Top-dollar performance

Talk me through the key numbers for the group.

We ended the year with assets under management at $50bn (£27.1bn) and total
group pre-tax profits, before Refco exceptionals, of $1.3bn. That was made up of
a net management fee income of around $700m, up 18%. Net performance fee income
nearly quadrupled to $450m and brokerage income was up 20% to $177m, again
before the Refco integration costs. With margins stable or improving across our
business, we had earnings per share on total operations up 48% on a fully
diluted basis. Reflecting all of that strength, the dividend is up 30% in dollar

You publish your earnings in dollars, so a weak dollar is an issue
for you. What sort of impact has this had?

We account in dollars because the bulk of our revenues arise in dollars and,
indeed the bulk of our assets and liabilities are dollar-denominated or swapped
into dollars. In terms of the group sterling share price quote, investors who
want to calculate their P/E ratio need to effectively translate those dollar
profits into sterling. To that extent, dollar weakness is unhelpful to us.

But in terms of the business and the P&L, the only significant impact for
us is translating our significant sterling overhead with our big London presence
back into dollars. So the dollar reported overhead number does increase as a
result of a weaker dollar.

The impact on the current year versus the prior year foreign exchange rate is
about $15m to $20m higher operating costs with the weaker dollar than they would
have been using the prior year exchange rate.

What about the overheads number? When will this level off?

We do have very strong margins. If you look at the net management fee margin
after distribution costs, we have about 37% of our operating income paid away in
those administrative costs. Half of that 37% is fixed ­ it’s premises and
computers, but mostly people by way of salary. The other half is, in fact,
variable, which reflects a bonus pool, a proportion of profits which is paid
away to employees.
So just looking at the dollar number on that variable piece, we would like it to
be bigger, because by definition we are making more money. Better than looking
at the dollar numbers is to look at the margin and those have actually been

Do you have plans for any more like Refco?

We would love to do more deals like Refco, but unfortunately those sorts of
opportunities do not come round too often. In brokerage, we have been expanding
our business through small acquisitions and acquiring teams of producers, which
do not perhaps grab the headlines in the same way as the Refco acquisition did,
but we will continue to do that.

You’ve been building up your balance sheet. Are you now happy with
your capital strength?

Yes, we are more than adequately capitalised to support the businesses, in
terms of risk, regulatory capital and economical capital, and we have the
flexibility to grow both organically and through acquisition. We have been
actively managing the capital base but I am more than satisfied with the current

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