Man Group Limited

Luke Ellis - Chief Executive Officer Mark Jones - Chief Financial Officer

Arnaud Giblat - Exane Hubert Lam - Bank of America/Merrill Lynch Haley Tam - Citi Anil Sharma - Morgan Stanley Gurjit Kambo - JPMorgan Mike Werner - UBS Tom Mills - Credit Suisse

So I am going to start with a quick run-through and overview of the first half. Mark will then take you through the numbers as usual and I will come back and talk about how we are going on strategic priorities and at least a brief comment on the outlook and then we will take questions.

So please report the first half of the year was net inflows of $8.3 billion, which is a record for the firm. I think that’s a testament to our client relationships and builds on the firm foundations that we have laid across the organization over the last 18 months.

It’s also really pleasing to see the breadth of products into which the clients invested. So, we saw continued interest in our alternative risk premium in the emerging market debt, but also the UK and European discretionary long-only strategies.

And pleasingly that was a noticeable pickup in demand for the equity long short strategies. Overall, it was a choppy period for markets, which affected the absolute performance across the group, particularly in a couple of long-only numeric emerging markets in the Japan CoreAlpha strategies.

The more difficult environment for alpha generation, limited particularly our seeding gains, but also the performance fee generation in the half. Our relative performance across strategies were slightly ahead of peers with asset-weighted outperformance of 0.3% for the period, but that’s behind our recent run-rates of outperformance.

Funds under management ended at $113.7 billion sets up 4%, with net inflows partially offset by negative investment movements, as said before, on FX FUM headwind as the US dollar strengthened against most major currencies, that left adjusted PBT increasing by 5% to $153 million compared to the first half of 2017, primarily driven by the higher management fee revenue and partly offset again by the lower seed gains. Adjusted management fee PBT was up 26% versus the first half of 2017, that’s from a higher FUM and the lower fixed cash cost, but partially offset by the lower associated management fee margins compared to the first half of last year.

Performance fees were in line with first half of 2017, but the lower seed book gains led to lower performance fee profits and then statutory profit before tax was $90 million. In line with our usual dividend policy, we will be paying an interim dividend equating to adjusted net management fee earnings per share, so that $0.64 or £4.88 per share payable in September and that’s up 28% in dollars or 29% in sterling compared to the first half of last year.

So, with those headlines, I will pass you over to mark for the detail.

Thank you, Luke and good morning everyone. I will start with an overview of our P&L and take you through the normal detail on FUM revenue costs and capital.

Net management fees were up 13% to just over $400 million, driven by the strong FUM growth partially offset by the decline in our revenue margin. As Luke said, the first half was a more difficult environment for alpha, which impacted our performance fee generation and our seed gains.

Performance fees were $83 million and investment gains were $2 million. Investment gains were significantly lower than last year reflecting that market backdrop.

Our adjusted management fee PBT was $120 million, up 26%. This was driven by the higher management fees and reduced fixed cash costs.

Our total adjusted PBT was up 5% to $153 million with the strong management fee growth being partially offset by lower performance fee profits. The adjusting items were slightly lower than last year due to a smaller increase in the contingent consideration.

Our total adjusted EPS was $0.81 per share, up 8% year-on-year which is faster than our PBT growth due to the share buyback. Turning now to FUM, as Luke mentioned, FUM was up 4% to $113.7 billion driven by those net inflows were $8.3 billion.

The flows were broad-based and we had eight strategies with net flows of more than $0.5 billion in the half. The negative investment movement of $1.7 billion was driven by equity market moves with about $1 billion coming from declines in our Japanese and EM long-only strategies.

In addition, as we described in February, momentum strategies had a difficult start to the year and didn’t recover those losses in the second quarter. The negative performance there was partially offset by positive returns in our UK and European focused discretionary strategies.

FX moves reduced FUM by $1.3 billion as the dollar strengthened and other movements reduced FUM by $700 million, which included $300 million of CLO maturities, GPM loan repayments of $300 million and $100 million of guaranteed product maturities. Turning now to the net management fee margins, as we pointed out in our release this morning, we have been notified by one of our large infrastructure clients that they intend to redeem $2.2 billion in the third quarter as they reallocate part of their holdings with us.

Given the low margin nature of that business, the impact on revenues is not material. We have adjusted the run-rate margins we share here to account for this pending redemption.

As you can see from this slide, the group run-rate margin was stable over the half as the mix effects that we have seen previously reduced. And you can also see the trend in each category is more stable with the new categorizations.

The slight decrease in the absolute return margin is due to the continued growth in our institutional assets and the outflows from some of our historic retail business, particularly AHL Diversified. Turning to multi-manager, that’s actually increased to 40 basis points, but that’s mainly due to the impact of the infrastructure redemption I just mentioned.

We still expect multi-manager margins to decline as the business shifts to infrastructure and managed account mandates. The margin for total return in systematic long-only both increased slightly, but there is no real underlying trend to speak of and the discretionary long-only run-rate is slightly down due to mix shifts away from Japan CoreAlpha in the half.

Bringing together FUM and margin, you can see that the increase in the core net management fees compared to 2017 was driven by our total return and discretionary long-only strategies. Net management fees in the absolute return category were slightly up driven by the strong growth in equity long-short strategies, where FUM has essentially doubled in the last 12 months partially offset by the impact of negative performance at AHL.

While assets have grown in the multi-management category, this business remains in transition from a traditional fund to fund’s business to a solutions provider and as a result revenues have declined. The headwind from the run-off of our legacy guaranteed products has reduced leaving the overall growth in net management fees at 13% for the half.

And let’s now look at our performance fees. As I said earlier, we earned $83 million of performance fees in the half.

This came from 15 strategies, $57 million was from AHL with $43 million from Evolution, $8 million from Alpha and Diversified, and $6 million from the AHL Institutional Solutions. GLG earned $24 million of performance fees, the majority of which were from the European long-short, European distressed and other long-short equity strategies, $1 million came from each of FRM and Numeric, and as I said, there was $2 million of seed gains.

We had $11 billion of performance fee earning from at peak at the end of June, which has crystallization dates in the second half of this year. Of that $200 million is in AHL strategies, but then there is another about $9 billion of AHL funds, which is within 5% peak.

The majority of which is in dimension in Alpha, so it’s worth keeping an eye on those when you are modeling 2018 fees. $6.6 billion of GLG FUM was at peak and the performance fees of all of those strategies crystallized in December.

There is also $4 billion of Numeric FUM and the majority of those crystallized in Q4. While we always give you this sort of detail to help you with your short-term modeling, the point I really want to emphasize in our performance fee earning capability over the cycle.

Performance fees are a significant earnings stream for our shareholders over time and they are an earnings stream that we have either used to make value-adding acquisitions or that we have returned to shareholders via buybacks as you can see at the chart on the bottom of this page. Over that time period, we have announced $590 million of buybacks in addition to the nearly $800 million of dividends.

While we cannot control the performance outcome in any given year that depends on the market environment, we are focused on improving the quality of the strategies over time and growing our performance fee earning capacity. Turning now to costs, fixed cash costs for the period were $154 million, 4% lower than last year.

There were cost increases from MiFID II and the additional investments in our client service and investment management capabilities. These were more than offset by the impact of real estate efficiencies and most significantly by a favorable sterling hedge rate with a $12 million FX benefit in the first half.

As we explained to the full year, we are investing $15 million this year in growing our investment and client service capabilities. Hiring has been a little slower than we have planned as we source the right people.

Fixed cash cost will therefore increase in the second half due both to the higher sterling hedge rate of 1.33 versus 1.26 and due to the impact of high headcount. Turning to our comp ratio that was 47% for the half, up 1% compared to the same time last year.

That increase is really due to the lower level of investment gains. Netting of the half year was close to $9 million, up marginally on the equivalent time last year.

To reiterate what we have said previously, we expect to be at the higher end of the range in years when absolute performance fees are low and the proportion from GLG and Numeric is high and conversely we expect to be at the low end of the age when absolutely fees are high and the proportion from AHL and FRM is high. As we just ran through the majority of funds currently at high watermark from Numeric and GLG, if that’s reflected in second half performance fees, then 2018 would be a year with a high percentage of fees from GLG and Numeric and we would expect to be at the higher end of our range.

Asset servicing costs were $25 million. The increase is due to the higher FUM and the additional MiFID costs in the asset servicing line.

D&A was in line with expectations at $11 million. Turning now to our core business, as you all know, Man has moved from the legacy business model focused on guaranteed products through our diversified and institutional business of today.

Management fees in the core business grew 16% driven by our strong organic growth, adjusted management fee PBT grew by 26%, the core management PBT increased by 42%. We are at the end of the runoff process for our legacy business now and we are focused on organic growth in our core business.

Lastly, before handing back to Luke, let me run you through the key points on our balance sheet. We continue to actively manage shareholders capital.

In March, we completed the buyback we had announced in 2017 and in April, we announced a further $100 million buyback. As of now, we are basically halfway through that with an average price of £1.80.

As we have previously outlined, we have a seeding program to support the growth of new products, which is managed within a $75 million bar limit. This e-book increased to $563 million, up from $480 million at year end as we look to support to range of new strategies.

Surplus capital after the normal adjustments is around $350 million and as we have explained previously, we expect the new lease accounting standard to reduce our capital surplus by about £90 million or $120 million. Pro forma for that change surplus capital is $230 million.

With that, let me hand back to Luke.

Thanks Mark. Right, so now I will give you a bit of update on the progress we are making more generally.

As always, our first priority is generating outperformance for clients through high-quality research, the quality of our people and the strength of our technology. In terms of generating outflow as I touched on earlier it was a tougher environment resulting in a choppy picture across the group with asset weighted outperformance versus peers across our strategies of an 0.3% in the first half and about the same against benchmarks.

Given the mixed results across the strategies, we will have a look at that in a little bit of detail. As we described previously, momentum strategies had a difficult start to the year and while the second quarter was more positive, they have yet to fully recover the losses from February.

As a result, AHL’s flagship strategies ended the quarter with negative investment performance between 2% and 3%, which compares to the BTOP index, which was down about 3.6%, well that means the 3-year rolling returns obviously excluding EVO, where the returns standout. Of the AHL FUMs are positive, but they are not that exciting.

Clients are very clear that they own the momentum strategies for their ability to generate strong performance during a sustained market sell-off. Hence clients are very sanguine about the performance in the first half of the year in AHL.

We saw good performance from GLG’s discretionary alternative strategies. Strongly performing strategies included the European long-short strategy, which was up 2.3% for the period, which is running with a 1-year shop of 2.1 as well as the Alpha Select European mid-cap on our credit strategies, particularly the global credit multi-strategy in European distressed funds.

Within the total return category, we are really pleased with how the EM debt total return strategy navigated what we all know was a difficult market environment returning positive 2.2%. As we mentioned at the year end results, Guillermo has been bearishly positioned and as a result outperformed his peers by about 8% in the first half making money despite a big sell-off.

FRM strategies had a more difficult period mainly due to their heavy momentum exposure. So, FRM Diversified II was basically just under flat, but underperformed the benchmark by about 1.7.

Looking now at the long-onlies, as you can see from this slide, Numeric’s range of strategies had a mix relative performance in the half. Global Core, which is Numeric’s largest strategy, underperformed the reference index by 2.6% hence due to its value bars with essentially all of the underperformance coming in the U.S.

and similarly the U.S. small cap core performance there underperformed its reference benchmark by 4.5%.

Positive alpha was generated in European core and again in the emerging markets core despite the sell-off performing, outperforming their indices by 2.3% and 0.4%, respectively. The group’s largest strategy still is Japan CoreAlpha and it also underperformed its benchmark due to the value bars.

But by contrast, our UK long-only funds and our Continental European equity strategy, both of which now have over $2 billion of assets continued their run of outperformance. So, if you go into a little more detail on the work we have been doing on research and enhancing our technology platform to improve the alpha generation across the FUM and therefore further develop the breadth of offerings we have for clients.

During the first half of the year, across our quantitative business, our ongoing focus on research continued to drive the development of strategies. An example of that, Man Numeric developed the systematic approach to mapping and quantifying the fundamental network effects between suppliers, customers and competitors across markets.

We believe this can help both the strategies at Numeric and also the discretionary portfolio managers as you understand the equity market universe using a much more consistent framework. AHL continues to add new markets, which has been one of our key differentiators and continuing to diversify the drivers across its portfolio, they currently trade over 600 markets.

And in the last year, they spent a lot of time working on mid-frequency equities, trading a little bit faster and actually AHL now trades more volume in equities than any of the other divisions of Man and also in single stock options to increase the breadth of assets and models that they trade. Within our discretionary business, we are embedding quantitative techniques to support and enhance the alpha from each team.

Developments include the deployment of quantitative techniques through systemic risk as well as the Centerburg within our long-short program, which compliments the discretionary decision-making with a systematic overlay and GLG also continues to make progress in other areas and we appointed a credit CIO earlier this year to help develop our credit offering. This is an area where we have significant untapped potential and it’s a key focus of mind to develop a broader credit offering.

At the group level, we made further progress in centralizing our trading and execution as we build out our central trading technology and trading research function. A globally coordinated execution team allows us to adapt to today’s more complex market structures and deliver better outcomes for all of our investment engines.

We expect this to further reduce our trading costs, which translates either into improved performance for our clients or also extra capacity in various strategies. We remain committed to keeping technology at the heart of the firm in a very rapidly evolving world.

We have appointed an Alpha Chief Technology Officer to manage the development of technology used across the firm to generate and deliver the alpha our clients are looking for. He will be supported by a team drown from across the different investment engines.

This new structure supports our vision for creating a technology team and environment in a platform, which promotes the highest level of innovation and agility, while also minimizing any unnecessary duplication of technology tools and processes across Man. As ever, we continue to look at possible acquisitions to expand our offering for clients, but honestly, we haven’t identified anything that meets our criteria or of a sensible pricing structure that delivers appropriate risk reward for shareholders.

Turning to clients, during the first half of the year, we built upon the new style of engagement that we developed in the last couple of years with our existing and potential clients, making good progress in building long-term relationships with clients and adding new relationships with strategically important asset allocators and distributors globally. In line with this focus, we continue to see the trend of clients investing across the firm with 72% of the FUM related to clients invested in two or more products and 57% related to clients invested in four or more products.

We repeatedly see that our clients value both the strength and the breadth of our offering and our ability to provide them with a single point of contact who understands the clients and their individual requirements. Sales in the first half were $19.9 billion, up 14% compared to the first half of 2017.

We have continued to see interest and inflows as I mentioned into our risk premia strategy with $3.1 billion of sales, our EM debt strategies with $1.6 billion of sales. Man GLG’s European long short strategies collectively had strong investment performance in 2017 and that translated to $1 billion of net inflows in the period.

And there were also strong inflows as mentioned into UK long-only and Continental European strategies. Redemptions were $11.6 billion in the 6 months of June, that’s up from $9.3 billion in the first half of last year, but actually the redemption rate is reasonably a similar percentage to the previous year.

As Mark mentioned earlier, one of our large infrastructure clients is notified as pending 2.2 redemption from a low margin mandates they have with us. Our central infrastructure is the foundations on which the firm operates.

This includes our proprietary central technology platform, which enables us to evolve and adapt as markets and clients needs shift as well as our infrastructure teams more broadly in the enterprise technology compliance, legal and operation functions. As I set out earlier, we have moved to centralize both our execution on alpha technology teams, which will help drive excellence in these areas and minimize duplication to the benefit of both clients and shareholders.

As well as its ongoing benefits, our infrastructure positions us to integrate new acquisitions or new teams rapidly with the potential for significant operational cost synergies, while preserving the added investment process. While we don’t see many acquisition opportunities that are attractive today, we do think this capability is very valuable to shareholders over time.

The combination of our centralized infrastructure and technology and the breadth of our investment strategies means we are well-positioned to develop the spoke solutions to suit specific client requirements, drawing upon the expertise available across the business. We find increasingly that institutional clients want strategies tailored to their needs.

In response to this, we work with our clients to understand their circumstances and to create individualized solutions for them. To give you an example of this during the first half, we launched a bespoke solution for a European client combining strategies from AHL, Numeric and GLG and delivering what we think is a unique blend of discretionary, fundamental quantitative and technical quantitative approaches to generating stock alpha.

The mandate relied on the unique combination of the quality and breadth of our strategies and our ability to customize it to the specific structuring requirements of the client. We think that these – we are only one of a very few firms that can address these kinds of client needs and they are increasingly important around the world.

As Mark explained earlier, we continue to invest in new talent and technology and have committed an additional $15 million of spend into our investment and client service capabilities this year. This proves somewhat slower than intended to get the right people in, but we are confident that we will source them and this will further support our ability to deliver value-added to our clients.

During the first half of the year, remember we also successfully managed the implementation of the two lovely pieces of regulation, MiFID II and GDPR and we supported in meeting these requirements sufficiently and honestly with minimum fuss by the strength of our technology infrastructure and the efforts of our people. Before I give you some comments on the outlook, I want to talk about our approach to people and in particular our focus on talent and our commitment to diversity.

While technology is central to our delivery, we are at heart fundamentally a people business. To best serve our clients and shareholders, hiring and retaining the best people and creating an environment, which they can achieve, their potential is our top priority.

We place great importance on being an employer of choice and a good place to work for all employees. We aim for a true meritocracy where you succeed through talent, commitment, diligence and teamwork.

We are committed to supporting our employees, so that everybody at Man Group has the opportunity to be the best they can. We have developed a dedicated talent function, which focuses on helping our people achieve that potentially individually and as teams.

We also conduct regular employee surveys to get actionable feedback on what we are doing well, but most importantly, what we can improve. We also believe that by celebrating diversity and building an inclusive working environment, we encourage original and collaborative thinking with multiple and different perspectives, which positions us to deliver better results for our clients.

Encouraging diversity and inclusion is fundamental to achieving our business strategy. We operate drive and employee-led diversity and inclusion network, which seeks to inform support and inspire our people.

So far this year within drive, we have launched a dedicated pride in family’s network and we will be launching our network for black employees and allies in the third quarter. Earlier this year alongside our annual report, we issued our first annual diversity and inclusion report, which included our gender pay stats and an overview of our diversity and inclusion initiatives.

Through reporting annually on our commitment to diversity and inclusion, we will assess and monitor the progress in this area over time. In our report, we introduced the Paving the Way, our campaign for enhancing diversity of the firm and across the industry more broadly.

When it comes to achieving real change in diversity in the industry, there is no doubt that a less diverse pool of potential candidates is an inhibitor. We believe that we can and must take steps to address this pipeline issue proactively.

We have introduced a number of initiatives to support this in recent years and our Paving the Way campaign seeks to build on our efforts in this area. Regarding gender diversity, specifically Man Group this year became a signatory to the Women in Finance Charter, a pledge for gender balance across financial services.

As part of this, we have introduced a target of at least 25% female representatives in senior management roles by 2020. We are pleased to report a positive trajectory in relation to gender diversity of the firm having seen an increase in the proportion of women in senior management roles from 16% in 2016 to 20% in 2017 and we are committed to further improvement in this area and all of the other areas in the years ahead.

We also enhanced our parental leave policies, so that all new parents at the firm globally are entitled to 18 full weeks of pay. It’s not dependent on location or gender and applies to both biological and non-biological new parents.

We believe these initiatives help our people to take leave at one of the most significant times in their lives underscoring our commitment to enabling employees to have the real work life balance. I believe we do our best work for our clients when we support our employees and we value their different perspectives and experiences.

So with that bit of passionate thing, I will come to the conclusion and then take some questions. Against the tougher market backdrop for alpha and beta, the first half of 2018 is one of solid progress at Man.

We had record net inflows, which illustrates our client’s confidence in our strategies and it was particularly pleasing to see the breadth of inflows demonstrating the diversification of the business that we have talked about so much over recent years. We saw strong growth in management fee revenue and profits driven by our organic growth and by our cost efficiencies.

Performance as I mentioned was okay, but not that great. Business momentum remains good.

However, as we said many times, the institutional nature of our business means flows are likely to be uneven on a quarter-to-quarter basis and the one-off redemption that Mark talked about earlier is an example of that, but it doesn’t change our broader trajectory. So I am always a bit nervous about talking about markets in these sessions.

As nothing we do is about having a discretionary prediction of the direction of equity markets. But others in the industry have sounded somewhat downbeat on the opportunities in the last few days and honestly we don’t really see that.

As true active managers, we live in alpha space where it’s our ability to generate extra returns from our skills that dominates the outcomes for our clients. Even if the first half was a relatively tough environment, it isn’t predictive of what the forward-looking alpha opportunity is.

I spend years running a business where we tried to predict where alpha would be, what you learn is it just takes skill and you have to wait for it, but we have demonstrated over time a clear ability to generate significant alpha and value-added for our clients. To me, it’s very clear that there is a lot of money in institutional portfolios globally looking for good value-added investment ideas as beta alone is not going to generate the long-term returns they need.

So we put all of our efforts into generating high-quality value-added for our clients and whenever we do that we see demand. We remain committed to investing in talent, research and technology and as ever and I just can’t repeat it enough, it’s about focus on delivering superior risk-adjusted performance for our clients, because if we do that, that will translate into the delivery of value for our shareholders.

So with that, we will take some questions. Thank you.

Good morning. Arnaud Giblat from Exane.

Three questions please. Firstly, on surplus capital, could you perhaps comment what sort of level of surplus capital you feel comfortable operating with?

My second question is on the increase in seed capital, is that going into new products or do you have a new product pipeline you could update us on? And finally, the trends in management fee margins, you have hopefully given us your usual slide on how the run-rates are looking by category?

Could you give us a bit more granularity as to how in the absolute return products, how management fee margins are trading for AHL and for GLG?

Sure. So on surplus capital, we obviously want to run the firm in a prudent way, but we don’t comment on the sort of minimum amount above the requirements.

So, you can see the surplus that we have. We have the capital return policy that you have seen.

There is no change to that, but we wouldn’t comment beyond that.

On the seed book, yes I mean the reason the money has gone into the seed book is because of things that we are pleading, which are therefore new products. One of the things that I have tried to get away from is the bit of talking about every new product.

Obviously, every one we are launching we are excited about, everything in the seed book, we are excited about its future, but I know they won’t work. I mean, we have a history of about 50:50 on products that we launch either growing to scale or ending up getting shutdown.

I don’t worry that, that’s too lower hit rate, I wonder often if it’s too higher hit rate maybe we should take more risk with it. One of the things that I said to promise myself when I took over is we would talk about things that are working rather than things which may work in the future.

So you have seen three or four examples that we mentioned a lot about today, which are things that we launch seeded 2 years ago, 3 years ago and are now significant contributors to the firm. I am confident that some of the things in the seed book today will be significant contributors to the firm in a couple of years’ time, but I wouldn’t want to guess which one.

Just on margins, I mean let me talk through a couple of the trends, which we have talked about previously. Most of them are essentially still the patterns we see.

So in absolute return, the most obvious pattern is you have still got the AHL retail book, which is gradually reducing which is the main mix effect, going on there. There is some actual underlying pricing pressure with an absolute return.

That’s the one that is business where we see it as we have said previously and you gradually see that margin drifting down through those effects. Total return, the only particularly noticeable effect is that CLO is a typically lower fee than other things in that category, so there is some minor mix effects there.

There is no other trend that we would really draw anyone’s attention to. Multi-manager again story is very much as we have spoken about before, we expect it to be some 40 bps long-term, not commenting beyond that.

It just happens to take time now, because we have got the large redemption of an infrastructure account, but the underlying trend is still in place. Systematic long-only is really just mix of client by client.

Sometimes it takes up, sometimes it takes down. Again, it’s just a noisy pattern around that sort of wrench and then discretionary, the main thing that moves it in any given period is whether Japan CoreAlpha is a bigger or smaller proportion.

So, it’s dropped slightly now, because Japan is a slightly smaller proportion in the same way that it rose in the second half of last year, because it was a slightly higher proportion. The underlying backdrop of all of that, if you think about it at group level, we still run the business on the assumption that the industry has gentle margin pressure over time, which is why we are very focused on efficiency, but you can see the stability coming in particularly category by category with the new categorizations.

I also think – maybe underlying the question or it’s the next question coming that there have been couple of people in the CTA space who effectively look rather surprised by the fact that the price for plain vanilla momentum in developed markets, the sort of easy-to-trade futures markets has been coming down for sometime I mean years. Some people seem to have been a bit surprised by that and are now trying to reengineer their business.

We recognized 10 years ago that like everything we do, the world becomes a bit more efficient and so you need to keep innovating and creating new ideas. So, we said about 10 years ago expanding our momentum into a variety of different markets.

So, we trade a lot of markets where the value-add is good and the fees are still very good. We also trade a lot of different types of quant strategies.

And so yes if you want plain vanilla momentum in 50 large futures markets, the price has been coming down continuously for a while. You can either sit or go, oh God or you can create new innovative strategies that come in as bits roll down here you put new things in up here and combine, you keep the average fees at reasonably the same level.

Good morning. It’s Hubert Lam from Bank of America/Merrill Lynch.

Couple of questions. Firstly, what were sales like for a trend following AHL in the first half and do you expect that to change in the second half or is it just due to performance and because of the weakness, you don’t expect much that to pickup unless performance turns around?

It’s the first question. Second question is the flows in Q2 in terms of asset class were pretty consistent across Q2, Q1, quarter in a risk premia emerging market debt.

Do you see that changing at all in the second half of the year or do you think you still can see momentum in these strategies that helped you in the first half?

So the technical number on AHL is about flat, right. I mean, it roughly flows in the momentum strategies at AHL was about flat in the first half of the year, that’s made up of a mixture of by definition, after what happened in February, it’s no surprise that there was a slowdown in conversations for a couple of months, while people figured it out, but as I say clients are very sanguine about what’s going on, combined with a couple of the products, which have been shot.

And so that is quite how to get flows in something that’s shot. What’s the second bit?

The Q2 flows, so...

Yes, I mean, which areas – it’s always hard to predict in a way, but the trick is to have a breadth of things available. I think what you didn’t mention was the very nice flows in the different equity long-short strategies in the first half.

And given performance there and given nerves about markets, I wouldn’t be surprised to see that carry on, but what’s – this diversity point that we have talked about trying to get there a lot, when we look at the flows we have a big pipeline of different things that might happen and what you see is that it’s spread across everything we do. Now, where it hits in a particular period is normally it’s a mixture of performance, which clearly drives client behavior.

So relatively, in a call it 12-month performance and just market environment and what’s hot or not hot at particular times. So, this flows everywhere in the business, but they won’t hit at the same time.

Hi, it’s Haley Tam from Citi. You have mentioned 72% of your firm now relates to clients investing in two products or more and also that you have now got had a centralized infrastructure, which means you can offer more customization for clients.

To think about flows maybe in a slightly different way, we hear a lot from traditional asset managers, they talk about investment solutions. But when clients are coming to you, how many of them are now coming to you for a product versus how many are coming to you looking for solutions if we can get a handle in that sort of change, please?

Thank you.

I tried to use an – I always tried to use analogies and then people look at me like I am mad. So we will see if this works on you.

The way I think about it, the reality is the first thing we do with the client is almost always a product and that is a door that they come into the house. But as a firm, we have a lot of different doors that you can get into the house.

When somebody has done something with us, they come into the house, they will almost always start wandering around the house looking at other things we have within the building and things move from single products to multiple products to solutions. Sometimes people come and say, hey, I have never done business with you, but can you do me a three-leggie peak with a – I mean whatever kind of them, you know what I mean.

It’s some complicated solution, but not much, but how many of our conversations move beyond single products? Almost all of them, that makes sense.

In another way, it’s a sort of slightly fluffier statistic in the way you count it, but more than 60% of the assets, I think I am going to put that caveat in, because it’s a bit difficult to calculate are in things which have been in some form tweaked for the client as opposed to in standard commingled structures at standard commingled fees. It just gives you a sense about most of what we do is in some way reacting to the client’s needs.

Good morning. It’s Anil Sharma from Morgan Stanley.

Just a couple of questions please. In the AHL bucket, I think just under $25 billion of assets, can you give us a sense as to how much of that is legacy retail as you call it and you would expect to kind of trend out?

Secondly, I was just curious about the mandate that’s lost in Q3 the business that you set out there in infrastructure is relatively new compared to some of the other parts of the group. So, just what’s kind of changed there?

What’s happening to kind of cause a bit of disruption if you like? And then the third one is on the cost base given some pretty clear guidance, just curious as to if there is any one-offs in there which might be coming off.

So, for example, MiFID II, are you done with the MiFID II costs or is some of that going to come away? Thank you.

None paid for research. That will be bad for this group.

So, maybe on AHL, we have got $1.8 billion in the legacy retail and we have tweaked the category slightly in the press release, so that the AHL diversified is purely the legacy retail now, so you can track that more easily. So hopefully, that’s nice and clear.

Let me just do the cost one as well. No there is not really any one-offs.

Unfortunately, MiFID is with us forever until they do MiFID III. So I don’t expect any change there.

On the client question, I am trying to respect the client’s confidentiality to some degree. I mean to a degree, they deserve it, but it’s not there.

So they continue to be a client of the firm. They continue to be an infrastructure client.

They had a chunk of money in what was basically a holding pattern account waiting to find funds to invest it in. They had a change in management as can happen.

It’s one of the things when you have big accounts from institutional clients, you can certainly get a different CIO or a different person in charge and they can – and they basically decided not to invest that money into separate funds and therefore took the cash back. It was essentially – it’s almost like a cash account waiting for the things they would invest it in.

So does it change our relationship with them? No.

Does it change what’s going on in the infrastructure mandates where there is positive momentum? No, the bit we have tried to talk about with the lumpy things in flows is just we have a lot of big accounts.

We think that’s one of our skills. There are very few people in the alternative space who clients can give $1 billion or $2 billion account and so we have a good market share of those, but you are always subject to the CIO getting fired and a new one getting appointed who has a different view or a new organization structure or whatever it might be.

Did that help?

Hi, good morning. Gurjit Kambo, JPMorgan.

So, three questions. Firstly, on the U.S.

obviously, you have made a good effort there, in the 27% of AUM now from the U.S., what’s going on there? What sort of particular products potentially are selling?

Secondly, just on global private market just a comment on that, how is that going with Aalto, etcetera? And then finally just on technology, how you are leveraging technology on the discretionary portfolios, is there potentially a risk that you start to see higher correlations between the pure quant strategy and the discretionary strategies?

Sure. So, two of those in pieces.

So on the last one, one of the things we are careful not to do is we are not trying to blend alphas for – so we are giving tools to discretionary people to help them, but we are not trying to make them in some form quant and we believe that you can generate alpha from a set of ideas in discretionary process, in a quantitative process, in a fundamental quant process, in a technical quant process, you can have a growth mindset, a value mindset, I don’t believe there is any single way of generating alpha. So, we want as many different teams generating alpha as possible.

What we want is as many of the tools as you can give them that we don’t have to build 3x. One of the fascinating things is if you give literally the same dataset, but we have done it with the data set of all of your ideas, we give that to the folks in GLG, we give it to the folks in Numeric, we give it to the folks in AHL, they can all generate an alpha after that dataset, but those alphas end up being about 0.2 correlated, because they just come at the problem differently.

That is exactly what we want to maintain in the firm. We just want to have as many of the things which can be done in a centralized way once sufficiently put there and then the alpha generation is sort of broad and wide as possible if that makes sense.

What was that one?

GPM?

GPM is going very well. The small challenge we have got in GPM is that assets in that space are expensive generally and so putting money from mandates to work is slower than it might be if you weren’t being disciplined about what you are doing with it.

And as you saw, we gave $300 million back from somebody that got to the end, because they had a very good investment, but it was no longer cheap enough for what they were looking for. And so we have a – as we do in everything in public markets, we have a belief that you shouldn’t chase prices when they get too expensive and that’s been a challenge for the speed.

We have had quicker asset – or quicker client demand growth than we have been able to put the money to work at this point, but it’s better to be disciplined than it is to chase prices. The U.S.

is – I mean the U.S. is broad-based for us now.

We have a much broader client base, which means we are doing more different things with them. So, it’s not very specific.

I would say, our U.S. assets have a higher weighting to quant than our average assets.

That’s partly because the point when we were growing our U.S. relationships was a point when quant was hot and a point when GLG strategies weren’t – as you know, when we took over, the first thing we said was we had a bunch of restructuring to do in GLG.

That period coincided with the period that first growth in U.S. assets.

So, I think there is lots of potential for GLG in the U.S. over time, but it’s sort of – so if you took current weighting, it’s slightly different, but that’s just a timing thing.

Thank you. Mike Werner from UBS.

Two questions. Mostly on flows, just wondering if you can provide a little bit of color, I guess in terms of flows geographically by clients in the first half, maybe how that compared to 2017 particularly U.S.

versus Europe? And then secondly, I guess you may have alluded to this, but again on flows, just trying to take a look at the mix of new clients versus old clients and particularly how that has maybe changed or stayed the same in the first half versus last year?

Thank you.

Let me just get you the detail on the flows by geography. So, first half of this year was slightly more skewed to Europe than we have seen in the second half of last year, slightly lower in the U.S., but I wouldn’t take anything from that.

It’s just a sort of the noisiness of the flow rates. So, minus skews away from what you have seen last year but nothing that I would focus on.

Sorry, the second question?

[Technical Difficulty]

We continue to add some interesting new strategic clients. So, when we set out with a target of 50 in 3 years of new strategic clients, I am looking at Jon, because he remembers all these sales numbers in great detail, we are 30 something now, right.

37. So we added a number of those in the first half of the year, which is part of the ongoing work.

I think in some ways if you wanted to look at the untapped potential, it’s much more about doing more with existing clients than it is chasing new clients. There is lots more people we could do business with, but we can essentially fill up any good capacity we have got with existing clients.

Tom Mills from Credit Suisse. I just had a question around – yes I think you mentioned earlier that you sort of setup a mandate for a client across AHL, GLG, Numeric, which seems to be the sort of highest value thing to the client, most differentiating that you can possibly do.

Is that something that is sort of borne out of the client’s initiative or are you sort of actively getting out there and pushing that to your clients and can you do that?

A discussion with the client, where they talk about a need, in their case, their need was for something which was basically – I mean, they were like I need some stock alpha to go into my portfolio, what have you got. And I even think I was in the first meeting on the conversation.

It’s an existing client. We have a very good relationship with them, but kind of in the first or the second, but you are talking about look, we can do this or we can do that or we can do that.

What is it you are looking for what’s the constraints? As you start talking through it, they didn’t care whether it was quant or discretionary, they didn’t care they had structuring constraints, because it needed to fit into a European context in that case.

So, we had to work through a set of restructuring things, but they were like, look give me whatever you think is the best. So they had a problem that they wanted to get something and they were basically saying, you tell me what you think is the best answer.

So, we went away and came up with something which blends all of the different sources. You are obviously able to use some leverage in that.

Once you get the diversification, you get some mixed, I mean, it’s not equally weighted between the different things, there is technical reasons behind the different weightings and you end up with something which gives them what they want. The conversation to say this is an interesting idea was pretty quick, between the point where it’s an interesting idea to being able to execute it was 6 months of slog, because that’s how these things work, right.

I mean, the interesting solutions don’t happen in 1 week even if the idea of hey, why don’t we blend all the different things we have got in stop picking into single vehicles. Yes, that sounds a good idea.

That bit can be quick, but it’s your ability to go through all the stages of it and not have to worry about internal machinations of different – obviously by definition every team would like a bigger proportion of the assets and a bigger proportion of the fees and a bigger – and it’s like okay, but we have to do what’s right for the client and we will work out and we were able to do that really effectively here. So there is no point where the internal bit got in the way of giving the client the best answer, we saw the internal bits out afterwards.

Anymore? Cool.

Thank you all very much.