Protecting the interests of our investors, maintaining the value of our franchise and ensuring financial discipline

Our investor focus has been on both investment management and risk management through these markets.

Man has always seen diversification as the key attribute of our product offering and we monitor the appropriate investment exposure within our products against the risk/return objectives of each product. In the final calendar quarter of 2008 we took pro-active measures to reduce investor risk in MGS products in light of highly volatile and illiquid markets, so preserving investor capital. The speed of this reduction in investor risk was greatly facilitated by our infrastructure and in particular the managed account platform, through which we had invested, a key advantage of the managed account being the control over assets it provides. Our close partnership with banks and prime brokers, who provide services and leverage to our products, was maintained throughout the process. In an environment of scarce product funding from banks, it is important that we have maintained the trust and confidence of our counterparties.

Throughout this process, MGS product guarantees were unaffected and remained in place in accordance with their terms, and liquidity terms were respected. There was active dialogue with our intermediaries and investors to provide a range of options to investors (including fee free switches).

The reduction in MGS investor risk was the single most significant contributor to the fall in private investor funds under management over the year (accounting for $12.1 billion of the aggregate net decrease). It also caused us to accelerate the amortisation of $107 million commission payments in our first half. Nonetheless, I strongly believe that these actions were absolutely in the best interests of the investors in our products and that our shareholders' interests have been best served by protecting our franchise in this way. We know from feedback we have received from investors and distributors that the manner in which we have taken and worked through the consequences of difficult decisions has re-inforced our reputation with them. As markets have stabilised and liquidity eased somewhat, we have begun a gradual re-gearing of some MGS products, as part of the dynamic process of investment exposure.

Difficult market conditions reinforce the need for high levels of investor and distributor servicing, even when assets are falling and investor appetite is muted.

We saw record levels of demand from the private investor, with sales over the period of $11.3 billion. The benefits of portfolio diversification, an adaptable product range and the attraction of guaranteed product offerings all contributed to this powerful demonstration of our asset raising capabilities. Redemptions were up on historic averages, driven by high open-ended product redemptions as is often the case in periods of strong AHL performance.

Our institutional experience was more in keeping with the industry as a whole, with our lower margin institutional funds under management reducing to end the period at $19 billion or around 41% in aggregate of our total funds under management. This result came in spite of RMF's strong performance relative to industry indices and equities and shows the extent to which investors sought liquidity wherever they could find it, irrespective of performance. In December we disclosed an exposure to Madoff representing around 1.5% of RMF's assets at the time and an associated 1.6% negative impact on RMF flagship performance. As soon as events came to light, we communicated with those investors affected and have kept these institutions up to date with subsequent developments. In practice, Madoff was one example of a broad set of industry issues and challenges which included redemption freezes, counterparty risk issues and high levels of correlation to equity markets. These have resulted in increasing calls for transparency in the way hedge fund businesses themselves are structured and run, alongside transparency on the identity and liquidity of the underlying investments. Addressing this wider set of industry issues is part of the proposition behind our new hedge fund management business.

Through these extreme markets a further key focus has been to maintain the continued financial strength of the firm.

We exercised disciplined use of the firm's balance sheet to support our core franchise. Proprietary investments reduced from $1.3 billion to $0.7 billion over the course of the year, as a result of management action and losses. We ended the year with increased net cash balances of $1.7 billion, our regulatory capital surplus increased to $1.7 billion and our $2.4 billion standby committed banking facility was unused.

At the end of March 2009 we announced that we would reduce the fixed costs of our business to reflect the lower current level of funds under management. That cost reduction has been implemented, reducing our fixed costs run-rate by $60 million per annum. We have taken the associated restructuring costs of $37 million in the results for the year. Synergies arising from the new hedge fund management business will reduce the fixed cost run-rate by an estimated further $30 million per annum.