The Year Ahead: CEO Update

Introduction

The New Year is traditionally a chance to take stock of the last year, and make plans for the next one.

In the finance world, it is also often seen as a cue to fire off some market predictions. And as is human nature, we remember the one time in 100 that a prediction was right, not the 99 times they were wrong. I am going to shun this tradition though, even if the consequences of being wrong are pretty low, and instead would like to take a moment to highlight Man Group’s successes in 2018 and discuss some of our priorities and concerns for the year ahead.

Themes of 2019

Risk management is going to be a key theme this year. It’s a long time since we had a recession and a long time since we had a bear market. 2018 did not feel buoyant, with stock market volatility, crises in Turkey and Argentina and slowing growth in China and Europe. As we look to 2019, it is clear that markets have begun to try and anticipate the end of the cycle.

The straw that may break the camel’s back and exacerbate the end of the cycle – indeed, the one market issue that gives me sleepless nights – is a trade war.

The reason that trade wars are uniquely worrying is that it is not possible to turn them on and off: once you get a change in trading processes, trade flows adapt and it is not possible to return to previous flows just because policy is reversed. The continuing disagreements between the US and China are therefore a serious concern, in my view.

Still, the exact timing of any downturn remains opaque. With this in mind, I believe it is better to assume that you get more of the same and ensure you have good risk management in place, rather than wait for one event to cause a paradigm shift.

This view is the essence of all momentum strategies – tomorrow will be similar to today. As such, we will go into 2019 seeking to ensure that our risk management maintains the highest standards, so if markets do deteriorate, we are able to react quickly. This is a core competency of Man Group. Indeed, providing risk management in a downturn for our investors is a key way in which we aim to deliver value, and this will become even more important as markets approach the end of the cycle.

There are three other overarching themes that will continue to require change from the active asset management industry: responsible investment (‘RI’), the role of technology, and diversity and inclusion.

Responsible Investment: Tackling the Data

In 2018, Man Group made great strides when it came to RI: appointing Steven Desmyter and Jason Mitchell as co-heads of responsible investment, formalising the Man Group RI Fund Framework and successfully introducing a firm-wide RI exclusion list.

During the course of 2019, we will continue our focus on RI and are particularly excited about increasing our work with clients to allow them to express their values in their portfolios. While we will keep pushing for improvement, I believe it’s also important to remain honest about the challenges in RI, the most important of which, in my view, is data.

There is no consensus on how to measure environmental, social and governance (‘ESG’) criteria for companies, for example, or quantify which investments are the most responsible. This is an area in which we are applying Man Numeric’s unique skillset, to improve the collection, cleansing, and analysis of ESG data.

The Role of Tech: Friend, Not Foe

There was no shortage of headlines about the role technology and artificial intelligence was playing in the asset-management industry in 2018, and I believe this trend is here to stay.

Indeed, more than half of Man Group’s funds are managed in a systematic manner. We will continue to invest heavily in technology across the group in 2019, reflecting our belief that this is the direction the industry will continue to move in. This is not to be reductive, and imply that humans will be replaced by machines. Instead, we continue to strive toward marrying the best of qualitative human judgement with the processing power of quantitative analysis, and empowering our managers by equipping them with more sophisticated technology.

To that end, we have an ongoing effort at Man GLG to provide our discretionary portfolio managers with better tools and techniques to support their analysis and trade execution processes. Man AHL and Man Numeric continue  their own machine-learning research; including the latter using natural language processing to analyse text for sentiment and the former using neural network models to enhance their systematic trading. This is particularly useful in a world where the volume and speed of information can be far beyond that which the human mind can process in a visual timescale.

Diversity & Inclusion: The Right Thing to Do

We are committed to increasing diversity in all forms, at all levels – not because we are told to, but because we think it is the right thing to do, making Man Group a stronger, more interesting place to work.

Indeed, the diversity of representation on the Man Group board is a key part of this effort, and one which highlights the challenges of increasing diversity rapidly. I am very proud of the quality of Man Group’s board members, and personally feel they do an excellent job. However, it will be noticed that our board is comprised of two women and nine men. While this is not diverse enough, it is an improvement on the past. Indeed, we have insisted on diverse candidate nominations for the board, and the last two appointments have both been high-calibre women.

Even with this proactive effort, we are still not where we want to be and are aiming to make further progress in the diversity of the board over the next year and beyond. I don’t believe in removing high-performing male board members simply to hit a quota, or in approaching diversity initiatives generally with a short-term view towards improving statistics. As an example, companies in male-dominated fields may actually see their gender pay gaps widen if they are successful in addressing the pipeline challenge and hiring more female graduates at entry level. And if we successfully hire a senior female candidate into our organisation, it may improve our own statistics but does not add more diverse talent to the industry as a whole.

To that end, we are proud to sponsor the UK team at the European Girls’ Mathematical Olympiad, an annual international mathematics competition, which aims to advance the education of young people in mathematics. In the US, through Man Numeric, we work with Girls Who Invest to identify summer interns for our research team in Boston. In addition, we launched Paving the Way in 2018, our dedicated campaign to encourage a more diverse pipeline of candidates, both within Man Group and more broadly across the financial services and technology industries. The campaign is focused on both long- and short-term recruitment, as well as retention and enabling internal progression.

While ‘lack of pipeline’ is undeniably a challenge in our industry, it is not an excuse and is something we all should be actively working to address. As such, Man Group will continue to do its utmost to try and get more diverse candidates not only through the door, but into senior positions and front-office roles, such as portfolio managers and researchers.

Coping With One-Off Events

Every year, we seem to be faced with new ‘one-off’ events – such as MiFid II or Brexit – which have serious implications for Man Group’s business.

I am very proud of our ability to navigate these types of challenges. What is it that enabled this institution to deal with ‘stressful’ situations with no stress? Preparation? Dedication? Certainly, both of these are important. But I do believe that the most important underlying factor is people – people whose hard work, commitment, training and education meant that nobody at Man Group had to miss a beat because of Mifid II (though some sleep was lost to make sure all worked smoothly). The same logic applies to our preparations for Brexit.

Conclusion

I am looking forward to 2019. Although markets may be turbulent, I believe that this offers us the opportunity to demonstrate our core skill: delivering alpha through sophisticated, active management.