Fundamental to our business

Strong risk management is integral to the investment management process for our fund products. Risk management is also an essential component in maintaining a high quality, sustainable business for our shareholders.

Our approach is to identify, monitor and evaluate risk throughout the Group and to manage these risks within our risk appetite. We also maintain sufficient excess capital and substantial liquidity resources to give us flexibility both to continue to finance long-term growth and to operate the business effectively under market stress situations. In this regard market conditions during the last 12 months have provided a strong test of the robustness of Man's risk management processes and the strength of its balance sheet. Man has consistently maintained a regulatory capital surplus of around $1.5 billion during this period and has always had a buffer of excess liquidity of at least $3 billion.

Risk management process

There are three key elements of our risk management process:

The risk governance framework

• Establishing clear functional responsibilities and accountabilities and committee structures for the management of risk.
• Setting risk policies, delegated authorities and limits consistent with the risk appetite.
• Ensuring appropriate skills and resources are applied to risk management.

The risk appetite of the Group

• Setting the overall tolerance for a risk-related loss in terms of quantitative and qualitative measures.

Risk identification, measurement and mitigation

• Assessing the potential impact on Man of internal and external factors that might give rise to a direct or indirect loss or demand for liquidity.
• Using a range of methodologies including economic capital, value-at-risk, stress testing, scenario analysis and qualitative assessment to assess the potential impact and likelihood of the identified risks.
• The process of systematically monitoring and reporting on Man's risk profile against its risk appetite, exposures against limits, losses and other risk related incidents, compliance issues and the effectiveness of our internal controls.

Risk governance - responsibility and accountability

The Board of Directors is ultimately responsible for the framework of risk governance and risk management. The Board is responsible for determining risk strategy, setting Man's risk appetite and ensuring that risk is monitored and controlled effectively. The Board of Directors has given delegated authority to two committees - the Risk Assurance Committee and the Finance Committee - to provide oversight across all risks faced by the business. The responsibilities and membership of these committees are explained in more detail in the Governance and Risk (Pillar 3 disclosures) section on the Group's website.

Senior management in the businesses are accountable for all risks assumed in their areas of responsibility and for the execution of appropriate risk management discipline within the framework of policy and delegated authority set out by the Board. The results of risk-taking decisions are reflected in the economics of the businesses assuming the risk. The principle of individual accountability and responsibility for risk management is an important feature of our corporate culture.

Day to day independent and objective assessment and monitoring of risk is provided by various risk control functions at the Group level and in business. These risk control functions include Group Risk, Finance, Legal, Compliance, Human Resources and Internal Audit. In addition, risk management functions reside within each business unit. There are formal reporting lines and segregation of duties for the key Risk, Compliance, Legal and Finance functions.

Risk appetite

Risk appetite is the amount and type of risk that Man regards as appropriate for it to accept in order to execute its strategy. The Board regularly reviews and sets this in the form of 10 risk appetite statements, which it sets in the context of Man's strategy and the requirements of various stakeholders, including the regulatory framework in which we operate.

The risk appetite statements, which are summarised below, provide the benchmark against which Man's risk profile is reported, monitored and managed by the Board, Audit and Risk Committee, Finance Committee and Risk Assurance Committee. Risk appetite also forms the basis for the calibration and setting of the delegated authorities and financial limits for all aspects of market, credit, liquidity and operational risk.

The 10 risk appetite statements address both quantitative and qualitative aspects of risk taking.

The quantitative risk appetite statements address:

• maximum tolerance for market, credit and operational losses;
• the maintenance of a minimum credit rating level;
• minimum economic and regulatory capital surpluses;
• the maximum earnings volatility; and
• minimum excess liquidity resources to meet peak stressed liquidity requirements without the need to liquidate assets or raise capital.

The qualitative risk appetite statements address:

• regulatory risk;
• reputation risk;
• business mandate;
• operational risks in the execution of business plans; and
• risk related decision making, especially in relation to new business opportunities.

Principal risks

The principal risks faced by Man are:

• risk of poor performance of its fund products;
• risk of reduced availability and/or increased cost of leverage for certain fund products;
• liquidity risk relating to fund products;
• risk resulting from failures in operational processes in our investment management businesses;
• risk resulting from concentrations in investors and distribution capacity;
• risk of market risk losses on proprietary investments in hedge fund products; and
• risk that future regulatory change could make it more difficult to market alternative investment products to potential investors.

The Group's reputation may also be adversely affected in the event that any of these risks were to crystallise during the year.