Man Group PLC

LSE:EMG

Earnings Call Transcript 2022-Q4

[Luke Ellis, CEO]

Good morning, everyone. Thank you for coming. Those of you come physically, thank you lots. It's nice to have somebody in the room to talk to. Last year's AGM, which we did try to do in a mixed way like this, we had I think two people came. So it's nice to see a full room today, despite everybody else having results.

Those who don't know, I am Luke Ellis, the CEO; and that's Antoine Forterre, the CFO. As usual, I'll start with some highlights, then Antoine will take you through the numbers. After that I'll talk about strategy and why we believe we're well positioned for growth in the future. And then we'll finish with Q&A with a heavy favor on the people who are in the room. Right, that's me.

Let's get going. So look, inflation was clearly the dominant factor for economies and markets in '22. It prompted aggressive monetary policy tightening from central banks, which led in turn to significant sell-offs in financial markets throughout the year. This kind of market environment is a real test for active investment management. And I'm proud to say it was a test that Man Group rose to.

I'm delighted to be able to report another set of strong results across the board at Man. In the past, we've talked about the breadth and quality of investment capabilities we offer, many of which aim to deliver uncorrelated returns. Despite the large sell-off in markets, our investment strategies were able to generate $2.9 billion of Alpha overall for our clients, clearly, demonstrating the value liquid alternatives can add to investment portfolios. We're pleased to see $3.1 billion of net inflows this year, 5.3% ahead of the industry, highlighting the excellent progress we continue to make on the client front. More on that later, because it always excites people.

Our assets under management did, however, decrease by 4% overall, caused by market beta and the stronger US dollar as we have a lot in non-US dollar-denominated business. Management fee earnings per share grew -- we grew to $18.4, up 17%, demonstrating the strength and resilience of our business model. The positive investment performance, I mentioned earlier, resulted in a very strong performance fee outcome for a second consecutive year, resulting in core earnings per share of $48.7, a 26% increase on what was already a record year in 2021.

Consistent growth in our performance fee eligible AUM has increased the performance fee potential of our business, meaning that even when we deliver investment performance in line with previous years, we can generate meaningfully more performance fees. We've talked about Man Group having a differentiated business model, clearly, these results demonstrate the power of that differentiation.

The Board has proposed a final dividend of $10.1 per share, which together with the interim dividend implies a full year dividend of $15.07, in relation to 2022, a 12% increase versus 2021. We also announced $250 million of share buyback in 2022 and an additional $125 million today, demonstrating our commitment to returning excess capital to shareholders. We're pleased that the continued growth and profitability of our business allows us to provide consistent and growing returns to our shareholders.

As mentioned, asset under management decreased from $148.6 billion at the start of the year to $143.3 billion at the end. Net inflows of $3.1 billion and positive Alpha of $2.9 billion were offset by $7.2 billion of market beta. And we also saw $4.1 billion of negative FX and other movements due to significant dollar strengthening. That's the market beta in the long-only strategies in simple terms.

We are growing -- we are a multi-dimensional active asset manager with a material advantage in liquid alternatives, in systematic and in long-only investing. Our investment capabilities powered by our advanced technology platform are designed to deliver Alpha. We aim to have as many different sources of high-quality Alpha available for clients as possible. We grow by adding new sources of alpha through organic innovation, recruitment and acquisition and by working closely with our clients to understand and help them solve their most complex problems.

This slide highlights the success over the last 10 years and hopefully into the future. Today we manage over 2.5 times the assets that we did a decade ago. We offer investment strategies run on a quantitative and discretionary basis across liquid and private markets. And we are a true global leader in liquid alternatives and in solutions.

The breadth of what we do at Man and the tailored nature of what we offer is extremely compelling and highly relevant to our clients. 2022 illustrated why institutions need to allocate to liquid alternative strategies and to those strategies that diversify traditional betas, and this presents a significant runway for growth for Man Group into the future. We generated $2.9 billion of Alpha for clients, as I mentioned, and our absolute return strategy has performed particularly strongly delivering $2.8 billion of investment performance for clients.

Our trend following strategies delivered high-single digit or double digit returns through to 40%, depending on the risk levels, proving the significant portfolio benefits of investing in these types of strategies, especially in inflationary period. Our multi-manager products also made valuable gains for clients. While our long-only strategies were naturally affected by market beta, the asset-weighted relative investment performance of 3.9% was extremely strong.

Our systematic long-only strategies similarly outperformed consistently over the year, delivering 2.1% of relative outperformance, while our discretionary strategies outperformed by 6.9% with very solid outcomes from our teams in credit and in Japanese in UK equities. This is a reflection of the quality of our security selection and risk management across the firm.

On the topic of risk management, while AHL TargetRisk absolute performance reflected its long-only exposures to fixed income and equity markets, our proprietary risk overlays were active throughout most of the year. This helped mitigate drawdowns during the sharpest sell-offs of 2022, significantly reducing notional exposure when inflation expectations were at their peak, and we estimate these overlays contributed around 6% to the underlying returns. But when we talk about Alpha, we calculate the Alpha in those strategies against the zero benchmark, so there was a significant drag of $2.7 billion on that announced Alpha number.

I'm delighted we've been able to make a real difference for our clients and thereby deliver strong financial results for our shareholders during a negative period across risk assets. We've always been confident in our ability to deliver in these periods and these results are a reflection of the quality of our talent and our market leading technology and the business we've built over the past few years.

Net inflows of $3.1 billion during the year were, as we said, 5.3% ahead of the industry on an asset-weighted basis, highlighting the continued demand for the differentiated range of strategies and solutions we offer, in particular liquid alternatives, as well as our judicious approach to risk management and the long-term partnerships we've built with many of the largest investors across the globe.

Client engagement was strong throughout with $41.1 billion of inflows during 2022, our second best year on record. There was, though, a pickup in redemptions, we commented on at the half year, as clients responded to macroeconomic conditions and other issues in their investment portfolios. All redemption requests were honoured in full, sometimes accelerated to meet clients' pressing needs. I'll go into it in more detail of how the UK LDI episode impacted our business, and particularly how we help clients weather it.

When it comes to clients, there were a number of bright spots during the year. We added a significant number of new relationships with strategically important allocators often via dedicated investment solutions. While representing only a part of the overall customized mandates we offer, Man Institutional Solutions AUM has now grown to $14.4 billion. The tailored nature of our offering solves real client needs, deepening the partnership and longevity of the relationship, and this can be seen in an average redemption rate in this category, which has been lower than 10% since 2018.

Additionally, there is strong interest in our multi-manager offering in Numeric Global and in discretionary credit strategies. Despite our primary focus on the institutional space, we also saw considerable growth through wealth channels helped in particular by the success of the American Beacon AHL Managed Futures mutual fund in the US. We make a conscious effort to listen and respond to our clients, and this slide illustrates the strength of the franchise we've built and the value of providing our clients with a single point of contact that understands their unique requirements across a range of market environments. As I've said before, we are a client-focused firm. And by that, I don't mean a distribution-focused firm. These charts showcase the real success we've delivered.

A recent industry survey from one of the banks showed that as the amount of investor allocates to hedge funds increases they, of course, tend to allocate to more managers. But to a much greater extent, they increase the average amount allocated to each manager and tend to invest in more products or strategies with the same manager. With that in mind, doing more with our existing client base has always been a key priority for us.

And I'm pleased to say the trend of clients investing across the firm continues. When clients invest in one product with us, they often make a second, third or fourth investment too. And several of our largest clients have increased the number of strategies they are invested in and their average ticket size with us. Today, interestingly, only about 20% of our AUM comes from clients invested in just one product. Clients have confidence in our ability to manage, protect and grow their assets. Our ability to attract and retain client asset significantly faster than our industry peers over the last five years is clear evidence of this.

With that, I'll pass you on to Antoine to take you through the numbers.

[Antoine Forterre, CFO]

Thank you, Luke, and good morning, everyone. I'm pleased to present another strong set of results following the record year we saw in 2021. As usual, I will also start with some highlights before covering our AUM, P&L and balance sheet. 2022 illustrated how our business model can perform well in periods of market dislocation, and why we're confident in our ability to continue to grow over the cycle. At almost $1.7 billion, net revenue increased by 14% year-on-year, driven by both management and performance fees.

Net management fees were up 6% versus 2021 due to net inflows and strong performance from absolute return strategies leading to higher average AUM. Performance fees at $779 million were up materially. They have reached the highest level in over a decade, exceeding last year's peak and showing the increased performance fee potential we spoke about at our Investor Day last May.

Fixed costs of $332 million were 3% higher than in 2021, driven by the continuing investments in selected growth areas and post-pandemic cost normalization, partially offset by weaker sterling. With our compensation ratio remaining at 40%, the bottom of our guided range, our core PBT increased by 18% to $779 million as well, a 46% margin reflects the value of performance fees generated for shareholders.

Our core management fee profit before tax increased by 9% to $290 million, illustrating the very good operating leverage that our platform provides. Finally, we continue to have a strong and liquid balance sheet with net financial assets of $983 million at the end of December, which we used to drive future growth in our business.

Let's start with AUM. As Luke said earlier, we managed $143.3 billion in assets at the end of the year with positive net flows of $3.1 billion over the period, offset by market beta and FX moves. Net inflows into alternatives of $3.4 billion were driven by Man Institutional Solutions and multi-manager mandates, partly offset by outflows from AHL Alpha and Alternative Risk Premia, as our clients access liquidity in their portfolios.

The marginal net outflows from long-only of $0.3 billion were driven by GLG EM Debt and GLG Continental Europe, which more than offset inflows into Numeric Global and GLG High Yield. On an asset-weighted basis, overall net flows were 5.3% ahead of the industry, which demonstrates continued strong relative demand for diversified product offering.

As Luke mentioned previously, we generated a significant amount of Alpha for clients during the year, including $2.8 billion in investment performance from absolute return strategies. This provided clients with valuable gains during the volatile period, which is the best possible advertising for our strategies and solutions.

On the long-only side, $1.4 billion of Alpha generation was offset by market beta. Overall absolute investment performance was negative $4.3 billion. Finally, assets under management decreased by a further $4.1 billion with $6.6 billion of FX impact, partially offset by $2.5 billion of recurring movements categorized as other. As a reminder, 43% of our AUM are non-US denominated with main exposure to sterling, euro, Aussie dollar and Japanese yen.

We were pleased to deliver continuous growth in net management fees compared to 2021. The main driver of growth remains absolute return category. So a combination of flows and performance. Run rate management fees were $917 million at December -- at the end of December. As you can see the decrease in the year was largely due to FX moves, partially offset by net inflows, Alpha and other movements.

While the strengthening of the US dollar had negative $43 million impact on run rate net management fees, it is worth noting that FX accounted for more than 25% of the gross P&L and strategies such as AHL Alpha and AHL Dimension, making significant contribution to our performance fees during the year. This is just one example of the diversification embedded in our business.

At the end of December, our run rate net management fee margin was 64 basis points, 1 basis point above the run rate as at the end of 2021. The difference here is entirely the result of the mix of the underlying assets we manage for clients. As I've said before, we did not target a specific net management fee margin and it is very much an output of the underlying mix of assets we manage. We remain focused on generating profitable revenue growth in the various product categories that we run, considering the positioning, performance and capacity.

Moving on to performance fees, I'm delighted to report we had another very strong year, the highest in over a decade following on from record full year performance fees in 2021. Performance fees were $779 million for the period. These were driven by $195 million from AHL Evolution, $185 million AHL Alpha and $270 million from other alternative strategies, most notably from our Institutional Solutions mandate.

Separately, we incurred losses on investments of $15 million, which predominantly relates to the CLO positions in our seed book. This outcome once again illustrates the performance fee potential of our business and the value it generates for shareholders. Over the past five years, we have delivered $396 million of performance fees on average or circa 80 basis points of our average performance fee eligible AUM over that period.

At the end of January, we had accrued in our funds over $100 million in performance fees due to crystallize in 2023. This number is not a projection, but a snapshot of the position accrued in the funds we manage at a point in time. The amount that crystallize over the remainder of the year will therefore vary up or down based on the performance of the underlying funds over the periods, thus today, our strategies have started the year well.

We now turn to costs. Fixed comp was broadly flat year-on-year at $209 million, reflecting continued investments in our team, partly offset by the strengthening of the dollar versus sterling. Other cash costs increased by 7% to $123 million with a normalization in cost post-pandemic offset again by favorable FX moves.

Our fixed cost guidance for 2023 is $355 million at a 1.21 sterling dollar exchange rates. This reflects fixed compensation increases for our talent in line with inflation, an uplift in energy costs in our offices, in London in particular, and selective investments in certain parts of the business. We are keen to invest further and capitalize on the growth we've seen, but we'll keep applying the same cost discipline that has guided us over the past few years.

Variable compensation costs increased due to higher management fee and in particular performance fee revenues. Continued revenue growth meant our compensation ratio remains at 40% at the bottom of our guided range, reflecting an excellent pillar [ph] for performance fees. The result of all this is a PBT margin which increased to 46% compared to 44% a year ago, highlighting the positive operating leverage in our business in periods of strong revenue growth, with an outcome we are very proud of considering the headwinds elsewhere in the asset management industry.

Our core business grew materially last year and has grown consistently over the last five years. At $219 million, core management fee PBT increased by 9% in 2022, a CAGR of 7% since 2018. This reflects our clients' confidence in our ability to manage their assets and our focus on running the business efficiently to translate that into profitable growth.

Performance fees are very valuable earnings stream for shareholders. They're not lower quality, just more volatile. They are the economic manifestation of the value we deliver for our clients. This year, we've already seen the benefits of the diversified range of performance fee earning strategies we offer, and importantly, how many more dollars of performance fee profits we can generate on a larger performance fee eligible asset base. Overall, higher average AUM, continuing net inflows and strong performance fee generation together with maintained cost discipline and the impact of share buybacks resulted in core EPS growing to $48.7 in 2022, another very strong results.

Our balance sheet remains robust and liquid. At the end of December, we had $983 million of net financial assets. This is before the receipt of cash from performance fees crystallizing in December, the payment of variable compensation, the final dividend and the completion of the ongoing and upcoming share buyback programs. We continue to deploy capital to invest in new strategies with seed investments of $688 million on balance sheet at the end of the year.

As you can see, this is diversified portfolio of investments in strategies across alternatives and long-only, in liquid and private markets. Seed positions are typically held for around two years for liquid strategies. Our pipeline of new ideas remains strong and our seed capital program continues to be a key way for us to support product launches.

For context, around 15% that is $20 billion of our AUM today is from strategies that we have seeded in the last 10 years. That list includes AHL TargetRisk, Alternative Risk Premia, GLG High Yield and Community Housing to name a few. The strength and flexibility of our balance sheet also allows us to invest in the business to support our long-term growth prospects, evaluate M&A opportunities and ultimately maximize shareholder value.

As we have done in the past, we will continue to return capital that we consider to be in excess of our medium-term requirements. Including the final dividend proposed today, we will be returning almost $444 million to shareholders in relation to 2022. And we'll have returned $1.9 billion over the last five years, equating to over 50% of our market cap today, though I haven't seen what the share price is doing this morning. These metrics are all before the additional $125 million share buyback announced today.

To conclude my part, the strong results reflect the quality of our talent and technology, demonstrate our ability to deliver Alpha at scale, highlight the benefits of our differentiated business model, and most importantly, demonstrate the growth we have delivered and future potential of the firm we've built.

On that point, I may hand back to Luke.

[Luke Ellis, CEO]

I'm pleased to say it's up as of now. We'll see whether we mess it up in the next 10 minutes. Cool. I'm not sure impressive, but it would take something, anyway. Well, I will try and be clear about LDI this time than I was at the half year. How about that? So this year has reinforced my belief that our business model gives us the ability to deliver consistent growth over time.

Large institutional investors have an insatiable appetite for Alpha to enable them to reach their target returns, and our business is designed to deliver them Alpha at scale. By trading a wide range of macro instruments as well as traditional assets, our strategies have the potential to generate Alpha irrespective of the direction of prevailing market trends.

In a period of such strong market uncertainty, investors are increasingly looking for differentiated investment offerings and the option to customize based on risk appetite and market exposure. They're also looking for help with managing the risk from the beta exposures and the correlation risk they've got in their asset mix. There are few firms with the range of high-quality solutions we offer. It allows us to appeal to a wide range of sophisticated clients around the world, and to always remain relevant to the clients' CIO throughout market cycles.

Our institutional resources and our infrastructure are designed to deal with scale and complexity. It enables us to evolve and adapt with markets and client's need and gives us a real competitive advantage. Underpinning all of this is the combination of our talent and technology, allowing us to deliver for clients to drive the sustainable growth of our business and to deliver sustainable value to shareholders.

The difficulties faced by traditional assets and traditional portfolios during 2022 in particular makes a strong case for investing in liquid alternatives, where we are a market leader, maybe the market leader with over 35 years of experience. Our returns in 2022 reinforce our belief that our diversified range of strategies are well placed to generate Alpha in varied macroeconomic regimes.

In addition, the tailored nature of our offering solves real client needs. We bring an allocators mindset and use investment capabilities and portfolio management skills from across the firm to create a powerful combined offering, deepening the partnership and longevity of our relationships. We're one of the largest liquid alternative providers globally. For context, around 41% of our alternatives AUM has daily or weekly liquidity terms, which we always honor and that's truly differentiating as allocators rediscover the value of liquidities in their portfolio, which brings me to the infamous LDI episode.

During our half year earnings call, I highlighted the likely pickup in redemptions across all asset managers as a result of clients' liquidity needs as they addressed other issues in their portfolios of which LDI hedging was one. What was an industry wide trend was slightly strangely in my language, obviously, perceived to be a Man Group specific one at the time. The mini budget followed, which as you know, accelerated and amplified that trend. It was, however, a perfect manifestation of the positive role that liquid alternatives can and should play in portfolios as clients desperately needed liquidity, which they couldn't access in other parts of their portfolio.

Approximately $3 billion or roughly 50% of our assets from our UK defined benefit pension scheme clients was redeemed between 23rd of September and the end of the year. Most of these mandates had weekly or short-term liquidity terms, and all of the requests were honoured in full and on-time and actually sometimes even accelerated. Importantly, the weighted average year-to-date investment performance of the assets redeemed was plus, yes, I mean, plus 12% at the time, highlighting the value we added to their portfolios during a volatile period. This was a key driver of 95% of these clients requesting to redeem only partially thereby leaving the lines open for them to reinvest with us much more easily in the future.

Our ability to honor the letter and spirit of our liquidity commitment and return much needed capital at very short notice strengthened our longstanding relationships with effective clients. As they now revisit their asset allocation and better understand the margin calls that may arise on their portfolios in the future, we are seeing encouraging demand for our strategies and a good chunk of those redeemed assets have already returned.

On top of assets coming from the pre-existing clients, it's clear that our ability to deliver both performance and liquidity is something prospective clients recognize they need more of in their portfolios in the future. So, let's take a step back for a second and look at the bigger picture. We are no longer in a world with zero rate, zero inflation with every central bank doing the same thing. In that world which existed from 2010 to 2020 and maybe into 2021, having maximum beta exposure, liquid or private was the sound allocation for your portfolio. There was little return or reward to risk management or diversification.

Today, though, we're clearly in a different paradigm for markets, which I believe may last for many years. There's a lot of economic uncertainty, and trying to predict where markets will be a year from now is not a straightforward task. But what we do know is that we're in a period of heightened inflation that as I say, I believe is going to not going away anytime soon. Heightened inflation creates economic uncertainty and volatility, and that creates market volatility, which is a great environment for active management. The more dispersion there is in markets, top down macro dispersion or bottom up company dispersion, the more opportunity there is to generate Alpha. But you do need skill.

Alternative managers with excellent risk management skills with a track record of delivering returns for clients will see strong demand, and that's an area where we're very well placed. We can help clients achieve their aims in the current environment, whether that's providing access to uncorrelated returns like Man 1783 or managing the beta in their portfolio like the AHL TargetRisk family of products. But let's just talk a little bit about 1783.

Our culture of collaboration across the firm allows us to bring together easily the best of our talent. A great example of this work is what we've done with Man 1783, our multi-strategy fund, which provides clients with unconstrained access to all our systematic and discretionary Alpha sources in a single efficient portfolio structure. It offers clients access to over 75 strategies from the outset. On the quant side, it provides access to models and strategies that have previously only been available in capacity managed flagship funds. We have a real pedigree in this space and our ongoing commitment to research, development and innovation will ensure new models and markets are continually added to the fund alongside regular updates to existing ones.

On the discretionary side, in equities, we have several highly successful teams with longstanding track records. And in credit, we've been building out our capabilities significantly over the past few years. 1783 is therefore a highly diversified multi-strat product, run with moderate volatility and consistently low correlations to traditional assets. It's a unique opportunity to access long-short Alpha across asset classes with what we feel is an optimal mix of quant, something that is clearly differentiated and others don't really offer. And importantly, somewhere it was on the slide before, it delivered great performance in 2022.

We consider innovation is key to connect -- to cementing our competitive advantage and creating multiple dimensions for future growth. 2022 saw Man launch one of the first, if not the first, Article 9 systematic multi-asset Climate Fund. We developed it, because we saw a real opportunity to bring our risk management and quantitative expertise to a space that has traditionally been the domain of discretionary investors.

Identifying securities that are climate aligned is a complex and nuanced exercise. There's a lot of noise that is best managed by a data-driven approach, something at which Man Group has been specializing for a long time. This approach is best-in-class. The team leverages multiple data sources and the expertise of our responsible investment in data science teams to identify and select securities most aligned with the transition to a low-carbon economy within multiple asset classes.

Equities, credits, government bonds, commodities green bonds, and then combine them and risk management using our proprietary target risk techniques. We're really proud of the work we've done collectively to develop frameworks that evaluate the ESG characteristics of non-corporate assets. The strength in our approach is that the ongoing debate about whether ESG leads to better returns doesn't enter the equation.

We focus all our efforts on allocating to those securities that are most aligned with the climate change mitigation within our investable universe, while still offering an attractive risk return profile based on our tried and tested portfolio construction and risk management techniques. AHL TargetClimate is a strong addition to our RI focused fund range, leveraging our quant capabilities to deliver a truly innovative climate-focused product for clients. You can see by how quickly I'm talking, I'm excited by.

So solutions is a real buzzword in the industry and arguably overused by many who ultimately aren't really providing solutions but selling products. This chart illustrates the level of complexity and the level of customization that exists for clients who choose to invest with Man Group using a bespoke solution. There is a clear trend of clients doing more things with fewer providers, and therefore, the problems are becoming more complex. We're acquiring specific tailoring and partnership. We're really well placed to benefit from that given the breadth of our strategies, the quality of the institutional resources and the cultural DNA to work with clients to build solutions that deliver for the client.

The rate of growth in our Solutions business is testament to that. We now run more customized mandates than ever before, offer solutions that flexibly scale for many of our largest clients, and we've seen a consistently low redemption rate in this category. We will continue to expand the breadth and depth of our offering and that prevent [ph] several opportunities for growth, with both new and existing clients. One of the reasons we've been successful in this area is because our infrastructure can deal seamlessly with complexity and deliver better outcomes.

We've discussed the power of our central platform in the past, but I wanted to spend a couple of minutes putting that into context. At our Investor Day, we talked about how we manage something like 17 times the trading volume per person compared with our peers. Due to our early continuous and significant investment in our central platform, where orders of magnitude ahead of most asset managers, it gives us a huge and lasting competitive advantage that is not easy to replicate.

As I mentioned at the start of the presentation, we've grown our assets by more than 2.5 times over the last 10 years. Over the same period, our operations headcount is actually materially lower. This is real operating leverage in action, and it's only possible with an industry-leading operating platform powered by great technology.

In 2022, we processed nearly 20 million trades, over double the number in 2013, and we had just under 60 problem trades, that if my math is right, is a problem rate of 0.0003%. Our platform enables us to operate and grow efficiently and flexibly at speed and scale. It allows us to deliver better outcomes for our clients and value for our shareholders.

Continuing to invest in technology is vital to our ongoing success in an industry, which like most others, is becoming more technology-driven. And in 2022, we invested roughly $120 million into our investment in core technology. You may have seen yesterday, we announced that Man Group and Bloomberg have signed a multiyear open source technology development and product integration agreement for our database product ArcticDB. This is the first transaction of its kind for Man Group. And the resulting product will be implemented as part of Bloomberg's BQuant offering.

We built ArcticDB, it's a high performance Python native database to address the ever-increasing amount of data and complexity of front office research at Man Group, a challenge faced by all large buy side and sell side institutions. Bloomberg will integrate ArcticDB into BQuant, Bloomberg's analytic platform for quant analysis and data science. ArcticDB has transformed the way we handle data and we're confident we'll do the same for others.

I think you'd all agree that Bloomberg wanting to integrate our software in their product is a huge validation of the quality of Man's tech. We think we have a huge lead in tech capabilities compared to the wider asset management industry, on over the long-term that drives better performance. Our tech focused -- I'm sorry, only tech focused or quant firms have sustained their place at the top of the industry over the past 15 years, having a platform that enables data collection, analysis and innovative systematic Alpha extraction coupled with efficient execution and post-trade operations is a key advantage for us today.

So this has been an excellent year for Man Group, in which we delivered very strong outcome for clients and shareholders alike. Our results highlight our investment performance, the value of our technology empowered active investment management and the demand for our strategies and solutions. In fact, it's been an excellent two years for Man Group, so these results are a reflection of a very strong continued growth as we delivered a record set of results last year. We've made excellent progress and our focus is on the future. We're in great shape with a solid competitive advantage and good momentum going into 2023. And we're confident that the firm will continue to deliver.

As I said earlier, liquid alternatives and hedge funds delivered for clients in 2022. All things being equal, that should naturally lead to more demand in 2023 for liquid alternatives, especially as so many other investments lost money last year. And that's certainly reflected in the client conversations I've had going around the world this year.

More importantly, I believe that having lived in a single economic regime for the decade from 2010 of exceptionally low inflation, super easy money regimes everywhere, and therefore, very low volatility and dispersion, we've entered a new regime that will probably last the rest of the decade. Inflation is alive again everywhere. As opposed to the 1% inflation world of the 2010s, I think we'll be in a 2% to 6% range for as far as the eye could see, unless central banks are willing to cause a deep recession, which so far seems very unlikely.

A heightened inflation regime creates economic volatility and uncertainty, and that creates market dispersion and volatility, which as I mentioned is a great environment for our skill to be turned into Alpha. In simple terms, Alpha is the product of skill and dispersion. If all assets and stocks move up in lockstep, there is no room to generate Alpha. If things are very disperse, there's lots of room to generate Alpha, but it takes skill for that Alpha to be positive. You can lose money if you're not good at it. The 2010s were not a good period for Alpha generation due to the lack of dispersion, and so it was not also -- it was also not a good period for flows in active management and liquid alternatives.

Our significant Alpha generation, performance fee generation and net inflows over the last seven years was in spite of the market environment. With heightened inflation, to me, the rest of the 2020 should be a much better period for Alpha generation and therefore flows for active management and liquid alternatives, where we are the market leader with 35 years of experience.

There are few alternative asset managers with a range of compelling solutions we offer, our longstanding track record of investment performance across a range of environments, excellent risk management skills and the flexible operating platform underpinned by cutting-edge technology. This gives me great confidence of our ability to continue to deliver Alpha in liquid highly customizable format for our clients and therefore profitable growth for our shareholders.

And with that, we'll turn to questions. I missed that slide, apologies. I'll leave that up. Hailey, you can't ask all the questions listed on your note this morning.

[Haley Tam, Credit Suisse]

Thank you. It's Haley Tam from Credit Suisse. Can I ask two questions, please? First one on flows and the second one on capital returns. With your flows, thank you very much for setting up a very clear picture for why you should continue to grow the great gross flows this year. Could you help us think about the potential for that? So $41 billion of gross flows in '22. We know there were $3 billion of LDI specific outflows.

And we also know that you had some good fund launches last year like the High Yield opportunities and sustainable credit and the TargetClimate you mentioned. Could you maybe talk to us about how much of the gross flow last year came from new launches and how quickly you might expect some of those LDI outflows to come back so we can think about how big that 41% could be this year? Thank you.

And then the second question in terms of the capital returns. You did put a slide up where you showed you had declared $250 million of buybacks last year. And obviously, this year, so far technically, you have declared a $125 million I guess today. Your core performance fee profit last year was higher than it was in '21. Your net tangible assets is almost $1 billion, is also higher than it was this time last year. So should we at least be thinking about a similar level of capital return this year? Or are there other things we should think about? Thank you.

[Luke Ellis, CEO]

Sure. Let me -- so I'm not going to throw out some number on flows, however, hard -- people try and I will try at least, not to. I think what we saw last year was clients, obviously, significantly affected in their overall portfolio by their overall asset allocation and that caused clients to spend a lot of time scrabbling to think about how they should be allocated to readdress some of their core beliefs, and in many cases, because they got whether it was LDI hedging or FX hedging or something else, the average institutional client needed to access liquidity.

I think as they are coming out of that and we'll see what type of market environment we get, but I think the sense of a maximum equity, maximum illiquid portfolio that is what the average institutional client has been running for the last few years. It doesn't feel to most clients I talk to like the right answer looking forward, and so we see them trying to address that and work out how to reposition. That takes however long it takes at different clients. It happens at a different speed. But where we think clients are going to, we have a lot of products and capabilities which are well suited to the world they're looking at.

As I mentioned, the LDI, part of the point about liquid alternatives is they're supposed to be liquid. So if the client needs the money back for something, you provide it, but clients do need access to liquidity and they need to have it available on a significant proportion of their portfolio. And because we've seen in the UK, many clients have not enough liquidity in their portfolio. What you're seeing now is they need the investment skills. They want the product and they want the capability -- the liquidity in larger size looking forward. So the money has started to come back. And other clients are going -- that's okay.

Now, they need to free up assets to put them into liquid investments. But maxing equity beta is only right if you think equity markets are going to go consistently in a straight line upwards, which may have been the truth for the 2010s but it doesn't feel to me or frankly to every client you talk to the likely outcome for the 2020s, if that makes sense. So what I'm talking about is a market environment that creates demand for what we've got. But there is a question of how long -- how quickly clients change their actual portfolio. Dose that make sense? And then on capital return...

[Antoine Forterre, CFO]

Do you want me to...

[Luke Ellis, CEO]

Yeah. Go ahead.

[Antoine Forterre, CFO]

So the capital policy that we have remains unchanged. Now for two years, dividend a primary way to return capital. And then after considering each organic and inorganic opportunities, we will return excess capital as you've mentioned to shareholders in all likelihood by way of buyback if we believe that's the most kind of accretive way for shareholders. So that policy has not changed.

The announcements of $250 million of buyback last year came following a year where we had announced more -- I think the point that's missing in the net financial assets is that this is cash versus P&L. So in 2022, we actually did $386 million. We completed $386 million of share repurchases in the year, which has been received in more than the $250 million just announced in that year. So it's slightly out of sync, which might explain the origin of your question.

Going forward, obviously I won't comment on specific that the Board might decide, but you can expect us to continue to apply the policy that we've applied now consistently for the last few years. If we deem to have surplus capital over the medium-term, we'll return it likely by the way of buyback.

[Luke Ellis, CEO]

Hubert?

[Hubert Lam, Bank of America]

Hi. Good morning. It's Hubert Lam from Bank of America. Couple of questions. Firstly, on the LDI, again outflows. Are you calling it end to the LDI driven outflows or is the worst over or any more pressure that of that to come (ph)? That's the first question. Second question is again on capital. The fact that you've given -- you announced a new buyback today, higher than expected dividend. Is that a sign that the M&A outlook is -- isn't -- it is not what you're expecting now or just can you just give us some color on what you think about M&A, just given that there hasn't been many M&A in the entire sector over the last couple of years? Thanks.

[Luke Ellis, CEO]

Sure. So on the LDI one, let me try again. For us, from UK defined benefit pension plans, we are currently seeing inflows not outflows this year. I'm going to say a number because otherwise you'll allow me to tell you the flows for the quarter. And I think that their need for liquid alternatives in their portfolio has gone up not down, at an industry wide level, which is what I talked about six months ago.

And if you ask me at an industry-wide level, it's clear that there are still more, I would say, a bunch more readjustments that the UK defined benefit world needs to do. And so for the average UK asset manager, public or private, I would say it's not done. But you sort of the -- for us, the things they need looking forward are things we deliver. That's another attempt to get to UK LDI.

On M&A, I hate to sound like a broken record, but we keep looking, we keep investigating things. As we've demonstrated, the business has fantastic organic growth potential. We've done that over the last five years, we can do that over the next five years. So M&A has to be better. We've looked at a couple of things very closely this year. In the end didn't get there either on the quality of what it was or the price relative to reinvesting in our own business and while keeping disciplined. Doing a deal for the sake of it seems a bad idea. There's lots of things around but are there -- finding asset management businesses of the same high quality as Man is incredibly hard, to put it that way.

[Antoine Forterre, CFO]

And if I add to that point, the net financial assets that we have aren't particularly liquid as well and can be financed in some cases. And we have financed them in the past as well. So it's a reserve liquidity that we can use. That's why that gives us the optionality to still consider to look at M&A.

[Unidentified Participant]

[Indiscernible] Just a quick question on institutional solutions. How big could that be in five years' time? And how much lower is that redemption rate, please, -ish?

[Luke Ellis, CEO]

It's noticeably lower to give an estimate of it. And we're not -- and there just isn't enough redemption data to sort of be confident because it's at the moment been so low. It's remarkably good. But sort of one big redemption and it would suddenly pop up. If you sort of I mean, -- but it's clearly lower for a series of intrinsic reasons to it. We're solving problems for clients. If you solve their problem, they have much more -- much more patient with it.

They feel engaged in the development of the solution. And so it's not your fault, it's our fault, if you see what I mean, if something is not working and so their incentive to adjusted is much higher and that's sort of it's inherently a partnership and that's always going to have lower redemption rates. So that's very good.

In terms of percentage of our assets, I mean, as we've talked about the sort of significant majority of our assets today are in some form bespoke for the client. And I think that's natural. We like co-mingled funds, they're great, but they just -- they're the small part of what we do rather than the big part of what we do. We're not against money going into co-mingled funds.

And 1783 is in the end a way of giving an all Man solution to clients who either don't have their sort of -- I mean 1783 is the idea came from a client who said, look, this solution stuff is really cool, but can I just have all of Man in one fund. And so we just sat there and well, we don't have that fund in need so well, that's done. And it was done so now we have that fund.

For the people who don't want to go through the process of a solution or who aren't big enough to get their own solution, money into those things is great, but I see the sort of natural drive of large institutions as we talked about is to have more concentrated relationships, but therefore need the relationships to deliver more of what they actually need. And so I think that will be a bigger and bigger part of the institutional asset management business and we're very well positioned for that. I don't think we're getting any from outside.

[Unidentified Participant]

No.

[Luke Ellis, CEO]

So that's right. So I don't know wherever you are, you can send us the questions by email. I guess anymore for anymore or we’ll let you get on with your day. Super. Thank you, all.

[Antoine Forterre, CFO]

Thank you.