Sustaining competitive advantage and building for the future

AHL delivered exceptional performance in 2008, with an annual return of 33%. AHL has one of the longest and most impressive track records in the industry and a reputation for innovation, refinement and expansion of its successful trading strategies.

We have continued to invest in AHL's people, systems and relationships. Specific examples include:

• strengthening the teams with the addition of 43 new members since January 2008 (mainly in research, but with some on the operations side);
• opening an AHL Hong Kong trade execution desk in April of this year, delivering improved execution efficiency, better leveraging of local broker relationships and expanding into new instruments in the region;
• rapid expansion of the Man Research Laboratory at Oxford (now nine full time researchers with plans for more and with the outputs of several projects having already filtered through to AHL's trading programmes); and
• investing in technology to enhance trading efficiency, reducing time to market for new trading strategies, through the use of small scale exploratory models and new tactical trading environments and increasing processing power through innovative high-frequency price storage and analysis systems.

We have continued to invest in our distribution network and intermediary relationships. In November last year we opened a Dutch office to enhance our presence in the Netherlands and additional offices for specific markets in Europe and Asia are under active consideration.

We are pleased to have widened our distribution relationships in Japan, alongside our existing strong alliances there. A considerable amount of planning, preparation and careful product analysis over the course of last year resulted in the launch of a publicly distributed managed futures product which raised almost $1 billion of new investor money after the financial year end. We have also committed time and effort to relationships in longer term prospects, most notably in China.

Current investor caution suggests that portfolios containing highly liquid investments are likely to see most demand in the shorter term. Man is well placed to cater for these preferences and our new hedge fund management business provides an efficient means of delivering the strength and breadth of the whole firm to the end investor. An early example of product managed by the new business is an open-ended combination of managed futures and global macro managers, giving access to broad manager pools and managed account relationships across Man. The product launches in June 2009.

In an environment of increasingly complex and engaged regulation, our ability to design and structure products on-shore in a regulatory compliant format in many countries is an important component of our flexibility and competitive advantage. In the course of the year we launched our first UCITS III compliant product and continue to investigate the opportunities this format presents for both single manager and multi-manager blends across our product range.

Man is already regulated in many countries, including the Financial Services Authority in the UK and has developed regulatory relationships across the globe. Accordingly we already have in place the resources, structures and capital to address additional regulation of our industry internationally.

In March we announced plans to address evolving investor requirements through the creation of an integrated hedge fund management business to lead the industry in providing access to hedge fund investing in a transparent and flexible format. That announcement created significant interest in our industry and was widely welcomed by investors, distributors, intermediaries, banks and other stakeholders. The new hedge fund management business will become operational during June. It builds the strengths of RMF's infrastructure and disciplined investment process, Glenwood's bottom-up manager selection philosophy and Man's managed account expertise, into a new, strong, comprehensive and integrated structure, underpinned by Man's capital strength, global distribution capabilities and structuring expertise. The new structure has been driven first and foremost by a thorough analysis of what both private investors and institutions want and need, in a rapidly evolving world. In serving the needs of investors for confidence and choice, the new business gives us access to a range of investor flows and economics, whilst maximising internal efficiency. All existing products and portfolios will continue to be managed according to their investment guidelines but will receive the investment management benefits that the new business will bring.

Dividend

Based on the Group's earnings generation and business performance in the year and the strength of its balance sheet, the Board proposes to declare a maintained final dividend of 24.8 cents per share, giving an unchanged total dividend for the year of 44 cents per share.

Outlook

After the turmoil of 2008, our industry has shown signs of stabilisation in early 2009. A number of market commentators anticipate that industry funds under management will bottom-out at around $1 trillion during 2009, then regain upward momentum. With overall industry performance in positive territory for the year to date and outflows slowing, there are some signs in support of this view. However, it is clear that a major industry shake-out is underway, precipitating a sharp fall in the number of managers, led more by attrition than consolidation, as many mangers have not been able to survive the decline in assets. The factors underpinning these trends play to the strengths of Man's business model.

We have continued to invest in our business and sharpen our product focus to take advantage of markets and new opportunities. The launch of our new integrated hedge fund management business demonstrates where we see clear and wide-ranging potential for growth in market share, and the first product will be in the market during June 2009. We have taken further steps to reduce costs and rationalise products as part of this initiative. We have also separated our principal investing and seeding activities to take advantage of the clear opportunities in this area.

Investors of all types are reflecting on the turbulence of markets over the last two years and are looking for diversification opportunities within their portfolios offering an appropriate risk and return, and for investment firms who have scale and breadth. Institutional investor sales have remained muted since year end and redemptions, as announced in March, continued into April. Our recent private investor product offerings have focused on liquid strategies, in both guaranteed and non-guaranteed formats, with conservative and sustainable leverage. Private investor demand has been strong, with sales since year end totalling $2.6 billion, including around $1.5 billion across Asia Pacific. Funds under management at 26 May are estimated at $44 billion.

This is a period of significant opportunity in our industry. The lower level of current funds under management will result in lower management fee income in the coming year. We have addressed our cost base and have made a number of substantial changes to Man's business to reinforce our competitive advantage, and address future investor requirements and evolving markets. Man is well positioned for growth in market share.