Man Group plc is the parent company for a group of entities engaged in the investment management business.

FUM and fees

The investment products we sell are issued by independent fund entities for whom we act as the investment manager. The fund entities have independent boards of directors with independent governance and decision making powers. The fund entities' investment performance, assets and liabilities are therefore separate from the Group and are not consolidated into the Group's financial statements. The fund entities pay us management fees and performance fees.

The fund entities send the investors periodic statements telling them their investment returns, net of fees and the value of their investment, or Net Asset Value (NAV). This represents the value of the fund's assets less liabilities.

A key measure of the size and scale of our business is therefore the aggregate asset exposure that we manage for the fund entities, referred to in this Annual Report as 'Funds Under Management' (FUM). The asset exposure is supported by the investors' risk capital and any financing provided to the fund entities by banks and prime brokers (referred to as 'leverage').

We earn management fees, at a fixed percentage based on FUM, for managing the fund's gross asset exposure. The level of FUM drives the Group's revenue base. The growth of FUM is a key performance indicator for the business as it measures the potential for future revenue growth.

In the case of guaranteed products sold to private investors, part of the investors' risk capital is used to purchase a guarantee from a major financial institution. The value of the guarantee is included in the investors' NAV for the product. However as the guarantee is completely separate from Man the value of the guarantee is not included in our Funds Under Management, and we do not earn fees on this amount.

We earn performance fees based on a percentage of the investment performance earned above a benchmark return or the highest previous asset valuation, a 'high water mark'. The investment performance of the funds we manage is therefore a key statistic as performance sustains the investors' continued allocation to the product and retains for us management and performance fee income. While our performance fees cannot be negative if a product is significantly below its previous high water mark due to negative investment returns, it may take time to recover to a point where we will earn performance fees again.

In addition to management and performance fees we may also receive fees for arranging financing and other related services required to administer the product for the fund entity.