Notes:
1 Gross management and other fees also includes $3 million (2016: $4 million) of management fee revenue, performance fees include $2 million (2016: $nil) of performance fee revenue and other
costs includes a deduction of $1 million of costs (2016: $2 million) relating to line-by-line consolidated fund entities for the third-party share (per Group financial statements Note 13.2 on page 124).
2 Gains on investments includes income or gains on investments and other financial instruments of $64 million (2016: $52 million), less $14 million (2016: $15 million) third party share of gains relating
to line-by-line consolidated fund entities, less the reclassification of management fee revenue of $3 million, performance fee revenue of $2 million and other costs of $1 million as above (2016: $4
million, $nil and $2 million respectively).
Core management fee profit before tax
Core management fee profit before tax is adjusted management fee profit before tax, excluding net management fees relating to guaranteed products, sales
commission income from Nephila (Note 17) and share of post-tax profits of associates, as detailed on page 147 for core net management fee revenue.
149
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Adjusted EBITDA
As the Group has a number of non-cash items in the income statement, it is important to focus on cash earnings to measure the true earnings
generation of the Group. Adjusted EBITDA represents our profitability excluding non-cash items.
Reconciliation of adjusted profit before tax to adjusted EBITDA
$m
Adjusted profit before tax (refer to page 148)
Add back:
Net finance expense
Depreciation
Amortisation of other intangibles
Current year amortisation of deferred compensation
Less:
Deferred compensation awards relating to the current year
Adjusted EBITDA
Made up of:
Adjusted management fee EBITDA¹
Adjusted performance fee EBITDA²
Year ended
31 December
2017
Year ended
31 December
2016
384
205
9
12
7
59
(100)
371
203
168
11
11
5
55
(63)
224
181
43
1
2
Includes the management fee related allocation for compensation costs of $331 million (2016: $312 million) and the deduction of management fee related deferred compensation awards relating
to the current year of $52 million (2016: $48 million).
Includes the performance fee related allocation for compensation costs of $143 million (2016: $76 million) and the deduction of performance fee related deferred compensation awards relating
to the current year of $48 million (2016: $15 million).
Adjusted management fee EBITDA margin
The adjusted management fee EBITDA margin is a measure of the underlying profitability of the Group, and a KPI as included on page 23. It is calculated
as a percentage of net management fee revenue (gross management fee revenue and share of post-tax profits of associates less distribution costs).
Compensation ratio
The compensation ratio measures our compensation costs relative to our revenue. The Group’s compensation ratio is generally between 40% to 50%
of net revenue, depending on the mix and level of revenue. It is calculated as total compensation divided by net revenue. Details of the current year
compensation ratio are included on page 27.
150
Man Group plc Annual Report 2017Financial statements GLOSSARY
Absolute return
Alternative strategies where clients expect the strategy may have net long,
short or neutral exposure to asset classes, and that may make use of
leverage to achieve those exposures
Actively Managed
The management of assets based on active decision-making as opposed
to aiming to replicate an index
AGM
Annual General Meeting
Alpha
Excess return over beta relative to a market benchmark, or a measure
of the ‘value add’ by an investment manager
Alternative
An alternative investment is an asset that is not one of the conventional
investment types, such as stocks, bonds and cash
ARCom
Audit and Risk Committee
Basis point (bps)
One one-hundredth of a percentage point (0.01%)
Discretionary
Discretionary investment management is a form of investment
management in which buy and sell decisions are made by a portfolio
manager. The term ‘discretionary’ refers to the fact that investment
decisions are made at the portfolio manager’s discretion
DRIVE
Drive is our global internal diversity and inclusion network which is
designed to inform, support and inspire our people. The network’s mission
is to advance Man Group’s efforts in promoting and valuing diversity and
inclusion throughout the firm
Employee benefit trust
An employee benefit trust is a type of discretionary trust established to
hold cash or other assets for the benefit of employees, such as satisfying
share awards, with a view to facilitating the attraction, retention and
motivation of employees
ESG
Environmental, Social and Governance
External Audit
An external auditor performs an audit, in accordance with specific laws or
rules, of the financial statements of an organisation and is independent of
the entity being audited
Benchmark
A standard against which the performance of a security, mutual fund
or investment manager can be measured, generally broad market and
market-segment stock and bond indexes are used for this purpose
FCA
Financial Conduct Authority
HMRC
Her Majesty’s Revenue and Customs
Beta
Market returns
ICAAP
International Capital Adequacy and Assessment Process
Brexit
A blend of the words ‘British’ and ‘exit’ which refers to the United
Kingdom’s potential withdrawal from the European Union
IFRS
International Financial Reporting Standards
Carbon dioxide equivalent (CO2e)
A standard unit for measuring carbon footprints. It enables the impact
of our different greenhouse gas emissions on global warming to be
expressed using an equivalent amount of carbon dioxide (CO2) as
reference
Cash costs
Costs excluding depreciation and amortisation
CLO
Collateralized loan obligations are a security backed by a pool of debt,
often low-rated corporate loans
Compensation cost
Total employee benefits expense
D&I
Diversity and Inclusion
Defined benefit (DB) pension scheme
A pension benefit where the employer has an obligation to provide
participating employees with pension payments that represent a specified
percentage of their salary for each year of service
Internal Audit
Provide independent assurance that an organisation’s risk management,
governance and internal control processes are operating effectively
Investment returns
The increase in FUM attributable to investment performance, market
movements and foreign exchange
KPI
Key Performance Indicators
Long Only
Long only refers to a policy of only holding ‘long’ positions in assets and
securities
Machine Learning
A process in which a range of applied algorithms recognize repeatable
patterns and relationships within observed data
MiFID II
The second iteration of the Markets in Financial Instruments Directive
Passive Products
Products which are intended to replicate an index
Defined contribution (DC) pension scheme
A pension benefit where the employer’s contribution to an employee’s
pension is measured as, and limited to, a specified amount, usually a
percentage of salary
Pillar 1
The minimum regulatory capital requirements in relation to credit risk,
operational risk and market risk taken by the Group as principal
151
Man Group plc Annual Report 2017Financial statementsCorporate governanceStrategic report GLOSSARY CONTINUED
Pillar 2
The requirement for companies to assess the level of additional regulatory
capital held against risk not covered in Pillar 1
Pillar 3
This complements Pillar 1 and Pillar 2 with the aim of improving market
discipline by requiring companies to publish certain details of their risks,
capital and risk management. Man Group’s Pillar 3 disclosures are
available at www.man.com/investor-relations
Quantitative or Quant
Quantitative strategies use computer models to make trading decisions.
A Quant is a person who specialises in the application of mathematical
and statistical methods to financial and risk management problems
Regulatory Capital
Regulatory Capital is the amount of risk capital set by legislation or local
regulators, which companies must hold against any difficulties such as
market or credit risks
Senior Management Executive Committee
Committee of Executives within Man Group that work together to advise
the CEO and are in charge of specific aspects of the Group
Systematic
Systematic investment managers attempt to remove the behavioural
component of investing by using computer algorithms to make investment
decisions
Total Return
Alternative strategies where clients expect the strategy to have some
positive exposure to particular risk factors over the course of a market
cycle although the level of exposure may vary over time
UN PRI
The United Nations-supported Principles for Responsible Investment
Initiative is an international network of investors working together to
implement the six Principles for Responsible Investment. Its goal is to
understand the implications of sustainability for investors and support
signatories to incorporate these issues into their investment decision-
making and ownership practices
152
Man Group plc Annual Report 2017Financial statements M
a
n
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
7
Man Group plc
Riverbank House
2 Swan Lane
London, EC4R 3AD
man.com