Man Group plc - Interim Report 2007

This is combined with our portfolio construction capabilities and specialist structuring expertise to tailor products which meet investor demands and local regulatory and tax requirements.

We have continued to invest our capital resources in the development of new sources of return, seeding new managers, products and styles. During the first half of the year we increased our seed money investments from $0.8 billion to $1.0 billion. This increase is spread across our Core Investment Managers. In Man Global Strategies, our multi strategy manager, we seeded ten new managers, and in RMF and Glenwood, the fund of funds managers, we increased seeding investments by $60 million across new managers and products. The Seed Investment Portfolio is risk managed by the Core Investment Managers, primarily through the managed account platform, which provides transparency and risk monitoring at the portfolio level. The seed investment process is designed to analyse and test the underlying investment strategy and establish a performance track record before we allocate client capital. The Seed Investment Portfolio therefore recycles on a regular basis as strategies mature and are then replaced with new strategies. The diligence and risk management involved in the seeding process together with our capital resources is a source of competitive advantage and we continue to see significant opportunities to expand our business, particularly after the turbulence in July and August.

In June 2007 we announced the establishment of the Oxford-Man Institute of Quantitative Finance, and the endowment of a Chair in quantitative finance at the University of Oxford. The Institute will house a team of full-time researchers and senior faculty members from Oxford University and the Saïd Business School. The research will have particular emphasis on alternative investments and intends to attract the best researchers from around the world. We believe that this initiative will provide a catalyst for developing further innovation in our business.

We believe that there is continued opportunity in the area of renewable resources as a source of returns. During the first half of the year we launched MTM Capital Partners Limited and its China Methane Recovery Fund and have raised $419 million in three separate closings of the Fund. The Fund is based on the extraction of methane from mines using recognised technology and generating power and carbon offsets.

Extreme events in the financial markets can cause a change in investors’ appetite for alternative investment products. Man is recognised as having a leading position in the hedge fund market. Our 20 years of experience and long track record demonstrate our ability to deliver long-term cross cycle returns that have lower correlation to bond or equity markets. We believe that in turbulent market conditions investors who wish to stay invested in alternative asset management products will migrate towards those Investment Managers with the strongest track record and most robust product range. We have a targeted set of products that offer investors a range of risk and returns depending on their risk appetite as well as principal guarantees to offer them capital preservation.

Our distribution network is supported by the long-term relationships our sales force has with our distributors and our institutional investors. Our distributor network covers a wide range of the largest global and strongest regional financial institutions, which sell our product to their clients for a fee payable by Man. This worldwide distributor network offers us scale, flexibility and efficiency in the distribution of our products. Our strategy is to continue to grow the number of distributors and to focus on those distributors with strong franchises, high standards and an international presence. An expanding network of regional sales offices around the world is responsible for servicing new markets and maintaining and expanding our distributor relationships. During the first half of the year we opened offices in Singapore and Miami and have continued to expand our presence in Canada and our institutional efforts in the US.

In the first half of the year we launched 18 new products targeted at private investors. Private investor sales for the first half were $4.2 billion compared with $5.6 billion for the first half of last year and $3.0 billion for the second half of last year. The Man MGS Access global launch, which was achieved with Citigroup’s involvement, raised over $0.8 billion, and in Asia, the Man Global Multi-Strategy Principal Protected Fund raised over $1.1 billion.

The institutional investor sales team is focused on delivering products to the largest and most sophisticated professional investors. Institutional sales for the first half were $3.8 billion compared with a record $5.0 billion for the first half of last year and $2.3 billion for the second half of last year. The majority of these sales was in the RMF fund of funds product. From a regional perspective we saw continued strong demand for our products in Northern Europe and Switzerland. Our strategy is to continue to grow our sales force to access new markets and broaden the product coverage.

During the first half of the year we relaunched our Secondary Trading Platform, which provides distributors with daily liquidity for their investors in a range of open-ended products. This platform offers liquidity and price transparency similar to that offered in traditional financial products and is a key component of the growth strategy for our open-ended products. During the first half we have seen good two-way flows on the platform.

Our private investor and institutional strategies and breadth of product offering have resulted in our distribution network creating continued growth in funds under management, providing revenue growth and creating shareholder value.

Investor services of the highest standard are essential to support our investors and our distributor relationships. In turbulent market conditions active and full communication with investors and distributors is essential to enable them to have the appropriate information to make confident investment decisions. The investment that we have made in technology-enabled solutions has resulted in these communication processes working effectively during times of market stress. Redemptions for private investors were at a consistent level compared to the second half of the prior year. In the first half year redemptions were $2.1 billion, or 11% of average funds under management on an annualised basis, compared with $2.0 billion and 12% for the previous six months. These levels remain significantly below the average for the mutual fund industry.

The institutional investor experience in particular relies on high standards of performance reporting and risk analysis. The success is reflected in the quality of our funds under management as measured by both strong product sales and low redemption rates.

Investor services provide us with a source of significant competitive advantage and we will continue to make investment in this area. A strong infrastructure, which can provide investors with up to date information about their product performance and values, allows them to make informed investment decisions and assists them in meeting their investment objectives given their changing appetite.

Governance and risk management are essential components of both the investment management process for our investors and our approach to maintaining a high quality sustainable business for shareholders. Our corporate reputation is fundamental to our business, and maintaining our corporate integrity is the responsibility of everyone in the Group. Underlying our strategy is a strong focus on governance and requirements for high levels of ethical behaviour which run through our business. In a highly regulated environment we view the maintenance of high standards of ethical conduct and best business practices as a competitive advantage in the market.

Risk management is an essential competency at the portfolio manager and Group level. Active risk management throughout the Group mitigates the risk arising from market, credit, liquidity and reputation risk. Operational risk is the risk that the Group suffers a loss directly or indirectly from inadequate or failed internal processes, people, systems or external events. We mitigate operational risks through our strong corporate culture that emphasises the importance of effective risk management, strong internal controls, good governance and the value of maintaining the Group’s reputation.

We operate in a highly regulated environment and therefore constantly need to ensure our products and sales practices are compliant. Our dedicated regulatory and compliance teams provide us with a source of competitive advantage as they enable our products to be robust and provide us with speed to market for our product offerings. Regulatory changes could present a risk to our business and make it more difficult to market alternative investment products to our investors. We therefore have an active dialogue with all our regulators and monitor proposed changes. We believe that being proactive in regulatory developments results in us maintaining this competitive advantage.

Our strong capital position, both in terms of equity capital and debt resources, results in us having financial security across differing cycles and market conditions. At 30 September 2007, shareholders’ equity was $7.2 billion, up 58% from the year-end. The increase in shareholders’ equity in the first half of the year included the realised gain of $1,746 million on the sale of our holding in MF Global and an unrealised gain of $432 million, relating to the residual holding. The conversion of the remaining exchangeable bonds added $451 million. The profit for the period, excluding the gain on the sale of MF Global, added $725 million. Shareholders’ equity was reduced by the payment of the final dividend for last year of $250 million and the consideration paid for share repurchases of $520 million. Subject to shareholder approval, the distribution of proceeds from the IPO will reduce shareholders’ funds by approximately $2.75 billion to $4.4 billion.

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