Man Group Plc (EMG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Annual General Meeting of Man Group for 2023. I'd like to welcome those of us joining in person, those joining virtually and by telephone. And we're pleased to be able to offer both in-person and remote options for today's meeting to maximize shareholder participation and engagement. Since last year's AGM, there have been a number of changes to our Board at the nonexecutive level. In November 2022, we were pleased to welcome Alberto Musalem to my right, who was appointed to the Board and to the Audit and Risk Committee and to the Remuneration Committee. And Alberto brings extensive investment management expertise, economic and public policy expertise and a broad range of capital markets and policy experience. Earlier this year, Jackie Hunt and Kate Barker stepped down from the Board in March and April, respectively. And I'd like to thank them for their contributions to the Board and wish them all the very best for the future. This will, sadly for me, be my last AGM as I'll be stepping down from the Board towards the end of the year, as I approach the 9-year maximum term. There's a new limit under the U.K. Corporate Governance Code. So I'd like to thank my fellow board members and all of the executive team at Man Group for their wonderful collaboration over the years. And I'm very pleased that Ann Wade, who's here today, will be succeeding me as Chair later in the year. The purpose of today's meeting is, as usual, to update you on the company's progress during 2022 with an update on the first quarter of 2023. Before answering your questions from shareholders and later in the proceedings. Luke Ellis, our CEO, whom you all know, will give you an overview of the business performance. But prior to handing over to Luke, I'd like to mention how Man Group has used its strength to deliver for clients and for shareholders. In 2022, we managed our clients' assets in markets that were significantly impacted by inflationary pressure for the first time in decades. In most of the major markets, in which we operate, central banks reacted strongly to the emergence of price inflation by reversing almost a decade of low 0 or even negative policy interest rates. And they did this through a series of interest rate hikes, which triggered almost automatically the downward repricing of financial assets. But against this backdrop of weak markets, Man Group nonetheless, had another successful year in 2022, even outpacing the strong performance we reported in 2021. As a global leader in liquid alternatives, with over 35 years of experience, we were able to navigate the difficulties, traditional assets and traditional portfolio space to generate significant investment performance for our clients while also providing them with access to liquidity when they needed it most. Our diverse range of investment offerings and customizable solutions allow us to continue to meet the needs of our clients and the millions of savers and pensioners they represent even as the market environment evolves. We continue to harness the power of technology across our business from Alpha generation to fund accounting and heavily invest each year to remain cutting edge alongside our talented staff. It's a key driver of our continued success. And now I'll hand over to Luke, who can give you a more detailed update on the business.

Thank you, John. And thank you, everybody, who's joined the meeting today. We really appreciate your engagement and your support for the business. So this morning, I'll provide you with a recap of both the 2022 financial year and Q1 '23 performance, followed by a short update on developments of the business. As John mentioned, the market environment in 2022 presented a real test for active investment management, and I'm proud of how the team at Man Group responded. We're a multidimensional active asset manager with an advantage in liquid alternatives in systematic and in long-only investing Our investment capabilities powered by our advanced technology platform are designed to deliver Alpha at scale. Despite the large sell-off in markets, our investment strategies were able to generate $2.9 billion overall for our clients in '22, clearly demonstrating the value liquid alternatives can add to investment of portfolios. We were pleased to see $3.1 billion of net inflows in the year, 5.3% ahead of the industry, highlighting the excellent progress we continue to make on the client front. Our assets under management, however, did decrease by 4% overall, impacted by market beta and the stronger U.S. dollar as we have a lot of non-U.S. dollar-denominated assets. Management fee earnings per share grew to $0.184, up 17%, demonstrating the strength and resilience of our business model. We also saw a very strong performance fee outcome for a second consecutive year, resulting in core earnings per share of $0.487, a 26% increase on the record year we had in 2021. We have talked about Man Group having a differentiated business model, and clearly, these results demonstrate the power of that differentiation. The Board has declared a final dividend of $0.101 per share which is a 20% increase versus 2021. This takes the final dividend to $0.157 per share. We also announced $250 million of share buybacks in 2022 and an additional $125 million in our full year results in February '23. We are pleased that the continued growth and profitability of our business allows us to provide consistent and growing returns to our shareholders. 2022 has reinforced my belief that our business model gives us the ability to deliver growth -- significant growth over time. Large institutional investors have an insatiable appetite for Alpha to enable them to reach their investment returns, and our business is designed to deliver them that Alpha at scale. By trading a wide range of macro instruments as well as traditional asset classes, our diversified range of strategies have the potential to generate Alpha irrespective of the direction of prevailing markets. In addition, the tailored nature of our offering solves real client needs. We bring an allocators' mindset and use investment capabilities and portfolio management skills from across the firm to create a powerful combined offering, deepening the partnership and longevity of our relationships with those clients. We're one of the largest liquid alternative providers globally with, as of December 22, 41% of our alternatives AUM having daily or weekly liquidity terms, which we always honor. That's truly differentiating and made a big difference for clients in 2022 as allocators rediscovered the value of liquidity in that portfolio. Underpinning all of this is the combination of our talent and our technology, allowing us to deliver for our clients to drive the sustainable growth in our business and to deliver sustainable value to shareholders. Today, we are clearly in a different paradigm for markets, which I personally believe may last for many years. There's a lot of economic uncertainty and trying to predict where markets will be a year from now is no longer a straightforward task. However, the more dispersion there is in markets, the more opportunity there is for us to generate at Alpha, but you need skill. Alternative managers with excellent risk management skills with a track record of delivering returns to clients will see strong demand, and this is the area in which we are very well placed. We can help clients achieve their aims in the current environment whether that's providing access to uncorrelated returns or managing the feature in their portfolio. The breadth of what we do at Man Group and the tailored nature of what we offer is extremely compelling and highly relevant to our clients. We will continue to expand our offering, and that presents several opportunities for growth with both new and existing clients. There is also a clear trend across the industry of clients doing more things with fewer providers, and their problems are becoming more complex, requiring specific tailoring and partnerships. And we are very well placed to benefit from that given the quality of our institutional resources and the cultural DNA we have to work with clients to build solutions. We make a conscious effort to listen and respond to our clients. And this slide illustrates the strength of the franchise we've built and the value of providing our clients with a single point of contact that understands their unique requirements across a range of market environments. As I've said before, we are client-focused and by that, I [ don't ] mean distribution focus, and these charts showcase the real success we've delivered by listening to clients. Doing more with our existing client base has always been a key priority for the firm, and I'm pleased to say that the trend of clients investing across multiple assets with the firm continues. When clients invest in one product with us, they often make a second or third or fourth investment as well. And several of our largest clients have increased the number of strategies they're investing in and the average ticket size they have with us as well. In fact, in 2022, only 20% of our AUM came from clients invested in just one product. So that cross-selling is really important. Clients have confidence in our ability to manage, protect and grow their assets. Our ability to attract and retain client assets, significantly faster than our industry peers over the last five years, is clear evidence of the success of this. Continuing to invest in our technology is vital to the ongoing success in an industry which like almost any other is becoming more and more technology-driven. And in 2022, we invested roughly $120 million into our investment and core technologies. We believe our technology is cutting edge and industry partnerships, such as the agreement we announced with Bloomberg in February to integrate our software ArcticDB into their product offered out to their clients, continues to validate this market-leading capability. Only tech-focused or quant firms have sustained their place at the top end of the asset management and hedge fund industry over the last 15 years and having a platform that enables data collection, analysis and innovative systematic Alpha extraction, coupled with efficient execution and post-trade operations is our key competitive advantage. 2022 was an excellent year for Man Group, in which we delivered very strong outcomes for clients and shareholders alike. Our results highlight our investment performance, the value of our technology, empowered active investment management and the demand for our strategies and solutions. In fact, it's been an excellent 2 years for Man Group. So these results are a reflection of a very strong continued growth. We've made great progress, and our focus here is on the future. We're in excellent shape with a solid competitive advantage, and we're confident that the firm will continue to deliver. With heightened inflation, the rest of the 2020 should be a much better period for Alpha generation and for flows for active management and liquid alternatives, where we're the market leader with 35 years of experience. There are a few alternative asset managers with a range of compelling solutions we offer, a long-standing track record of investment performance across the range of environments, excellent risk management skills and our flexible operating platform underpinned by cutting-edge technology. This gives me great confidence in the firm's ability to continue to deliver Alpha in a liquid, highly customizable format for our clients and through that deliver profitable growth for our shareholders. In Q1 2022 to 2023, we're pleased to report a quarter of growth with AUM increasing by $1.4 billion. We saw $1.1 billion of net inflows as well as positive investment performance of 0.7 billion, largely driven by our long-only strategies, partially offset by negative performance across our absolute return strategies. Large reversals after long trends are often painful for trend following strategies, and this March was no exception. Market sentiment shifted abruptly during March in the wake of the mini banking crisis that followed Silicon Valley Bank, Credit Suisse and others. This resulted in a flight to safety and bonds as well as other safe haven assets rallied very sharply. Remarkably, the U.S. 2-year note actually saw its yield had the biggest daily move since Black Monday in October '87. I guess that's the U.S. Black Monday rather in the U.K. Black Monday. While this didn't see top positioning in our trend following strategies, our responsive models were able to reduce risk very quickly, meaning we've performed in line or better than our peers and our clients have been calm and understanding as a result. Taking into account negative FX and other movements of $0.4 billion, we ended the quarter with $144.7 billion of assets under management. And now with that, I'll hand back to John.

Thanks, Luke. Before moving on to the question-and-answer session, I'd like to introduce the formal resolutions to be considered at the meeting. Full details and an explanation of all of the resolutions are set out in the notice of meeting. And with the consent of the meeting, I will take the notices read. Please note that Resolution #9 has been withdrawn following Jackie Hunt's resignation. And this resolution will, therefore, not be put to the meeting for a vote. If you have any questions you'd like to pose on the resolutions, we should start the question session in a second. And at the end of the question period, we will proceed directly to a poll vote on the resolutions.So first, I'd like to take some questions from the room and then move on to those submitted as a Q&A function online. So we'll move on to the -- any questions on the Q&A function. And then any questions sent in advance of the meeting in writing before finishing with any final questions you might have from the room. And for those of you in the room wishing to pose a question, please hold up your poll card. And when it's your turn, please state your full name before asking your question. For those joining virtually, please type the questions into the Q&A function you should find on the right-hand side of your screen, and we'll address them shortly. And please ensure if you are filing questions online, you send them to all panelists. Otherwise, they may not be answered. So while typing your question, please also remember to state your full name. And I'd like to provide the usual reminder that only shareholders, proxy holders or corporate representatives are permitted to ask questions at this meeting. I'm pleased also to note that only questions relating to the company's business activities or to the resolutions before the meeting should be posed. And just in case you have a number of questions, could I ask with anyone with a number of questions, limit the number to 2 initially to make sure that there's enough time for us to cover everyone who wants to speak. So could I have the first question from the room, please? If any? Don't be shy. Sir, can we wait for the microphone please.

[ Karl ] Thomas, a proxy shareholder. Obviously, a good set of results. But obviously, as we -- with all the caveats of forward-looking statements and the rest of it, clearly, we're moving into a higher for longer environment, lots of volatility and things you've alluded to, Luke. How do you think that, therefore, Man Group will be able to take advantage of the volatility and the expected global downturn we're expecting over the next, who knows how long?

Yes. Well, look, I think, yes when we get a big global downturn or not, I'm not sure. I think the most likely situation is that we have heightened inflation for multiple years because to actually get rid of the inflation that we've got in the system here in the U.K., but really everywhere globally would require central banks being willing to cause significant recessions with a significant increase in unemployment. And certainly, my judgment would be that I don't think central banks look like they're going to do that. That will mean while headline inflation will come down, we do think it will come down to probably a 3 handle later this year in the U.S. and probably early next year in the U.K. It will then keep popping up and down. And so I think we're likely in a heightened inflation environment for multiple years. Now heightened inflation leads to lots of economic uncertainty as central banks and governments put the foot on the brake, then they accelerate then they put the foot on the brake. Companies do the same thing. That creates markets move in wide ranges and creates lots of dispersion between different companies and different markets. And that is inherently a good environment for Alpha generation if you've got skill. And so if that is the right environment, it should be good for consistent Alpha generation over a number of years for Man Group. It should be an easier environment than we found the last five years before last year. If they actually cause a mega recession, well, that will be difficult for AUM because all assets will be going down, but would likely be extremely good for performance fee generation. So I think Man Group is in good position whichever way the markets behave from here.

No final questions from the room? Okay. No final questions from the room? Okay. With that, it's the end of the question period. I'll now move on to the formal voting part of the meeting. And the resolutions, which are set out in the notice of the meeting with the exception, as I mentioned, of Resolution #9, will now be subject to a poll vote, and this method of voting allows all shareholders, not just those present to exercise their vote and many shareholders have already sent in their proxy votes for this purpose and details of the votes received to date are displayed on the screens. So I now declare the poll open. So please -- all shareholders, proxy holders and corporate representatives complete their poll card by putting a cross in one of the boxes for against or vote withheld in respect of each of the resolutions listed. Please also complete your name and address or the name and address of the shareholder who has appointed you as a proxy holder or corporate representative as the case may be. If you've already sent it in a form of proxy, you don't need to complete a poll card unless you wish to vary your original vote. And please post all of your completed poll cards in the marked box provided at the exit at the back of the room on the way out. The poll will close 5 minutes following the conclusion of the meeting. If you have any questions, please ask one to our stewards for assistance. Our registrars will collate the votes cast and the results of the voting will be announced to the market and posted on our website later today. So with that, I think I can draw the 2023 Annual General Meeting to a close. Thank you very much for joining. And sadly, not I, but the rest of the team looks forward to seeing you next year. Thank you very much, and enjoy the rest of the day and the celebrations tomorrow. Thank you all.