Annual Report

RNS Number : 3343H

Man Group plc

13 March 2015

 



Man Group plc

In compliance with Listing Rule 9.6.1 the Annual Report of Man Group plc for the year ended 31 December 2014 (the "Annual Report") has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

In compliance with DTR 6.3.5 the following information is extracted from the Annual Report and should be read in conjunction with the Group's final results announcement of 25 February 2015. The information reproduced below and in the final results announcement together constitute the material required by DTR 6.3.5 to be communicated in full, unedited text through a regulatory information service. Page numbers and cross references in the extracted information below refer to page numbers and cross-references in the Annual Report.  The Annual Report and the final results announcement can be viewed and downloaded at our website www.man.com.

Principal risks and mitigants

Risk	Mitigant
1. Investment underperformance risk Fund underperformance on an absolute basis, relative to a benchmark or relative to peer groups would reduce funds under management (FUM) and may result in lower subscriptions and higher redemptions. This may also result in dissatisfied clients, negative press and reputational damage. Lower FUM results in lower management fee revenue and underperformance results in lower performance fees, if any. The breakdown of Man Group's FUM and revenue margins by product line is shown on page 16. Adverse market moves and high volatility may sharply increase the demands on the liquid resources in Man Group's funds. Market stress and increased redemptions could result in the deterioration of fund liquidity and in the severest cases this could lead to the gating of funds.	This is the key risk Man Group has to accept if it is to undertake its business. Man Group's investment businesses each have clearly defined investment processes designed to target and deliver on the investment mandate of each product. Fund and manager performance is closely monitored, and we focus on hiring and retaining highly skilled professionals who are incentivised to perform within the parameters of their mandate. Man Group's diversified range of products and strategies across the alternatives marketplace mitigates the risk to the business from underperformance of any particular strategy. Man Group conducts regular liquidity tests on its funds and endeavours to manage resources in such a way as to meet all demands for fund redemptions according to contractual terms.
2. Regulatory risk Man Group offers an increasingly wide range of investment products covering multiple strategies from a global network of offices. It is licensed in 16 jurisdictions, which results in Man Group being subject to a matrix of regulations. Man Group is regulated by 18 regulators and lead regulated by the UK Financial Conduct Authority. Notable regulatory developments include the recent implementation of the EU Alternative Investment Fund Managers Directive, the upcoming implementation of UCITS V, MiFID II/MiFIR and the Markets Abuse Directive 2.	Man Group supports proportionate and thoughtful global regulation and initiatives that develop the regulatory environment. Man Group continuously assesses whether the products it markets comply with new regulations as they emerge and change. In this respect, the company conducts an independent review process for all products. Man Group continues to liaise directly and indirectly with competent authorities e.g. FCA, IOSCO, ESMA, HMT, NFA, DFSA and CSRC through its Compliance department which consists of approximately 32 specialists covering Corporate, Investment Management, Sales and Marketing and Financial Crime. Compliance is located across eight jurisdictions.
3. Discretionary trading risk The risk that investment managers either intentionally or unintentionally fail to execute and/or book trades correctly, or fail to adhere to investment mandates or regulatory rules. This includes insider dealing and market abuse, misrepresenting trading positions/trades and misallocation between funds. Man Group may need to compensate for any losses arising from such trades, as well as face the possibility of fines, lawsuits and reputational damage.	Front office systems provide automated checks and controls at portfolio and trade level. Each investment management business has dedicated risk management personnel who monitor portfolio profiles and provide independent challenge. In addition all fund managers are required to undertake regular mandatory training so that they are aware of due processes and their responsibilities related to the placing of trades.
4. Operational risk Operational risk is defined as the risk resulting from inadequate or failed internal processes, people, systems or from external events. Man Group continues to outsource a number of functions that were previously performed internally. The risks are that the outsourced service providers do not perform as required, resulting in knock-on implications for our business as a whole. Technology and information security are central to Man Group's business. Information security risk is defined as the risk of loss resulting from cyber-crime, malicious disruption to our networks or from the theft, misplacing, interception, corruption or deletion of information.	Risk and Control Self-Assessment (RCSA) is at the core of our assessment of operational risks. Key risk indicators and operational risk events are regularly reviewed so that our assessment of operational risks correctly reflects the Group's operational risk profile. These assessments are subject to independent review by Group Risk and Internal Audit, who also provide assurance over the adequacy of the Group's control processes. Man Group's operations team have implemented a methodology (including KPI monitoring) to confirm that outsourced service providers are delivering as required. This process is monitored by the Risk & Finance Committee and ARCom. Cyber-crime attacks continue to grow in terms of scale and complexity. We have deployed a number of preventative and detective controls to defend our IT systems against cyber-attack. These include penetration tests, specialist security company monitoring of our networks and regular access reviews. However, the fast pace of innovation by cyber-criminals makes it particularly challenging to assess the effectiveness of our defences and deliver protection against this increasing threat.
5. Seeding book risk Man Group uses capital to seed new funds as part of the ongoing business to build our fund offering and expand product distribution. Man Group is exposed to any decline in value of these investments.	Requests for seeding capital are assessed on their strategic rationale for the business. Approvals are granted by the Seed Investment Committee (SIC), which comprises of several members of senior management, Risk and Treasury. Investments are subject to risk limits and an appropriate exit strategy. While Man Group holds these positions, they are monitored regularly by Group Risk and reviewed monthly by the SIC.
6. Credit/counterparty risk The risk that a counterparty with which the funds or Man Group have financial transactions fails to deliver back investor or shareholder assets. Shareholders and investors in Man funds and products are exposed to credit risk of prime brokers, clearing houses, depository banks and guarantee providers. Man Group also provides loans to guaranteed products, and so is subject to counterparty risk to certain investor funds.	Man Group diversifies its deposits across a number of the strongest financial counterparties, each of which is approved by the Counterparty Monitoring Committee, a sub-committee of the Risk and Finance Committee. Each counterparty is reviewed on a regular basis and assessed for creditworthiness. In addition, it is responsible for the review and escalation of any proposals for new counterparties. The Group Risk function monitors the credit spreads and ratings of the approved counterparties on a daily basis. Guaranteed products are closely monitored, and leverage is actively adjusted such that the risk of default related to balance sheet loans to funds is small.
7. Legal risk The global nature of Man Group's business, with corporate and fund entities located in multiple jurisdictions and a diverse investor base makes it subject to a wide range of laws. Failure to comply with these laws and regulations may put Man Group at risk of fines, lawsuits or reputational damage. In response to the financial crisis, an unprecedented number of new laws have arisen which are applicable to Man Group. While the legislative response has been global, implementation is local which leads to variations of approach between key jurisdictions. Failure to stay abreast of, analyse and respond to these new and varied laws may expose Man Group to the risks outlined above.	Man Group operates a global legal framework which underpins all aspects of its business and is resourced by experienced legal teams. These teams are physically located in Man Group's key jurisdictions helping them to understand the context and impact of any legal requirements. Emphasis is placed on proactively analysing new legal developments to assess likely impacts and mitigate risks.
8. Reputational risk The risk that an incident or negative publicity undermines our reputation as a leading alternative investment manager. Reputational damage could result in significant redemptions from our funds, and could lead to issues with external financing, credit ratings and relations with our outsourcing providers.	Our reputation is dependent on both our operational and fund performance.  Integrity is fundamental to ensuring Man Group is able to attract investment in funds. Our governance and control structure helps mitigate operational concerns, and our attention to people and investment processes aim to establish that we comply with accepted standards of investment management practice.  The Board regularly reviews evidence of whether the right tone from the top is being maintained.
9. Key staff retention risk The risk that a key person to the business leaves or is unable to perform their role.	Man Group has been able to attract and retain an array of talented individuals across the Group. Business and investment processes are designed with a view to continue this trend and minimise the impact of losing any key individuals. However, the nature of Man's business means that this is a risk that Man Group must accept.

Related party transactions

The definition of related parties has been reassessed during 2014, as outlined in Note 1 to the financial statements. Related parties comprise key management personnel and associates. All transactions with related parties were carried out on an arm's length basis. Refer to Note 19 for details of income earned from associates.

The Executive Committee, together with the non-executive directors, are considered to be the Company's key management, being those directors, partners and employees having authority and responsibility for planning, directing and controlling the activities at Man. Key management compensation is reported in the table below. 

Key management compensation	Year ended 31December 2014 $'000	Year ended 31 December 2013 $'000
Salaries and other short-term employee benefits1 Post-employment benefits2 Share-based payments3 Other long-term benefits3 Termination benefits	27,895 426 4,522 6,426 765	23,191 347 10,270 8,362 1,281
Total	40,034	43,451

Notes:

1 Salary, benefits (including cash pension allowance) and cash bonus.

2 Money purchase pension.

3 Other long-term benefits relate to fund product deferrals. Refer to Note 21 for further explanation of share-based and fund product-based deferred compensation arrangements.

Directors' responsibility statement

Each of the directors, whose names and functions are on pages 30 to 31, confirm that, to the best of each person's knowledge and belief:

-    the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and results of the Group;

-    the strategic and other reports contained on the inside front cover and pages 1 to 29 include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces; and

-    there is no relevant audit information of which the Group's auditors are unaware, and that they have taken all steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that Man's auditors are aware of that information.

ENQUIRIES

Fiona Smart

Head of Investor Relations

[phone]

[e-mail]

 

END

 

 

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