Man Group Limited

All right. Good morning, everybody.

Hopefully you can hear us and see us. Otherwise, it will be a bit of a lonely thing.

Thank you for joining us today. Those who don't know, I'm Luke Ellis, the CEO; and this is Mark Jones, our CFO.

Glad to see so many of you on the call today. Hope you and your families are remained safe and well during this, well, pretty difficult time.

Hopefully, this is the last time we have to do this virtually; thanks for the vaccine rollout. But then again, let's see where we are in the summer.

As this is our second results conference call using Webex, can I remind everyone that if you'd like to ask a question, you'll need to access this presentation via the Webex link found on Page 3 of the results of the results press release rather than the dial-in option. And then, if you enter your questions in the Q&A section or put your hand up and I will call on you, and we will unmute you to ask your questions.

You'll get to ask the question if the technology works verbally. But we have to unmute you one at a time.

As usual, I'll start with some highlights and an overview of last year. Mark will take you through the numbers, then I'm going to discuss some of what we've achieved, and the strengths we see in the business today.

And after that, we'll open to questions. Right.

All that out of the way, let's get into business. A few events in the last 75 years have had a profound impact on our society and our markets with the COVID-19 pandemic.

Looking back at 2020, I'm really proud of how we've responded at Man Group. Despite the market volatility, the public health emergency of more than 99% of the firm working remotely for almost all the year, our team has not missed a beat, continuing to deliver for our clients and our shareholders throughout.

Above and beyond their professionalism and commitment, I'm really proud of how the whole firm has come together to support and look after each other and our clients in these difficult testing time. We've seen a year with significant, and at times, unprecedented volatility in financial markets.

In March, markets have one of their steepest and fastest pulls on record followed in April by the reverse of the steepest of rallies. Crucially, we were able to respond at the speed circumstances required and to demonstrate the benefits of our proactive risk management and our super-efficient trading capabilities and thereby rapidly adjust positioning to the changing markets delivering for our clients in a time of crisis.

The dramatic improvement in sentiment towards the end of the year, after the first the vaccine was approved particularly benefited our long-only strategies, but also very importantly our momentum strategies as well. Against this background, we grew our funds under management to a new record of $123.6 billion.

I'm going to try and drop the dollars all the way through. So if I don't say a number, it's in dollars.

That's $5.9 billion more than the start of the year. We saw net inflows of $1.8 billion for the year.

With inflows in the second half coming in is an annualized 6%. The AHL TargetRisk family of products continues to be an important contributor it passed the $10 billion funds under management book during the year and continues to have great traction with clients.

Despite ending the year at record because the market events of March through June, the average from for 2020 was less than the 2019 average and this resulted in a reduction in management fee revenue in the year to $730 million. It's important to note, we saw strong momentum into the year-end in both performance which of course also compared to increase our firm and also inflows results again run rate, net management fees of $815 million at January 1st.

While overall management fee profits in 2020 grew by 6% supported by our cost discipline performance fees were reasonable helped by what feels somewhat like a regular December -- performance but down from a very strong year in 2019. So we total earnings per share, full year-on-year as a result as you know our robust business model and its strong cash flow generation has allowed us to return about a quarter of $1 billion to shareholders in 2020, a testament to our belief immense future growth trajectory is our decision to move to progressive dividend policy reflecting our confidence in the sustainability and cash flow generation in our business looking forward, I'll talk through that in more detail later.

This year's full year dividend in $10.06 per share amongst the baseline for the new progressive policy, resulting in a final dividend of $5.07 per share. Before we dive into more detail on our performance in 2020.

I'd like to step back for a moment in reflect on the key, fundamental strength Man Group compared to the wider industry. We have been and always will be a technology-driven investment manager.

We are a global leader in applying technology to investment management and we are essentially unique in the listed space. Our depth of knowledge and experience enable us to harness the power of technology across alpha generation trading and execution on our operating platform.

Technology doesn't work in isolation. We're a people business, our great people make our technology and I'll technology makes our people more effective in everything they do that combination of talent and technology, it gives us a sustainable competitive advantage and allows us to deliver for our clients, which drives the growth of our business to shareholders.

Turning back to 2020. Our funds under management increased by $5.9 billion to a record high of $123.6 billion, due to positive absolute performance of $3.3 billion across both alternative and long-only strategies and the net inflows of $1.8 billion.

We calculate that inflows about 4.6% better flows and peers with equivalent strategies with particularly strong market share gains in quant alternative. You will remember that we had small net outflows in the first half of the year, particularly in the second quarter as certain clients saw cash in response to the impacts of the initial COVID-19 market planning.

Then in the second-half, it was a return to business as usual from our end and we saw good net inflows, primarily from our alternative strategies, which annualized at about 6%. Let me now talk you through outflows in strategies in more detail.

In alternative strategies, we had $4.3 billion of net inflows. The AHL TargetRisk family of funds was the largest contributor, followed by Institutional Solutions in AHL and AHL Evolution and a number of the GLG liquid hedge fund.

We've talked about the fact that AHL Evolution has been closed to new money for some time to ensure we have enough liquidity to continue to actively manage the risk in the strategy. We were encouraged by having no meaningful liquidity issues in this portfolio during the March-April market dramas despite significant changes in positioning.

And so, after a thorough analysis, we decided we could take in an extra $1 billion to the strategy. We were able to fill that in a matter of literally a few weeks with an incredibly high quality listed fund.

These inflows into alternatives were partly offset by some outflows. There's always some strategies down, as well as up.

Principally, this year from GLG, the alternative risk premiere and the year-end total returns strategy. Our long-only strategies saw net outflows of $2.5 billion, partly driven by recent underperformance across the few of our valuation focused strategies, both systematic and discretionary noticeably our Japanese value strategy.

Net inflows from the GLG UK undervalue asset team, it was really in the UK income strategy, but it's the same team name of $1 billion partly helped to offset the long-only net outflows, and we've been seeing an increase in interest in value focused strategies, I think Andrew -- or like I mentioned yesterday since November. In fact, as some of the analysts have noticed, even JCA has actually had net inflows in 2021.

Overall, $1.8 billion of net inflows for the Group is a solid outcome and even more so given we think we outperformed definitely outperformed peers by 4.6%, as the equivalently weighted peer group saw net outflows. Going forward, we are convinced that liquid alternatives will continue to be a significant part of the answer to the problem of low bond yields for many clients.

Alternative managers with excellent risk management skill you can deliver historic bond line returns and risk profiles will continue to grow and we are extremely well placed in that respect. So turning to performance.

2020 was a historic year. Financial markets responded to the pandemic initially was alarmed and rapid size good clients, but then rebounded with uncharacteristic speed of governments and central banks introduced unprecedented measures.

There was a standard period of relatively steady market offering security selection, alpha opportunities is different companies COVID handling led to lots of stock and credit dispersion. Then in the last quarter, positive news about the efficacy and safety of vaccines began to help the world foresee a normalization of life and economies and equity markets went up rapidly.

Our alternative strategies were up 2% on an absolute basis, delivering $1.5 billion of outflows for our clients. The gains were driven by strong performance from AHL Alpha, which was up 7.9% and AHL TargetRisk of Alpha which was up 7.9% and AHL TargetRisk up 5.7% as well as solid gains across the GLG hedge funds with CLG innovation at 17.4% in CLG event at 11.7% being the standout performance.

Our alternative strategies also did well last year on a relative basis and outperformed by 1.4% overall. Having benefited from the rebound in equity markets in the latter part of the year or longer strategies were up 4.3% on average on an absolute basis, generating a further $1.8 billion gains for our clients.

The gains were delivered by various strategies, including the GLG Continental European growth Numeric Global Core and we can and we gain. Despite the weaker performance in the value buyer strategies particularly JCI and the GLG undervalued [indiscernible] the environment for value, investing in Japanese equities was particularly horrible in 2020, While main groups from over performed by sorry try -- I want to get while main groups from this time underperformed by 1% during 2020.

I would point to. Two things, firstly GLG to pay core alpha represents more than 100% of the overall relative underperformance of 1%.

Despite being only around $3.4 billion of pharma, at the end of the year, which tells you how tough value was in Japan last year. And secondly, things will grow the different in 2021 as of the end of February this year.

JCI with now outperforming by 11% year to date. But it's not a typo, it really is 11%, outperforming here today.

Meanwhile, our alternative strategies did well last year and outperformed said if 11.4% overall. It's also worth noting we have very little exposure to the property, parts of the global equity markets, we're not the type of investors to our names with our first profits or even earnings somewhere beyond the visible horizon.

And I'll our -- stack holdings are actually at multi-year loan. With that now, let me pass you over to Mark to talk through the numbers.

Thank you, Luke; and good morning everyone. I'll start with a bit more detail on funds under management, and then walk you through the P&L as Luke noted, the combination of net inflows and positive investment performance to call fund to $123.6billion we saw strong inflows into alternatives in particular into TargetRisk we did total return, the $3.7 billion that you can see that the total return In aggregate.

We also saw inflows into our absolute return products with a strong Q4 performance, in particular it's worth noting and repeating that we saw meaningful market share gains during the year with net inflows being 4.6% ahead of relevant industry categories. We think that reflects the quality of what we offer to our clients.

Overall, we delivered $3.3 billion of investment gains across both alternative analog new strategies both made gains during the year alternatives had a strong performance into year-end. In particular, from a number of quant alternative strategies long-only performance improved with markets and as a reminder, we have a diverse set of geographies that we invest in with a number of strategies focused outside the US.

So is that there. Just think about the S&P.

And turning now to the P&L 2020 illustrates the strength of our business. Despite the challenging environment, we saw growth in management fee profitability solid performance fee earnings, and continued cash generation and returns to shareholders.

Core net management fee revenues were $730 million for the year, down 3% due to lower average from and a small decline in average net management fee margins during the year. Performance fees were $179 million largely generated by our challenge GLG strategies and we made a gain of $20 million on our seed (inaudible), we actually made gains in both the first and second half, which reflects both effective risk management but also strong performance despite the volatile environment.

We grew management fee profits by 6% with effective cost controls more than offsetting the revenue drops as markets fell during the first half efficiency remains an important driver profits over time and we've built an efficient and effective operating platform. 2020 is the first year with zero legacy revenues after the final roll-up from our guaranteed products business.

So core and adjusted measures are now equivalent. The decline in management fees during the year was entirely driven by the drop in long I'd be driven by the market declines that everyone experience alternatives is actually grew steadily over the year.

Run rate net management fee revenue increased $815 million at the end of 2020, again driven by alternatives with a strong year-end, giving us good momentum into 2021. The Group's total revenue margin fell by two basis points.

During 2020. With the reduction, continuing to be driven by mix effects.

As we discussed at the interim results the discretionary long-only margin declined as Japan has shrunk and fixed income strategies of grown total return margins have continued to grow as TargetRisk increases as a proportion of the assets the run rate revenue margin has increased to 66 basis points as we come into 2021. And that's driven in particular by the growth in absolute return and the inflows into AHL Institutional Solutions and evolution that Luke mentioned for those of you missing our old revenue margin chart we've started publishing a separate data pack alongside the results this year and you can find it in various other nuggets there.

Hopefully, that will make everyone's modeling easier turning now to performance fees. Performance fees for the year were $199 million.

These include $124 million from AHL and $54 million GLG and then the investment gains I mentioned of $20 million. We have strong performance fee optionality and diversity with $49 billion in performance fee eligible fund at year-end.

You can also see there is a wide range of different strategies that make a meaningful contribution we've seen over $1.1 billion in performance fees over the last five years and they remain a very valuable source of profits and cash over time. Turning now to costs, fixed cash costs for the year with $291 million, 10% lower than 2019 and lower than our guidance of $330 million.

The decline reflected three things. Firstly us taking steps to control costs in response to the market declines, that was about $12 million of the drop $12 million was COVID related particularly reduce travel and event spend and then FX helped by around $9 million in particular the sterling dollar exchange rate being low.

Those cost declines were important to protecting overall profitability in 2020 and as ever, running the business efficiently remains a focus in 2020 the compensation ratio is at the higher end of the range, reflecting the drop in performance fee revenue compared to 2019. As a reminder, the ratio is generally between 40% and 50% depending largely on the overall level of revenues, and particularly performance fees.

Asset servicing costs for $55 billion in line with 2019, which equates to around 7 basis points of the relevant from 2021 cost guidance for fixed cost is $335 million based on an FX rate of 1.4 that reflects slightly up to $20 million FX headwind $6 million from the need to sublet space and I'll make London office that we mentioned at the interim results. And then assumed $5 million increase some of those COVID related cost start to rebound, as the world starts to normalize the remainder reflects technology investments into areas where we see strong growth potential going forward.

And finally, I'll just touch on our balance sheet, our balance sheet remains strong and liquid with net financial assets of $716 million and we continue to generate strong cash flows. The strength of that balance sheet is come to things in times like 2020, but it's really the cash generation of our business that enables us to navigate stress scenarios while continuing to invest.

Last year we were able to focus on looking after our staff and our clients in the depths of the crisis. Whilst many other companies suspended or cut the dividend buyback programs you've seen us grow our dividend year-on-year.

[Indiscernible] to a progressive policy and commence and you buyback program in September, the fact that our business is actually stronger at the end of the year like 2020 then the beginning is a great testament to the strength and flexibility of the model. With that, I'll hand back to Luke.

Great. Thank you, Mark.

I'd like to turn to this slide to emphasize. What's unique about that.

If you look across the listed asset management firms around the world. I would challenge you to find anyone with our capabilities and our leadership position we the best technologies and we provide them with the environment to thrive.

Our experience in quant investing is unparalleled. And we continue to emphasize investment in quant research and in technology to protect and grow Ali when we look at quant tax expertise experience and resources, we think we have a huge competitive advantage as our industry, like all others, becomes ever more technology-driven.

Technology is not just about making investment decisions. It has everything we do at large.

Over the years, we've invested in and built a single robust tech platform that supports alpha generation, portfolio management, trade execution operations compliance, risk management, all the way through to fund accounting. Because of this, we can manage a huge range of strategies, instruments and geographies at great speed and scale.

That support for growth in that we can add new strategies easily and at low cost. It's also about the quality of our controlled environment as we can manage calmly through periods of market stress, because we could see in one place all the information we need to make decisions and we can comfortably deal with spikes in volumes as funds rapidly adjust their risk.

I wanted to give you a flavor of how to use -- how we use technology to address investment problems. The humans alone can't handle efficiently.

We have an illustration here of one company and the whereabouts of clients, competitors and suppliers it interact with and therefore affected prospects. The size of the dot represents the size of the company, and the distance from the center represents how far away the relationship is.

Every day information becomes available across that network that is relevant to an investment in that company. In today's interconnected global world, that information is released different time the different languages and there is a huge amount of it.

Even if you had 100 analysts, they couldn't practically process the volume and breadth of information manually in a reasonable timeframe. Technology Solutions are brilliant for the exhausting problems.

Suddenly you can see an easily with both the huge volume of information and the rapid reaction speed required to extract output from the new information. It doesn't matter whether it's the middle of the night required by the companies in the sector release report simultaneously.

You can process information in multiple different languages and yet even emerges as easily as you can in one language. When you have access to resource the sophisticated tools, you can discover new public information and financial markets and act on it.

If you don't have the technology, then you will see price moves, but without understanding their underlying cause until it's too late to benefit. The tech solutions we have at Man aren't just beating quam puzzles, we also equip our discretionary managers with technology to help make them better -- to help them make better decisions.

It's giving them information they can't process manually, but they can access with technology or it's saving them out of the menu information compilation. For instance, all our discretionary PMs now get a daily report with all the names being talked about on the infamous Wall Street batch credit page we sentiment reading what before me the posting.

The technology that the discretionary PMs focus on using their skills where humans excel, while delegating more and more of the treasury of information collection to the machine. It's hard on the slide to give you a feel of how engrained technology is in our culture.

But it sits at the center of everything we do. The depth of our experience and magnitude of our know-how is exceptional.

We are orders of magnitude ahead of most asset managers and we are focused on competing with the three or four top players globally. The investment we've made and the culture we built gives us a huge and persistent competitive advantage.

The world's focused on sustainability and companies acting responsibly has been increasing for many years and obviously took a noticeable uplift as a result of the pandemic. As an asset manager, the sustainability of a company and it's business model is critical to us.

We have an integrated approach to ESG with a particular data focus. Our framework encompasses all of our investment strategy and allows clients to choose the level of ESG integration in their particular investment solution.

We've taken our technology expertise of data science and our investment know-how and have built proprietary ESG tools that are used every day by our PMs. We started to disclose new data point that we will update on a regular basis.

Based on the Global Sustainable Investment Alliance definition, Man Group has more than $43 billion of ESG integrated fund. In the same vein, we're focused on managing our client's capital responsibly.

We want to manage the firm responsibly. Culture is critical to any organization.

We've put a lot of time and energy into making sure that we're an organization where people feel that they belong. You could be proud to work in an organization that truly reflects our values.

While culture is intangible and hard to measure, you build it with tangible steps and actions. And the impact of a good strong culture is very meaningful for all the stakeholders.

You can see here a range of our tangible steps and commitment. We're committed to reducing our absolute carbon footprint by making consistent transparent progress on.

From 2020 we have offset any remaining emissions by supporting certified of their project. And we're pleased to report that we're on track to meet our emission reduction target set for 2022 and are committed to achieving net zero carbon emissions in our global workplaces by 2030.

Our charitable funding efforts are primarily focused on promoting education. There were a number work directed into food banks and so on in this year and are mostly run through the Man Charitable Trust in the UK and the US equivalent.

And our people volunteered significant time to help charities we donate to and beyond. We've also this year invested GBP10 million this time into our UK community housing strategy, which is designed to accelerate housing provisions that particularly needed for many of the key workers that support the communities in which we all live.

In addition to the -- our focus on delivering outperformance for our clients, we positioned for continued compounding growth over multiple years. We developed innovative investment strategies by hiring exceptional talent, creating the collaborative environment and leveraging up 30 plus years of experience in liquid alternatives and systematic investing.

AHL TargetRisk is the strategy behind a number of funds in which we've been able to capitalize on our technological lead. And as you've heard it's a sustainable contributor to our current results, but also our future growth.

In 2014, TargetRisk with just an idea develop a new longer multi-asset strategy that will provide diversified exposure to a range of markets and adapt rapidly to changing market conditions, using the same techniques that our hedge fund people are. The research was developed -- we provided the seed capital, then we waited while the performance was generated and in 2020 after only six years, it was the single largest contributor to net inflows and it's the part of $10 billion funds under management milestone in late-2020.

Hiring exceptional talent to broaden our capabilities is another growth driver. On the discretionary side, two years ago, we had Mike Scott to build the team and develop a range of TOC high-yield funds.

Since then the funds have generated impressive market-leading returns. In fact, I think the firm literally ranked Number 1 on LIPRA over that period.

And we've raised $1 billion, which feels just like the start. Similarly, in the last quarter of 2020 we launched on GLG Asia ex-Japan equity strategies, which are managed by an experienced team that joined Man last year.

In our alternatives offering, we broadened across both -- prudent across both equity and credit strategies during the year with a number of launches that we think could each manage more than $1 billion in the future of things go to plan, as well as our multi-strategy offering Man 1783, which of course can be much larger. Our disciplined capital allocation policy drives growth through earnings enhancing M&A when and if we can find relevant opportunities with reasonable pricing, all via share buyback.

Both options accelerate our core earnings per share growth. Since I'm become CEO, we've made it a big priority for the firm to adopt an outward looking mindset to listen and respond to our clients.

They want a diversified range of products in new innovative solutions to help them meet their goal in the changing world. The breadth and quality of what we do is compelling for clients.

It allows us to be broadly relevant to a wide range of clients across the world, and importantly to remain relevant throughout the market cycle. What you see from these charts is recognition from some of the world's largest and most sophisticated investors that we've built the product they need in once.

Since the end of 2015, we've seen $26 billion of net inflows from clients and the number of clients for whom we manage more than $1 billion has grown from 12 to 22. When clients invest in one product with us, they also make a second, third, fourth investment.

And you can see here of our $88 billion of our assets come from clients invested in more than one strategy. When you deliver to your clients, they reward you and the new business that drives growth for shareholders.

Man Group's business has been through a transformation. And at times in the past, the run-offs of our legacy structured products business has meant that we've appeared to be running at double time just a standstill.

That transformation is now complete and we've reached an exciting inflection point. This is the first year with no guarantee product revenue to shrink away anymore.

And the growth in our core business feeds fully into our overall profitability. Our focus on building client relationships and delivering innovative products really works.

Compared to five years ago, our core net management fee run rate is growing 23% to 815%. We've grown core management fee earnings per share by 98%.

We also grown our performance fee optionality. I've said it before, I'll say it again, I'll keep reminding until it gets boring, performance fees are a very valuable earnings stream for shareholders.

We've earned $1.1 billion in performance fees over the past five years. They are a very valuable part of our cash flows over time.

And if the market price does those earning cheaply and we've shown we've been very happy to use these performance fees to buy our own shares and drive earnings per share growth that way, which brings me neatly to the next one. For investors, this chart clearly illustrates the strength of our business.

There is a natural bias in market to focus unduly on the recent performance. As you could see, the longer term strength is self-evident and impressive.

Over the last five years, we've returned over $1.4 billion to shareholders through dividends and buybacks, that's about 50% of our market cap as we stand here today. Our cash flows may vary year-by-year, but over time they support strong and steady returns to shareholders.

And they just proven resilient to even the extreme stresses of the global pandemic. We didn't miss a beat during this pandemic.

Our cash flows remained strong and we grew our dividends and we completed one buyback and we started another one. This morning we announced the change to our dividend policy, while maintaining our disciplined approach to overall capital allocation.

Our new progressive dividend policy reflects our confidence in our strategy and our future growth and the resilience of our business model. We recognized the importance of dividends to shareholders and we are confident that this revised policy will deliver sustainable dividend growth over the years ahead.

Our overall capital allocation policy beyond dividend remains unchanged. We expect to generate material excess capital above the dividend.

Any excess capital will be used to augment growth. Each of our selective acquisitions should we find sensibly priced opportunities or return to shareholders through our share buyback with special dividends as appropriate.

The numbers on this page show what we can deliver. Over the past five years, as we said, we generated $1.1 billion in performance fees.

We've outperformed our peers by 3.2%. For our alternative strategies, outperformance is about 2% per annum versus peers.

We've seen increasing confidence from clients who have invested an additional $26 billion taking off from its record 123.6. We've returned more than $1.4 billion to our shareholders.

The business has performed well and I'm really excited about what we can do from here. 2020 was dominated by the impact of COVID-19, the upending of our normal way of life in the public health emergency the world has been facing.

2020 saw exceptional work from the healthcare sector, creating vaccines in record time. It also shows the best side of humanity as communities and neighbors look out for one another.

I can't express how proud I am of everyone at Man and work together in these difficult and challenging times and looked after each other. We are an agile resilient firm.

And despite the backdrop of 2020, we've delivered record fund net inflows and increasing management fee earnings and a new progressive dividend policy while continuing to invest in our technology and talent. The hard work we've done over the last five years on our business model is the foundation that makes all this possible and also the platform for further growth.

It looks as if the economic uncertainty created as we will hopefully exit the pandemic will lead to more intra and inter-market volatility in 2021. We might even see higher sustained bond yields.

We would look forward to this, as it would give lots of opportunity to add alpha and for sophisticated risk management to add further value. From a business point of view, 2021 has got off to an encouraging start.

We've continued with the good momentum from the fourth quarter, client engagement is positive, performance has got off to a strong start, we have an exciting pipeline of innovative new products. As you can hear, I'm proud of what we've delivered and I'm also really excited about what we can do from here.

So with that, we'll open it up to questions. As a reminder, to ask a question, you needed to join the presentation via the Webex link in the joining instruction.

On your screen, you can then either put a Q&A as I can see people have, or you can press the Raise Hand button to notify us and I'll call on you one by one. And then hopefully somebody will unmute you and we can hear your question.

So, thank you for the time and let's go with the questions.

And looking at this, Haley, I think, was first in. So, Haley, if you're there?

Haley Tam, if someone can unmute you and you can go with your question.

Perfect. Thank you, Luke.

Hopefully you can hear me fine. So I have three questions, please.

First one, just on Slide 25 and your progressive dividend policy, I wonder if you could just confirm to us that in the absence of M&A opportunities that your new policy is not expected to affect your ability to carry out the steady program of buybacks that we've got used to? The first question.

Second question, in terms of management fee margins, I think, it's pretty unusual to see for you or for any asset manager, a run rate fee margin actually above the one that's just been reported. I think, it's the first time I can actually remember for you guys.

So I just wondered, obviously, that's due to a mix of absolute return growth and the mix shift within total return. If there are any comments you can make to us about your confidence in sustaining that sort of level from here?

And then, the third and final question on Slide 21, your current priorities. You listed a few areas like more TargetRisk funds, Man 1783, systematic, et cetera.

I just wondered if you can give us any color in terms of the capacity for those and any visibility you have to client demand at the moment? Thank you.

Cool. Okay.

Why don't I take the first one, you take the middle one. So, on the dividend policy, yes, you're right.

As I mentioned, we expect to keep generating excess capital and we will leave the -- if we get a chance to buy an interesting business to integrate it and it's at a sensible price, then we would do that. But without that, we will return it to shareholders either through buybacks or if the shares ever look above what we think of as fair value, then I guess we might do a special dividend in that circumstance.

On the margin side, I think the sort of more recent and positive trend on margin is the growth of TargetRisk within total return, which has been moving up the revenue margin within that part of our business, which we mentioned at the interims that that's continued through the second half and expected to continue into 2021. Otherwise, it's really the same as we've always spoken about.

It is mix-driven for us is what clients are choosing to buy. So the fact that we were able to create capacity with an evolution, which as Luke mentioned, sold extremely rapidly and Q4 has a very positive margin impact, but it's really about where the incremental demand is.

So, the general trends haven't changed particularly. It's all about mix.

There's some positive trends within total return, which is more recent, which helps out, but we still premise the business that clients will tend to buy some slightly cheaper products over time and we therefore see net flows to drive revenue growth and drive profit growth.

And on the new fund launches, look, we don't like to sort of come up with specific capacity numbers on things when you launch them in large part because otherwise, then people assume if you don't hit capacity, there's something going wrong, which isn't really how it works. But we're very confident that we can keep rolling out strategies with innovation, interesting returns for clients and enough capacity to keep our sales force busy, I guess, is what we really care about.

Thank you, Haley. Paul McGuinness.

Somebody can unmute Paul can go next.

Okay. Good morning, guys.

A question, I think you touched partially just answered it actually, Luke. In terms of how you -- I mean the market seems unwilling within your rating to sort of give you too much credit for performance fees.

Therefore, in terms of deciding on the mechanism of returning excess capital, I think, you just referenced the fact that it partly depend on where the share price look, just whether a special or a buyback was the most appropriate mechanism. So just within your own assessment of fair value, I just wonder how you guys actually build performance fees into that assessment.

Sure. I mean, we both have our methodology.

Mark has a very impressive amount of color modeled that -- estimated and I use it slightly more rudimentary rule of thumb. Look performance fees are more volatile on any short run period, the management fees, that's correct.

There is a mathematical equivalent to the different volatility, which requires a small discount, if you look at that. If on the other hand you're looking over a five-year window or longer, which is, I think, what most of most investors say they're looking at, the reality is on a five-year view the relative volatility actually dissipates really quite quickly.

In any week in every month we can't predict what the performance fees are, but over five years as we've demonstrated, they are very reliable.

Yes. And look, the other thing which is the statement of the blending help is about management fee profit and performance fee profit both turned into the same dollar of cash.

And in the end cash flows drive businesses over time if the market continually allows us to buy back the earning stream cheaply and therefore add value to continuing shareholders, we will keep doing it. And that is an extra source of value for people who see the same value that we see in the performance fee.

So, thank you, Paul. And then David McCann [ph].

David, are you there? Okay.

We'll come back to David. If somebody can unmute Gurjit -- please Gurjit Kambo from JPM.

Hi, good morning, Luke. Hi, good morning, Mark.

Just a couple of questions. Just firstly, in terms of the end markets like China, what's Man Group doing there.

You've had a couple of the other asset managers sort of set up joint ventures recently. So, is it just anything on the sort of Chinese, Asian markets, you know, what the strategy is around that?

And then secondly just on ESG, are you or were you had -- have you launched any sort of dedicated ESG funds. I know you'll see noting overlays on your fund.

So is there any sort of dedicated ESG funds you're looking at? And then, just finally on sort of M&A, what sort of areas are you looking for, which perhaps organically perhaps more difficult to do any particular M&A areas that you're looking at?

Thank you.

So on China, I guess, look, we have a very institutional business. Our model is built around that and about having where we deal with retail, having distribution partners where we can rely on them to do all of the work around KYC, AML and so on and so forth.

That restricts some of the things that we think it's sensible to do in China where you are giving over a lot of control into a market where people don't like to tell you where their money came from. And if you're regulated in the UK or the US and you take money from Chinese people without knowing where the money came from, you are somewhat looking for trouble.

As you know, we've had an onshore CTA running for about six or seven years now. It's been very successful in terms of performance and actually last year was up about 60% net, I think.

Markets where you have a lot of retail participation generally tend to create good opportunities for our quant strategies and we are working hard to be able to distribute that content into the few large institutions you have in China where we have decent relationships or to distribute them to offshore clients. On ESG, yes, we have a number of ESG-dedicated strategies.

As I mentioned, we have $42 billion, I think, it is of things where ESG is integrated and we are working very hard on developing some interesting climate-related stuff using our quant processes.

And then on M&A, I mean, you'll have heard us say this before, but let me set it out again. So we're really focused on quality and fit with the firm.

So things that don't overlap with capabilities we have today and things that are incremental or value-add for our clients. So we don't go out sort of going we must have this particular capability.

We're focused on quality without overlap and cultural fit with the firm. So we talk to 100-plus businesses each year.

That process goes on. It is a process to do it well.

We think of it is something you have to be actively sourcing constantly to find good opportunities, but there is no particular obsession with -- it must be this. There's a key component that we want to add to the firm.

It's about adding quality, diversification and things that are in the end value-adding for our clients.

Cool. Can we get [indiscernible] please.

Hi, good morning. Yes, I've got three questions please.

Could I ask about the costs? You're guiding to about a 15% increase year-on-year in fixed costs.

I was wondering if you could bridge the moving parts and specifically are there any COVID savings you made in 2020 that you are assuming are coming back in 2021? On the -- my second question is on the fee dynamics, if I can come back to that.

Specifically, in the HR product suite, what are the margins at which institutional money is coming on at? I'm just trying to work out if a constant mix, you guys are seeing any change.

And if you could give a bit of color as well on AHL TargetRisk management fees that could be quite helpful. And thirdly in terms of the change in dividend policy.

Now that you're moving to a progressive dividend, I'm wondering if you unusually companies to have a bit of a buffer on the balance sheet and a bit of a grow dividend slightly lower perhaps in core management fees to try and buffer that progressive dividend, is that something you envisaging? Thank you.

Sounds like it's all for you.

Yes. So, I mean, on the cost side, the bridge is basically at the stuff that I run through earlier.

So you've got a significant FX move at the current rate, so that's about $20 million at the move, and that's the single biggest component. We are assuming about $5 million from COVID-related cost, so travel and events rebounding obviously that's an assumption we would think that that would be second-half loaded as the world starts to open up.

The $6 million, which is specifically around costs related to the space that we sublet within this office or main office in London, which as said we mentioned at the half. That cost impact is really second-half-loaded as well.

And then the residual increase is the actual investment back into the business to support growth and taking the foot off announce so to some of the cost focus measures that we had through 2020 to protect profitability. On the margin side, the new money coming into AHL is actually coming in pretty similar to the run rate, blended amount, the mix effect you get tends to be as I've mentioned before some of the high feedback book rolling off, but there is not much of a difference between front book margins and average margins.

Today there's just still a some chunk of higher feedback book around the AHL Diversified. And as we said before, there is no real trend there other than a sort of gradual redemptions over time, but we don't see any accelerations to it, there is no fixed dates or anything like that.

On total return, TargetRisk margin, I mean, that's about a 70 basis point margin, so that's why it's moving the mix up over time. And as Luke mentioned, there still continued demand from a very wide range of clients for that product and it's broader family of products.

And then lastly on the dividend, so we -- I mean buffer is not a word we would have in mind. We have both management fee earnings and performance fee earnings, both of which generate cash, both of which support the dividend.

We don't subscribe to the view that the management fees is still only reliable but the earnings, the performance strip fees are there reliably over time certainly over a five-year view, but even in the weaker years' performance fee profits have been there and we've obviously got a very strong balance sheet behind that. So, don't think about the dividend changes being, as I think the implication of the question is that you're going to receive less dividends over time, but in a different form.

We're expecting to pay out basically the same amount of dividends and overtime and it's been about 60% of total earnings over the past five years for some sort of reference there, but the form is different, the reliability is different and that is designed to appeal more to shareholders and to reflect: A, the resilience of the business we've just gone through a global pandemic with the business in remarkably good shape and actually stronger coming out of the year than going in; and B, the ability to grow that over time, which again you've seen various of the growth information in the presentation earlier.

Cool. Thank you, Mark.

Can we try David McCann [ph] again, please?

Yes, morning. I did -- the question I hope is on the screen, but I'll read it out.

Yes. But we're giving you the chance or your moment of glory.

Fair enough. Okay.

Just on the new dividend policy actually [indiscernible] then actually. I just wondered if there was any kind of target payout ratio, you did mention in the 60% broadly speaking.

Just maybe any color there. Are you thinking about any split between management performance?

I guess, given your color just now, they may not be a distinction there and/or is there any, you obviously mentioned progressive. Is there any targeted growth minimum growth rate within that.

I think it's the first question. And then the second question, on Slide 17, a number of interesting comments around kind of I guess the benefits of technology in your leadership position there.

I mean, obviously, it didn't really seem to help the asset-weighted relative performance of this last year. So I guess what are the -- diversified base across the Group.

And so I guess when could we expect to see some more tangible benefits of that coming through?

I'll take the second one, if you want to do the first.

Yes, sure. So it's -- I mean, I'd say 60% just for reference is not a target payout ratio.

It's a classic progressive dividend. And as we sort of set out in the policy, we're looking to grow it over time as the underlying earnings as the business grow.

So we'll clearly set and announce it to the market in the normal way year-by-year, but it's designed to grow with that underlying earnings capacity, it's not specifically attached to either the management fee or performance fee side, it's the total earnings which supported and the total earnings which will grow it over time.

And in terms of the performance question, so as I mentioned, more than 100% of the underperformance last year came from Japan core Alpha. It was a shocking year for value in Japan.

Steve Parker who's run that product incredibly effectively for such a long time and he is one of the great stalwarts of the industry, finally reached a point where he decided it was time to retire, maybe value had finally beat him up so much at the end of the year, and since then, we are seeing a value recovery. That product is designed in a very specific way to meet client requirements.

It's done very, very well over the long run. We're very sure it will do very well over the future.

But when value has a shocker as they did last year, you get these very, very big performances -- big underperformances. And when you get some sort of a bounce as we've seen in the beginning of this year, you get some very big rebounds and clients have been patient for that, but it makes a big difference to the overall percentage.

I think, when you look at the performance in things like AHL Alpha last year, which is clearly fully technology-driven and really deliver for clients and outperformed and that is a sense of the technology working. So, but it also way through one of the things you have to remember in that period in March and April, there was so many opportunities to frankly deploy your leg off with the way markets were and we think that being able to manage -- understand your risk is a great thing, but being able to manage it requires you to be able to change positions very quickly.

We did over 4 million trades in March in order to change our positioning very significantly. And that was with, if you remember, in -- whenever it was, the second week of March we shunted everybody home, and so suddenly you had a hope that people who'd never worked from home having to manage 4 million trades and that we were able to do that without a blink, without any pickup in fail rates, without having to slowdown our execution in any way without having to change process a tool.

And to me, that is a real testament of what technology could do and you've seen a number of people who weren't able to react quickly enough, who had business critical losses last year, and I'm pleased to say we didn't have that all. We've come through, yes, I think in a good way.

Hopefully, that answered that. And I'm looking, I think, I haven't got anybody else with their hand up.

You hasn't been asked the question, but if you feel -- sorry Michael is just cut up Michael Warner [ph] who is the list -- there you are, Michael. Hi.

Thank you, Luke. Just a quick question probably for Mark.

With regards to the dividends, how should we think about the interim versus final ordinary dividend going forward? Is there going to be some type of SKU?

Any color there would be helpful. Thanks.

Sure. In sermon [ph], again we'll anticipate being reasonably standard so there tends to be a split across the market where the interim is a bit less than half of the total.

And again, for us, given the profitability tends to be slightly second-half weighted with the performance fee side, that fits with the cash flow, we're not giving specific guidance around the exact split, but I would think about it in those terms.

Cool. And there was a question -- I saw briefly a question from Bruce Hamilton.

If you're on, can somebody go to Bruce and -- I think he had a question or I'll ask it for you. Okay.

Doesn't sound like we can unmute Bruce, but Bruce said, how optimistic on sales related to the Asia team are we, when do we expect this team strategy to start fundraising. I would say, it's a super-high-quality team.

We thought that it need to be in process they have a very, very strong reputation. I would say since the team has been here.

We've only been impressed to the upside of what we expected and I think client's reaction has been very positive. So sort of how much will come this year against future years is always hard to see, but I would expect that we will start to see noticeable inflows this year.

And with that, we've run a full hour. I think, I have everybody to ask a question, who put one in and I'm worried is it the might run out after run out.

So I think we'll say thank you, everybody, for your time and attention. You know where we are if you have any more questions.

And good luck out there. Thank you very much.

Thank you.