Fitch Ratings has affirmed Man Group Plc's Long-Term Issuer Default Rating (IDR) at 'BBB+'.

The Outlook is Stable.

Man is a Jersey-incorporated company and the UK-listed parent entity of Man Group, an investment manager with a long-only, alternative and private markets product offering and assets under management (AuM) of USD151.4 billion at end-March 2022.

The rating actions are part of Fitch's global peer review of traditional investment managers.

Key Rating Drivers

Man's Long-Term IDR reflects its well-established franchise, especially in alternative strategies, as well as low leverage and strong recent profitability. The IDR also reflects Man's larger number of complex strategies relative to peers, requiring sophisticated risk management, and its higher proportion of potentially more variable performance fee income within revenue.

Man specialises in quantitative alternative strategies, supplemented by a smaller proportion of long-only activities. Its client base is predominantly institutional and it has built strong client relationships, benefiting from increased allocations to alternatives, with 48% of AuM represented by clients who invest in four or more products.

Man has grown AuM significantly in recent years, which should provide a cushion for moderate market downturns. In 2021, Man had record AuM inflows of USD13.7 billion, with net positive movements in each of its five product categories. Fitch views the level of net inflows over the past four years positively, but notes that Man's focus on institutional clients could lead to more lumpy movements.

Man recorded strong earnings in 2021, with pre-tax profit more than trebling to USD590 million. This was boosted by substantial performance fees, which accounted for 38% of total revenue, and reflect the robust performance of the group's strategies in the period. Performance fees are not included in Fitch's benchmark profitability metric due to their potential volatility, but offer possible upside, and Man's recent record is strong in this regard. The company's cost base contains sufficient flexibility that it should be able to maintain adequate profitability in the event of a moderate market downturn.

Fitch views Man's risk framework as robust, with risks well controlled and fund liquidity maintained during the volatile market conditions of the pandemic. Man's seed book, which had a total exposure of USD756 million at end-2021, including total return swap exposure of USD108 million, is the main source of direct market risk and is partially hedged.

Man's only debt comprises a moderate amount of repo financing (USD64 million at end-2021), which reduces leverage constraints. The company ceased to be subject to the Financial Conduct Authority's consolidated capital requirements following the group restructuring in 2019, which established its parent company in Jersey. Contingent liquidity is supported by a USD500 million revolving credit facility.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

A further increase in scale and continued earnings resilience in more adverse market conditions could result in a more favourable business profile assessment and support an upgrade, in particular if achieved in conjunction with continued low leverage levels.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Increased debt, resulting in cash flow leverage of greater than 2x gross debt to FEBITDA, or significant double leverage.

Sustained underperformance in one or more business lines, leading to net outflows that result in weakened profitability. In particular, evidence that fund strategies are not behaving as expected or that risk management procedures are inadequate leading to significant negative fund performance would lead us to revisit our assessment of Man's business model.

A material reduction in Man's net cash or capital position, evidence of a significant increase in risk appetite, or a sizeable operational or reputational loss.

Material reduction in the fungibility of capital or liquidity within the group, or a weakening of governance standards.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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