10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
001-33217
GLG PARTNERS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-5009693
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(State of
incorporation)
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(I.R.S. Employer Identification
No.)
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399 Park Avenue, 38th Floor
New York, New York
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10022
(Zip code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(212) 224-7200
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class:
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Name of each exchange on which registered:
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Common Stock, $0.0001 Par Value Per Share
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The New York Stock Exchange, Inc.
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Warrants to Purchase Common Stock
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The New York Stock Exchange, Inc.
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Units, each consisting of one share of
Common Stock and one Warrant
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The New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants voting stock
held by non-affiliates of the registrant as of the end of the
registrants second fiscal quarter of 2008 (based on the
closing price as reported on the New York Stock Exchange on
June 30, 2008) was approximately $955 million.
Shares of voting stock held by officers, directors and certain
holders of more than 10% of the outstanding voting stock have
been excluded from this calculation because such persons may be
deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other
purposes. The number of outstanding shares of the
registrants Common Stock as of February 25, 2009 was
245,750,922.
Documents
Incorporated by Reference
Portions of the registrants Proxy Statement for the 2009
Annual Meeting of Shareholders to be held on May 11, 2009
are incorporated by reference into Part III of this
Form 10-K.
GLG
PARTNERS, INC.
TABLE OF
CONTENTS
2
PART I
In this Annual Report on
Form 10-K,
unless the context indicates otherwise, the terms the
Company, we, us and
our refer to GLG Partners, Inc. and its
subsidiaries, following the acquisition by Freedom Acquisition
Holdings, Inc. and its then consolidated subsidiaries
(Freedom) of GLG Partners LP and certain of its
affiliated entities (collectively, GLG) by means of
a reverse acquisition transaction on November 2, 2007, and
to Freedom prior to the acquisition.
Introduction
On November 2, 2007, we completed the acquisition (the
Acquisition) of GLG Partners Limited, GLG Holdings
Limited, Mount Granite Limited, Albacrest Corporation, Liberty
Peak Ltd., GLG Partners Services Limited, Mount Garnet Limited,
Betapoint Corporation, Knox Pines Ltd., GLG Partners Asset
Management Limited and GLG Partners (Cayman) Limited (each, an
Acquired Company and collectively, the
Acquired Companies) pursuant to a Purchase Agreement
dated as of June 22, 2007, as amended (the Purchase
Agreement), among us, our wholly owned subsidiaries, FA
Sub 1 Limited, FA Sub 2 Limited and FA Sub 3 Limited, Jared
Bluestein, as the buyers representative, Noam Gottesman,
as the sellers representative, and the equity holders of
the Acquired Companies (the GLG Shareowners).
Effective upon the consummation of the Acquisition,
(1) each Acquired Company became a subsidiary of ours,
(2) the business and assets of the Acquired Companies and
certain affiliated entities became our only operations and
(3) we changed our name to GLG Partners, Inc. Because the
Acquisition was considered a reverse acquisition and
recapitalization for accounting purposes, the combined
historical financial statements of GLG became our historical
financial statements and from the consummation of the
Acquisition on November 2, 2007, our financial statements
have been prepared on a consolidated basis.
Overview
We are a
U.S.-listed
asset management company offering our clients a diverse range of
alternative and traditional investment products and account
management services. Our primary business is to provide
investment management advisory services for various investment
funds and companies (the GLG Funds). We currently
derive our revenues primarily from management fees and
administration fees charged to the GLG Funds and accounts we
manage based on the value of the assets in these funds and
accounts, and performance fees charged to the GLG Funds and
accounts we manage based on the performance of these funds and
accounts. Substantially all of our assets under management, or
AUM, are attributable to third-party investors, and the funds
and accounts we manage are not consolidated into our financial
statements. As of December 31, 2008, our net AUM (net
of assets invested in other GLG Funds) were approximately
$15.0 billion, down from approximately $17.3 billion
as of September 30, 2008 and down from approximately
$24.6 billion as of December 31, 2007. As of
December 31, 2008, our gross AUM (including assets
invested in other GLG Funds) were approximately
$16.5 billion, down from approximately $21.2 billion
as of September 30, 2008 and down from approximately
$29.0 billion as of December 31, 2007.
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Net
Assets Under Management
(US$ in billions)
We use a multi-strategy approach, offering investment funds and
managed accounts investing across equity, macro, emerging
markets, convertible and credit strategies. We have achieved
strong and sustained absolute returns in both alternative and
long-only strategies. As of December 31, 2008, our
net AUM were approximately $15.0 billion, up from
approximately $8.4 billion as of December 31, 2003,
representing a compound annual growth rate, or CAGR, of 12.4%.
As of December 31, 2008, our gross AUM were
approximately $16.5 billion, up from approximately
$9.7 billion as of December 31, 2003, representing a
CAGR of 11.3%. We have achieved an approximately 12.4%
dollar-weighted compound net annual return on our alternatives
strategies since our first fund launch in 1997. The chart above
sets forth the growth of our net AUM since 2003.
We have built an experienced and highly-regarded investment
management team of 120 investment professionals and supporting
staff of 226 personnel, based primarily in London,
representing decades of experience in the alternative asset
management industry. This team of talented and dedicated
professionals includes a number of people who have worked with
GLG since before 2000. In addition, we receive dedicated
research, administrative and certain discretionary portfolio
management services from GLG Inc., a subsidiary located in New
York, which we acquired on January 24, 2008. For purposes
of this Annual Report on
Form 10-K,
personnel refers to our employees and the individuals who are
members of Laurel Heights LLP and Lavender Heights LLP and who
provide services to us through these entities. Prior to our
acquisition of GLG Holdings Inc. and GLG Inc. in January 2008,
we consolidated GLG Inc. and GLG Holdings Inc. in our financial
statements on the basis that they were variable interest
entities in which we were the primary beneficiary.
We have built a highly scalable investment platform,
infrastructure and support system, which represents a
combination of world-class investment talent, cutting-edge
technology and rigorous risk management and controls.
We manage a portfolio of over 40 GLG Funds and over 20 managed
accounts, comprising both alternative and long-only strategies
and earn substantially all our revenue from the management of
alternative strategy, long-only and multi-strategy investment
funds and managed accounts. For the years ended
December 31, 2008, 2007 and 2006, revenues from the
alternative strategy GLG Funds represented 87%, 87% and 83% ,
respectively, of our consolidated revenues and revenues from the
long-only GLG Funds represented 10%, 11% and 15%, respectively,
of our consolidated revenues. We also earn a portion of our
revenue from managed accounts. Managed account fee structures
are negotiated on an
account-by-account
basis and may be more complex than for the GLG Funds. Across the
managed account portfolio, fee rates vary according to the
underlying mandate and, excluding one material managed account,
in the aggregate are generally within the performance and
management fee ranges charged with respect to comparable fund
products.
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Of the alternative strategy GLG Funds, the GLG Market Neutral
Fund, the GLG European Long-Short Fund and the GLG Emerging
Markets Fund each represented 10% or more of our consolidated
revenues for each of the years ended December 31, 2008 and
2007 and the GLG Market Neutral Fund and the GLG European
Long-Short Fund each represented 10% or more of our consolidated
revenues for the year ended December 31, 2006. These GLG
Funds represented $149.3 million, $599.2 million, and
$356.7 million of our consolidated revenues for the years
ended December 31, 2008, 2007 and 2006, respectively.
The charts below summarize the diversity of our overall
gross AUM as of December 31, 2008.
Our success has been driven largely by our strong and sustained
track record of investment performance. The chart below
summarizes investment performance since the launch of our first
fund in 1997 through December 2008 by looking at the cumulative
dollar-weighted net annual returns for all GLG Funds (excluding
funds of funds) and for the single-manager alternative strategy
GLG Funds.
The dollar-weighted return illustrates aggregate performance
across both single-manager alternative strategy and long-only
funds. Individual fund performance is weighted according to
gross AUM, therefore a large out-performing fund will carry
far greater impact than a small under-performing fund. AUM data
for a particular month is based on official net asset values
published by the fund administrator as at close of business on
the last business day of that month. Monthly dollar-weighted
percentage performance is calculated by taking each funds
percentage monthly return and multiplying by the percentage
weight of that funds AUM in relation to the total AUM of
all funds included in the calculation.
5
History
Noam Gottesman, Pierre Lagrange and Jonathan Green, who had
worked together at Goldman Sachs Private Client Services since
the late 1980s, left to form GLG as a division of Lehman
Brothers International (Europe), or LBIE, in September 1995,
with significant managerial control. Initially, GLG managed
accounts for private client investors, primarily high and
ultra-high net worth individuals from many of Europes
wealthiest families, with whom the founders had pre-existing
relationships. GLG began to offer fund products in early 1997.
By 1998, GLG had exceeded the five-year profitability target
which had been jointly set by the founders and LBIE in 1995. In
2000, GLGs senior management, which added Philippe Jabre
in 1997, wanted to grow its business as an independent company.
As a result, GLG became an independent business in 2000. A
subsidiary of Lehman Brothers Holdings Inc. initially held a 20%
minority interest in GLG and now holds an approximate 11% equity
interest in us. Mr. Green retired from GLG at the end of
2003, and Mr. Jabre resigned from GLG in early 2006.
Since its separation from LBIE in 2000, GLG has invested
considerable resources to developing a cohesive investment
management team and robust platform to allow it to participate
in the strong growth of the alternative investment management
industry. GLG has successfully established a fully independent
infrastructure, seen overall headcount grow from approximately
55 in 2000 to 346 as of December 31, 2008, and recruited a
significant number of high-quality individuals from leading
financial services businesses both to deepen its talent pool and
management base and to support a substantial range of new
product initiatives.
Emmanuel Roman, a former Partner of Goldman Sachs, joined GLG in
2005 as a non-investment manager Co-Chief Executive Officer.
Competitive
Strengths
We are one of the leading alternative asset managers in the
world. Our strength in continental Europe and the United Kingdom
has given us a highly respected brand name in the industry and
has enabled us to attract and retain highly talented investment
professionals as well as to invest heavily in our
infrastructure. We believe that we enjoy distinct advantages for
attracting and retaining talent, generating investment
opportunities and increasing AUM because of the strength and
breadth of our franchise. By capitalizing on what we regard as
our competitive strengths, we expect to extend our record of
growth and strong investment performance.
Our
Team and Culture
We have a team of talented and dedicated professionals, a number
of whom have worked at GLG since before its separation from LBIE
in 2000. Our high-quality and well-motivated team of investment
professionals, led by two of our Managing Directors,
Messrs. Gottesman and Lagrange, is characterized by
exceptional investment and product development experience and
expertise. Several of our investment professionals are widely
recognized leaders and pioneers in the alternative investment
management industry. In addition to our 120 investment
professionals, we have 226 personnel in our marketing,
legal, compliance, accounting, administrative, risk management,
operations and technology groups. We have invested heavily for
over ten years in recruiting, retaining and supporting this
strong and cohesive team because we believe that the quality of
this team has contributed and will continue to contribute
materially to the strength of our business and the results we
achieve for our clients. Extensive industry experience and
consistency in the senior management team provide us with
considerable continuity and have served to define our
professional culture.
Our management believes that a team approach, in which
investment professionals managing multiple strategies and asset
classes are encouraged to share investment perspectives and
information (for example, equity, credit and emerging market
specialists working together, or industry teams working across
geographic regions), promotes the cross-fertilization of ideas,
investment strategies and product development within the
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organization. Management views this team dynamic as a critical
contributor to both our investment success and our ability to
develop new product initiatives.
Long-standing
Relationships with a Prestigious Client Base
We have forged long-standing relationships with many of
Europes wealthiest families and prestigious institutional
asset allocators. We enjoy a balanced investor base made up of
approximately half high and
ultra-high
net worth individuals and half institutional investors. We have
discretionary power to allocate a significant portion of the
assets invested by high and ultra-high net worth individuals
among our various fund products. With a foundation of firmly
established relationships, some originating prior to GLGs
inception in 1995, we enjoy a loyal client base. In addition to
representing a high-quality source of client referrals, many of
these clients have significant industry and regional knowledge,
as well as experience and relationships that we are able to
leverage in the investment process. Our focus on client
relationship management through our marketing team and
customized investment solutions places us in a strong position
both to capture a greater proportion of the investable wealth of
existing accounts and to attract new clients.
Differentiated
Multi-Strategy Approach and Product Offerings
By offering a wide variety of investment strategies and
products, in contrast to single strategy managers, we offer a
broad solution, deploying client assets across a variety of
investment products among our portfolio of over 40 fund
products. By spinning-off successful strategies into new funds,
we have been able to expand our portfolio of separate
independent funds, creating growth opportunities with new and
existing clients. Our multi-strategy approach provides
significant advantages to our clients, most importantly the
flexibility to redeploy client assets quickly among other GLG
Funds in our diversified portfolio of investment products in the
face of changing market conditions. Our multi-strategy profile
also can enhance the stability of our performance fee-based
revenues, as fluctuations in fund performance and performance
fees are modulated across the broad and diverse portfolio of
investment products. In addition, our diversified investment
product offerings allow us to take advantage of cross-selling
opportunities with new and existing clients, thereby attracting
or retaining investment capital that might otherwise go to
non-GLG investment vehicles. In addition, through our managed
account product, we are able to create sophisticated and highly
customized solutions for our clients, providing products
tailored to client requirements.
Strong
and Sustained Investment Track Record
The GLG Funds have generated substantial absolute returns since
inception. By focusing on our core competencies, we have
achieved dollar-weighted compound net annual returns of 12.4% in
all alternative strategy funds and 10.5% in all GLG Funds
(excluding funds of funds) from 1997 through 2008.
Dollar-weighted
annual returns are calculated as the composite performance of
all constituent funds, weighted by the sum of month-end
fund AUM and fund net inflows on the subsequent dealing
day, with performance measured by the longest established share
class in each fund.
Institutionalized
Operational Processes and Infrastructure
We have invested considerable resources into developing our
personnel base and establishing our infrastructure. We have
developed highly institutionalized product development,
investment management, risk management, operational and
information technology processes and controls. Management
believes that our institutionalized product platform,
operational and systems infrastructure and distribution channels
are highly scalable and are attractive to institutional
investors who are seeking investment funds with well-developed
and robust systems, operations and advanced risk management
capabilities. This, in turn, enhances our ability to participate
in the strong growth of the investment management industry and
demand for absolute return products.
7
Alignment
of Interests
The interests of our management and personnel are closely
aligned with those of our clients. Currently,
Messrs. Gottesman, Lagrange and Roman, referred to as the
Principals, and the trustees of their respective trusts,
referred to as the Trustees, our officers and directors, our key
personnel, employees and service providers, and their respective
affiliates, Lavender Heights Capital LP and Sage Summit LP,
collectively own approximately 62% of our voting equity
interest. Our management believes that ownership by these key
personnel is an important contributor to our success by
motivating these key personnel to provide outstanding fund
performance, generate significant revenues for us through
management and performance fees and thereby increase the value
of their ownership interests. In this manner, our key personnel
have a stake in the success of all of our products, not just
those in which they work personally. These ownership interests
will continue to align the interests of our Principals and key
personnel with their clients, as well as with the other holders
of our capital stock, encourage cooperation across strategies
and create greater opportunities for our business.
In addition, the Principals, the Trustees, certain key personnel
and their families and associated entities have agreed to invest
in the GLG Funds at least 50% of the excess of the cash proceeds
they received in the Acquisition over the aggregate amount of
any taxes payable on their respective portion of the purchase
price. As of December 31, 2008, they have approximately
$558 million of net AUM invested in the GLG Funds and
pay the same fees and otherwise invest on the same terms as
other investors.
A significant portion of the compensation and limited partner
profit share of our key personnel (other than the Principals) is
based on the performance of the funds and accounts we manage. In
addition, our key personnel are eligible to receive
discretionary bonuses and limited partner profit share, which
are based upon individual and firm-wide performance.
Growth
Strategies
Extend
Strong Investment Track Record
Over time, our principal goal of achieving substantial absolute
returns for our investors has remained unchanged. Since
inception, we have achieved a strong and sustained investment
track record with 2008 being our most challenging year to date.
In the process, we have established ourselves as a
U.S.-listed
asset management company and have attracted an established high
and ultra-high net worth individual and institutional client
base.
Expand
Investment Products and Strategies
We have consistently developed and added new products and
strategies to our business, and intend to continue to expand
selectively our products and strategies. Our multi-strategy
approach allows us to offer clients a full-service solution,
provides diversity and adds stability to our performance
fee-based revenues. We currently offer over 40 fund products as
well as managed accounts which can be customized to
clients particular needs. There are several other fund
products in the product development pipeline scheduled for
launch during 2009, including emerging market, credit, macro and
restructuring strategies. We continue to emphasize the
importance of innovation and responsiveness to client demands
and market opportunities, and believe that the close and
long-term relationships that we enjoy with our clients are a key
source of market research helping to drive the development of
new products and strategies.
Build
on Success in Continental Europe and the United Kingdom to
Penetrate Other Major Markets
We are focused on developing a much more significant global
presence and intend to expand our client relationships and
distribution capabilities in regions where we have not actively
sought clients, particularly the United States, the Middle East
and Asia, and through new distribution channels and joint
ventures. We believe that clients and institutions in these
regions could represent a significant portion of future AUM
growth. For example, although the United States currently
represents 57% of the total alternative asset management market,
according to Hedge Fund Research, Inc., it represents less
than 5% of our net AUM. On January 24, 2008, we
completed the acquisition of GLG Inc. and in connection with the
acquisition, GLG Inc. registered
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as an investment adviser under the U.S. Investment Advisers
Act of 1940, as amended (the Investment Advisers
Act). We also believe that becoming a publicly traded,
NYSE-listed company has further enhanced the brand awareness of
our Company and our business and will facilitate AUM growth by
attracting new clients, particularly from the United States and
other under-penetrated geographic markets.
Capitalize
on Acquisition Opportunities
During 2008, we added a number of new portfolio managers for the
GLG Funds, including for the emerging markets, macro, distressed
debt and special situations strategies. In December 2008, we
agreed to acquire Société Générale Asset
Management UK (SGAM UK), Société
Générales UK long-only asset management
business, which is expected to be completed at the end of March
2009. The acquisition includes SGAM UKs operations, which
had approximately $8.5 billion of AUM as of
December 31, 2008, and its investment and support staff,
based primarily in London. Upon signing of the purchase
agreement, SGAM UK appointed GLG Partners LP as an interim
sub-advisor with regard to approximately $3 billion of AUM
as of December 31, 2008, which sub-advisory arrangement
will terminate upon the closing of the transaction. In January
2009, we announced that GLG Partners LP will become the
investment manager of the funds and accounts managed by
Pendragon Capital, whose founders will be joining GLG Partners
LP as portfolio managers, subject to the consent of
Pendragons investors, which we anticipate will be obtained
prior to the end of the first quarter of 2009.
Products
and Services
Investment
Products
As of December 31, 2008, we had five major categories of
products:
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Single-manager alternative strategy
funds: These funds represent a key investment
product focus and are the primary means by which investors gain
exposure to our core alternative investment strategies. As of
December 31, 2008, this category comprised 20 individual
funds and four special assets or
side-pocket funds that were created in 2008 to hold
certain private placement and other not readily realizable
investments. Each of the individual funds is being managed
according to distinct investment strategies, including equity
long-short funds, mixed-asset long-short funds, multi-strategy
arbitrage funds, convertible bond funds, macro funds and credit
long-short funds and may be characterized by the use of
leverage, short positions
and/or
derivatives. These single-manager alternative strategy funds
have gross AUM of approximately $6.5 billion
representing 40% of total gross AUM and net AUM (net
of alternative
fund-in-fund
investments) of approximately $6.1 billion representing 40%
of total net AUM. The largest funds in this category are:
the GLG European Long-Short Fund, the GLG Market Neutral Core
Fund, the GLG Alpha Select Fund, the GLG Emerging Markets
Special Situation Fund, and the GLG North American Opportunity
Fund. These funds may also make use of
fund-in-fund
investments whereby one single-manager alternative strategy fund
may hold exposure to another single-manager alternative strategy
fund. In order to represent these sub-investments, management
tracks AUM on both a gross and a net basis. In a gross
presentation, sub-invested funds will be counted at both the
investing and investee fund level. Net presentation removes the
assets at the investing fund level, indicating the total
external investment from clients. The SGAM UK acquisition is
expected to bring new distribution channels for our alternative
strategies offerings. In addition, we expect to have a
distribution agreement with Société Générale
covering our existing alternative strategy funds.
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Long-only funds: The long-only funds
facilitate access to our leading market insight and performance
for those clients who are seeking full (non-hedged) exposure to
the equity markets across geographic and sector-based
strategies, while benefiting from our investment expertise. As
of December 31, 2008, we operated 18 long-only funds, which
have gross AUM of approximately $1.7 billion
representing 11% of total gross AUM. The largest funds in
this category are the GLG European Equity Fund, the GLG
Performance Fund and the GLG Global Convertible UCITS Fund. The
SGAM UK acquisition is expected to bring added scale and breadth
to our existing long -only strategies. Specifically, the
transaction will complement our existing long-only offerings in
the UK and Europe and add new
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capabilities directed at Japan, the Middle East and North
Africa. In addition, we expect to enter into a distribution
agreement with Société Générale covering our
existing long-only funds.
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Funds of GLG funds (internal
FoHF): These funds are structured to
provide broad investment exposure across our range of
single-manager alternative strategy funds, as well as being a
means by which investors may gain exposure to funds that are
currently not being marketed. We currently have three internal
FoHF funds, representing 7% of total gross AUM. The largest
funds in this category are the GLG Global Opportunity Fund and
the GLG Multi Strategy Fund. Presentation of the AUM of these
funds on a net basis results in minimal AUM figures, as the vast
majority of their assets are
sub-invested
in underlying GLG single-manager alternative strategy funds,
with net AUM typically representing only small cash
balances. Due to active fund management decisions regarding
leverage for investment or settlement purposes
and/or due
to the mechanics of the process by which our internal FoHFs are
required to place investments into underlying single-manager
alternative strategy funds, the value of the investments held by
any internal FoHF may not be exactly equal to the gross AUM
of that fund at any point in time.
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Multi-manager funds (external
FoHF): The multi-manager funds represent
our external FoHF offering, comprising six funds and 3% of total
gross AUM as of December 31, 2008. These funds are
invested into funds managed by external asset management
businesses (and, in one case, a GLG Fund). The largest funds in
this category are the GLG MMI Diversified Fund and the GLG MMI
Enhanced Fund. Any investment of external FoHF assets into
underlying GLG Funds is removed from the net presentation of an
external FoHFs AUM.
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Managed accounts: We offer managed account
solutions to larger institutional clients who want exposure to
our investment strategies, but are seeking a more customized
approach. Managed accounts currently represent 37% of total
gross AUM, including amounts mandated in 2008 from SGAM UK
and the Asset Management Division of Banca Fideuram.
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Fund Performance
and Structure
Our historical success has been driven by our strong and
sustained track record of investment performance. Our investment
strategies have delivered cross-cycle outperformance when
compared to the equity and fixed income markets.
The table below presents historical net performance for all
active GLG Funds by AUM in each of the product categories as of
December 31, 2008, excluding funds which are closed and in
the process of liquidating or winding down. It should be noted
that the alternative strategy funds seek to deliver absolute
performance across a broad range of market conditions.
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Net
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Performance
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Gross
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Inception
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Since
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Annualized
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AUM
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Date
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Inception
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Net Return
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Alternative Strategies
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG European Long-Short Fund(1)
|
|
$
|
1.38bn
|
|
|
|
1-Oct-00
|
|
|
|
112.44
|
%
|
|
|
9.56
|
%
|
MSCI Europe Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(48.58
|
%)
|
|
|
(7.74
|
%)
|
GLG European Long-Short (Special Assets) Fund(1)(2)
|
|
$
|
0.28bn
|
|
|
|
1-Nov-08
|
|
|
|
(22.79
|
)%
|
|
|
N/A
|
|
GLG Financials Fund(1)
|
|
$
|
0.17bn
|
|
|
|
3-Jun-02
|
|
|
|
96.19
|
%
|
|
|
10.78
|
%
|
S&P Global 1200 Financial Sector Index
|
|
|
|
|
|
|
|
|
|
|
(35.50
|
%)
|
|
|
(6.44
|
%)
|
GLG Technology Fund(1)
|
|
$
|
0.14bn
|
|
|
|
3-Jun-02
|
|
|
|
90.75
|
%
|
|
|
10.31
|
%
|
NASDAQ Index
|
|
|
|
|
|
|
|
|
|
|
0.27
|
%
|
|
|
0.04
|
%
|
GLG Alpha Select Fund(1)
|
|
$
|
0.57bn
|
|
|
|
1-Sep-04
|
|
|
|
55.28
|
%
|
|
|
10.68
|
%
|
FTSE 100 Index (GBP)
|
|
|
|
|
|
|
|
|
|
|
(0.22
|
%)
|
|
|
(0.05
|
%)
|
GLG Global Utilities Fund(1)
|
|
$
|
0.07bn
|
|
|
|
1-Dec-05
|
|
|
|
(6.60
|
)%
|
|
|
(2.19
|
)%
|
S&P 500 Utilities Index
|
|
|
|
|
|
|
|
|
|
|
(6.59
|
%)
|
|
|
(2.18
|
%)
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
|
|
|
|
Gross
|
|
|
Inception
|
|
|
Since
|
|
|
Annualized
|
|
|
|
AUM
|
|
|
Date
|
|
|
Inception
|
|
|
Net Return
|
|
|
GLG Global Mining Fund(1)
|
|
$
|
0.17bn
|
|
|
|
2-Jan-08
|
|
|
|
(6.02
|
)%
|
|
|
(6.02
|
)%
|
FTSE 350 Mining Index
|
|
|
|
|
|
|
|
|
|
|
(55.11
|
%)
|
|
|
(55.11
|
%)
|
GLG Esprit Fund(1)(2)
|
|
$
|
0.11bn
|
|
|
|
1-Sep-06
|
|
|
|
9.15
|
%
|
|
|
3.68
|
%
|
GLG European Opportunity Fund(1)
|
|
$
|
0.29bn
|
|
|
|
2-Jan-02
|
|
|
|
89.66
|
%
|
|
|
9.57
|
%
|
MSCI Europe Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(34.23
|
%)
|
|
|
(5.81
|
%)
|
GLG North American Opportunity Fund(1)
|
|
$
|
0.46bn
|
|
|
|
2-Jan-02
|
|
|
|
37.35
|
%
|
|
|
4.63
|
%
|
S&P 500 Index
|
|
|
|
|
|
|
|
|
|
|
(21.33
|
%)
|
|
|
(3.37
|
%)
|
GLG North American Opportunity (Special Assets) Fund(1)(2)
|
|
$
|
0.10bn
|
|
|
|
1-Dec-08
|
|
|
|
(0.22
|
)%
|
|
|
N/A
|
|
GLG Global Convertible Fund(3)
|
|
$
|
0.24bn
|
|
|
|
1-Aug-97
|
|
|
|
100.99
|
%
|
|
|
6.30
|
%
|
Merrill Lynch Global 300 Convertible Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
28.42
|
%
|
|
|
2.21
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(11.33
|
%)
|
|
|
(1.05
|
%)
|
JP Morgan Government Bond Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
78.43
|
%
|
|
|
5.20
|
%
|
GLG Market Neutral Fund(1)
|
|
$
|
0.90bn
|
|
|
|
15-Jan-98
|
|
|
|
187.45
|
%
|
|
|
10.07
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(9.05
|
%)
|
|
|
(0.86
|
%)
|
Investment in USD 3 Month Libor Rate
|
|
|
|
|
|
|
|
|
|
|
53.43
|
%
|
|
|
3.97
|
%
|
GLG Credit Fund(1)
|
|
$
|
0.11bn
|
|
|
|
2-Sep-02
|
|
|
|
(10.90
|
)%
|
|
|
(1.80
|
)%
|
Investment in USD 3 Month Libor Rate
|
|
|
|
|
|
|
|
|
|
|
22.57
|
%
|
|
|
3.26
|
%
|
GLG Event Driven Fund(1)(2)
|
|
$
|
0.03bn
|
|
|
|
2-May-06
|
|
|
|
(29.01
|
)%
|
|
|
(12.00
|
)%
|
GLG Loan Fund(1)(2)
|
|
$
|
0.03bn
|
|
|
|
1-Oct-07
|
|
|
|
(52.01
|
)%
|
|
|
(46.69
|
)%
|
GLG Emerging Markets Fund(1)(2)
|
|
$
|
0.26bn
|
|
|
|
1-Nov-05
|
|
|
|
102.62
|
%
|
|
|
24.95
|
%
|
GLG Emerging Markets (Special Assets) Fund(1)(2)
|
|
$
|
0.48bn
|
|
|
|
1-Jul-08
|
|
|
|
(16.00
|
)%
|
|
|
N/A
|
|
GLG Emerging Markets (Special Assets) Fund 2(1)(2)
|
|
$
|
0.19bn
|
|
|
|
1-Nov-08
|
|
|
|
(40.71
|
)%
|
|
|
N/A
|
|
GLG Emerging Markets Special Situations Fund(1)(2)
|
|
$
|
0.50bn
|
|
|
|
2-Apr-07
|
|
|
|
(29.81
|
)%
|
|
|
(18.23
|
)%
|
GLG Emerging Currency and Fixed Income Fund(1)(2)
|
|
$
|
0.06bn
|
|
|
|
1-Nov-07
|
|
|
|
44.24
|
%
|
|
|
36.87
|
%
|
Long-only Strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG Performance Fund(3)
|
|
$
|
0.18bn
|
|
|
|
14-Jan-97
|
|
|
|
107.06
|
%
|
|
|
6.27
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
8.12
|
%
|
|
|
0.65
|
%
|
GLG Performance (Distributing) Fund(2)(3)
|
|
$
|
0.15bn
|
|
|
|
6-Apr-99
|
|
|
|
(29.04
|
)%
|
|
|
2.65
|
|
GLG Performance (Institutional) Fund(3)
|
|
$
|
0.31bn
|
|
|
|
16-Apr-08
|
|
|
|
(28.57
|
)%
|
|
|
N/A
|
|
MSCI World Equity Index (Total Return, Net, GBP)
|
|
|
|
|
|
|
|
|
|
|
32.72
|
%
|
|
|
N/A
|
|
GLG European Equity Fund(3)
|
|
$
|
0.53bn
|
|
|
|
11-Feb-99
|
|
|
|
38.81
|
%
|
|
|
3.36
|
%
|
MSCI Europe Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(32.33
|
%)
|
|
|
(3.86
|
%)
|
GLG UK Select Equity Fund(3)
|
|
$
|
0.05bn
|
|
|
|
1-Dec-06
|
|
|
|
(19.74
|
)%
|
|
|
(10.00
|
)%
|
FTSE 100 Index (GBP)
|
|
|
|
|
|
|
|
|
|
|
(29.19
|
%)
|
|
|
(15.24
|
%)
|
GLG EAFE (Institutional) Fund(3)
|
|
$
|
0.04bn
|
|
|
|
1-Sep-08
|
|
|
|
(33.37
|
)%
|
|
|
N/A
|
|
MSCI EAFE Index (Total Return, Net, GBP)
|
|
|
|
|
|
|
|
|
|
|
(31.53
|
%)
|
|
|
N/A
|
|
GLG International Small Cap Fund(3)
|
|
$
|
0.03bn
|
|
|
|
1-Jun-08
|
|
|
|
(39.94
|
)%
|
|
|
N/A
|
|
S&P EPAC Small Cap (Total Return) Index)
|
|
|
|
|
|
|
|
|
|
|
(40.41
|
%)
|
|
|
N/A
|
|
GLG Capital Appreciation Fund(3)
|
|
$
|
0.04bn
|
|
|
|
4-Mar-97
|
|
|
|
99.50
|
%
|
|
|
6.01
|
%
|
Benchmark(4)
|
|
|
|
|
|
|
|
|
|
|
29.52
|
%
|
|
|
2.21
|
%
|
GLG Capital Appreciation (Distributing) Fund(2)(3)
|
|
$
|
0.14bn
|
|
|
|
6-Apr-99
|
|
|
|
21.30
|
%
|
|
|
1.98
|
%
|
GLG Global Convertible UCITS Fund(3)
|
|
$
|
0.24bn
|
|
|
|
12-Mar-99
|
|
|
|
41.89
|
%
|
|
|
3.63
|
%
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
|
|
|
|
Gross
|
|
|
Inception
|
|
|
Since
|
|
|
Annualized
|
|
|
|
AUM
|
|
|
Date
|
|
|
Inception
|
|
|
Net Return
|
|
|
Merrill Lynch Global 300 Convertible Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
17.52
|
%
|
|
|
1.66
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(24.88
|
%)
|
|
|
(2.87
|
%)
|
JP Morgan Government Bond Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
55.75
|
%
|
|
|
4.62
|
%
|
Internal FoHF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG Global Opportunity Fund(3)
|
|
$
|
0.69bn
|
|
|
|
4-Feb-97
|
|
|
|
323.22
|
%
|
|
|
12.88
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
5.63
|
%
|
|
|
0.46
|
%
|
GLG Multi-Strategy Fund(1)
|
|
$
|
0.44bn
|
|
|
|
7-Jan-03
|
|
|
|
10.05
|
%
|
|
|
1.61
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
6.86
|
%
|
|
|
1.12
|
%
|
External FoHF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG MMI Diversified Fund(1)
|
|
$
|
0.24bn
|
|
|
|
1-Oct-01
|
|
|
|
30.48
|
%
|
|
|
3.93
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(12.15
|
%)
|
|
|
(1.77
|
)%
|
GLG MMI Enhanced Fund(1)
|
|
$
|
0.17bn
|
|
|
|
1-Dec-03
|
|
|
|
12.63
|
%
|
|
|
2.93
|
%
|
MSCI World Equity Index (Loc)
|
|
|
|
|
|
|
|
|
|
|
(9.11
|
%)
|
|
|
(1.86
|
)%
|
GLG MMI Macro Fund(1)(2)
|
|
$
|
0.03bn
|
|
|
|
3-Jul-06
|
|
|
|
6.53
|
%
|
|
|
2.99
|
%
|
GLG MMI Select Fund(1)(2)
|
|
$
|
0.04bn
|
|
|
|
1-Feb-08
|
|
|
|
(14.44
|
)%
|
|
|
N/A
|
|
Total AUM of Funds with <$25mn
|
|
$
|
0.14bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Accounts
|
|
$
|
6.12bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Other Holdings
|
|
$
|
0.43bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross AUM
|
|
$
|
16.55bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less GLG Funds invested in other GLG Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Strategy GLG Funds invested in other GLG Funds
|
|
$
|
(0.47bn
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
External FoHF GLG Funds invested in other GLG Funds
|
|
$
|
(0.03bn
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal FoHF GLG Funds invested in other GLG Funds
|
|
$
|
(1.00bn
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GLG Funds invested in other GLG Funds
|
|
$
|
(1.51bn
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net AUM
|
|
$
|
15.04bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
GLG Partners (Cayman) Limited is the manager of these GLG Funds. |
|
(2) |
|
No comparable index. |
|
(3) |
|
GLG Partners Asset Management Limited is the manager of these
GLG Funds. |
|
(4) |
|
Benchmark for GLG Capital Appreciation Fund is 65% MSCI World
Index (Loc); 35% JPMorgan Govt Bond Index (Loc). |
Except as noted in the table above, the investment manager for
the GLG Funds is GLG Partners LP. None of the GLG Funds is
registered in the United States. However, each GLG Fund is
regulated in its jurisdiction of incorporation. See
Competitive Strengths Alignment of
Interests for a discussion of investments by the
Principals and certain key personnel in the GLG Funds.
12
Management
Fees on Funds
Our gross management fee rates are set as a percentage of
fund AUM. Management fee rates vary depending on the
product, as set forth in the table below (subject to fee
treatment of
fund-in-fund
reinvestments as described below):
|
|
|
|
|
General Range of Gross Fee Rates
|
|
|
(% of AUM)
|
Product
|
|
As of December 31, 2008
|
|
Single-manager alternative strategy funds*
|
|
1.50% 2.50%**
|
Long-only funds
|
|
0.75% 2.25%
|
Internal FoHF
|
|
0.25% 1.50%** (at the investing fund level)
|
External FoHF
|
|
1.00% 1.95%
|
|
|
|
* |
|
Excludes the GLG European Long-Short (Special Assets) Fund, the
GLG Emerging Markets (Special Assets) Fund 2 and the GLG
North American Opportunity (Special Assets) Fund established
during November 2008 into which certain private placements and
other not readily realizable investments were contributed by the
GLG European Long-Short Fund, the GLG Emerging Markets Fund and
the GLG North American Opportunity Fund, respectively, for the
purpose of liquidating them, where the management fee is 0.50%. |
|
** |
|
When one of the single-manager alternative strategy funds or
internal FoHFs managed by us invests in an underlying
single-manager alternative strategy fund managed by us,
management fees are charged at the investee fund level, except
in the case of the GLG Multi Strategy Fund where fees are
charged at both the investee and investing fund levels. |
Management fees are generally paid monthly, one month in arrears.
Most GLG Funds managed by us have share classes with
distribution fees that are paid to third-party institutional
distributors with no net economic impact to us. In certain
cases, we may rebate a portion of our gross management fees in
order to compensate third-party institutional distributors for
marketing our products and, in a limited number of historical
cases, in order to incentivize clients to invest in funds
managed by us.
Performance
Fees
Our gross performance fee rates are set as a percentage of fund
performance, calculated as investment gains (both realized and
unrealized), less management and administration fees, subject to
high water marks and, in the case of most long-only
funds, six external FoHFs and five single-manager alternative
strategy funds, to performance hurdles. As a result, even when a
GLG Fund has positive fund performance, we may not earn a
performance fee due to negative fund performance in prior
measurement periods and in some cases due to a failure to reach
a hurdle rate. Performance fee rates vary depending on the
product, as set forth in the table below (subject to fee
treatment of
fund-in-fund
investments as described below):
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General Range of Gross Fee Rates
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(% of Investment Gains)
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Product
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As of December 31, 2008
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Single-manager alternative strategy funds
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20% 30%*
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Long-only funds
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20% (may be subject to performance hurdle)
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Internal FoHF
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0% 20%* (at the investing fund level)
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External FoHF
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5% 10% (may be subject to performance hurdle)
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* |
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When one of the single-manager alternative strategy funds or
internal FoHFs managed by us invests in an underlying
single-manager alternative strategy fund managed by us,
performance fees are charged at the investee fund level. In
addition, performance fees are charged at both the investee and
investing fund levels on the GLG Global Aggressive Fund, to the
extent, if any, that the performance fee charged at the
investing fund level is greater than the performance fee charged
at the investee fund level. |
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We do not recognize performance fee revenues until the end of
the measurement period when the amounts are crystallized, which
for the majority of the investment funds and accounts managed by
us is on June 30 and December 31.
Additionally, many of our funds have significant high water
marks. Until these funds either generate investment returns that
overcome these high water marks, or these funds experience net
inflows that carry no high-water marks
and/or new
funds are launched without high-water marks, performance fees
may be limited.
Administration
Fees
Our gross administration fee rates are set as a percentage of
fund AUM. Administration fee rates vary depending on the
product. From our gross administration fees, we pay
sub-administration fees to third-party administrators and
custodians, with the residual fees recognized as our net
administration fee. Administration fees are generally paid
monthly, one month in arrears.
When one of the single-manager alternative strategy funds or
internal FoHFs managed by us invests in an underlying
single-manager alternative strategy fund managed by us,
administration fees are charged at both the investing and
investee fund levels.
Fees
on Managed Accounts
Managed account fee structures are negotiated on an
account-by-account
basis and may be more complex than for the GLG Funds but
typically include a management fee based on AUM and a
performance fee based either on exceeding a high water mark or
exceeding agreed upon benchmarks. Across the managed account
portfolio, fee rates vary according to the underlying mandate
and, excluding one material managed account, described below, in
the aggregate are generally within the performance and
management fee ranges charged with respect to comparable fund
products. In October 2008, a new material managed account funded
which provides for a management fee at institutional rates and a
performance fee based on exceeding certain benchmarks even in a
scenario with negative performance.
Certain GLG Funds employ leverage to enable them to invest
additional amounts over and above their share capital and
thereby enhance equity returns. Leverage will vary with the
exact composition of the fund portfolio. Leverage is provided by
prime brokers and counterparties. Additionally, funds may be
leveraged through the use of products such as options, futures
and other derivatives.
Fund Structure
Each of the GLG Funds is structured as a limited liability
company, incorporated in the Cayman Islands, Ireland or
Luxembourg. In general, the Cayman Islands are preferred for
alternative strategy funds of
non-U.S. investors,
given the flexibility available to alternative strategy funds in
this jurisdiction. A limited number of our alternative strategy
funds are also domiciled in Ireland. Our long-only funds are
incorporated in Ireland and utilize investment strategies that
comply with the regulations in Ireland and qualify for
Undertakings for the Collective Investment of Transferable
Securities (UCITS) status. These long-only funds
also have the ability to use a limited degree of leverage and to
use derivative instruments, including synthetic short exposure,
in accordance with UCITS III. One of our internal FoHF funds is
domiciled in Luxembourg. Each GLG Fund has a board of directors
and each board consists of a majority of independent directors.
The prospectus for each fund sets out the terms and conditions
upon which investors invest in the fund. None of the GLG Funds
are subject to key man provisions. Thirty-four funds are listed
on the Irish Stock Exchange, one fund is listed on the
Luxembourg Stock Exchange, one fund is listed on the Cayman
Islands Stock Exchange and twelve funds are unlisted. Each GLG
Fund has appointed a GLG entity as its manager to provide
investment management, administration and distribution services
to the fund pursuant to a management agreement. The provision of
these services is delegated to other GLG entities and third
parties. In particular, investment management is delegated to
GLG Partners LP pursuant to an investment management agreement.
Because each GLG Fund is structured as a limited liability
company whose owners are the investors in the fund, the manager
and investment manager generally do not have an ownership
interest in the
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fund and their sole relationship with the fund is contractual.
Fund administration, custody and prime brokerage services are
delegated to third-party providers pursuant to separate
agreements.
The material terms of these agreements relate to the scope of
services to be rendered to the fund, liabilities, remuneration
and rights of termination under certain circumstances. Under
each management agreement, a manager is appointed to, among
other things, manage the assets of the relevant GLG Fund,
administer the assets of the relevant GLG Fund and distribute
the assets of the relevant GLG Fund. The manager delegates each
of these functions to third parties. In particular the manager
delegates the investment management functions to GLG Partners
LP. Under each investment management agreement, the investment
manager is responsible for identifying, purchasing, managing and
disposing of investments on behalf of the relevant fund in
accordance with its statement of investment policy. Each
management agreement and investment management agreement is
terminable on 30 days written notice by either party
and provides that in the absence of negligence, willful default,
fraud or bad faith, the manager and its agents will not be
liable for any loss or damage arising out of the performance of
their obligations under the agreement.
We do not hold any investments in the GLG Funds, other than a de
minimis amount of subscriber and management shares and
$65.5 million, representing the unvested portion of the
cash proceeds of the Acquisition allocable to participants in
the equity participation plan, which were invested in two of the
GLG Funds. The subscriber and management shares are for a fixed
notional amount and do not have an entitlement to participate in
movements in net asset value, nor do they generate any income
for us. The returns and income on the unvested portion of the
cash proceeds of the Acquisition allocable to participants in
the equity participation plan are allocated to those
participants and not us. As a result, we do not receive any
income by reason of investment on our own account in the GLG
Funds.
Managed
Accounts Structure
Each of the managed accounts operates under the terms of
individually negotiated and customized arrangements under which
GLG Partners LP (or GLG Inc.) is appointed as investment manager
or
sub-investment
manager. The structure is determined by the client and the
structures range from limited liability companies to master feed
funds and to limited partnerships. The material terms of these
arrangements typically relate to the scope of the services to be
provided, liabilities, remuneration and rights of termination.
The termination provisions of the managed account agreements
vary according to the terms negotiated by the individual
client(s).
Neither the Principals nor their affiliates have any investment
management operations or businesses that are separate from us.
All of the assets managed by us are owned by our clients and are
therefore separate from us. We do have discretion over the
management of these assets.
Clients
and Marketing
We have a team of 14 marketing professionals which is split into
geographical regions. Our marketing effort has historically been
geographically focused, with Europe accounting for the majority
of marketing activity, and is built on a number of complementary
and diverse distribution channels:
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marketing to high and ultra-high net worth individuals and
families through a combination of existing client referrals,
marketer-led relationships and banks; and
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marketing to institutional investors, including funds of funds,
alternative asset management divisions of banks, pension funds,
insurance companies and investment platforms, through a
combination of the capital introduction groups of leading prime
brokers, financial intermediaries, marketer-led relationships
and banks.
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In addition to the standard tasks of reporting performance and
alerting clients to new fund and product launches, our marketing
personnel offer broader investment advice, including assistance
with overall portfolio planning, which, in some cases, may
include non-GLG investment products. Although we have
historically focused on Europe, we are committing resources to
expanding into under-penetrated markets like the
United States, the Middle East and Asia.
15
We also have a 30 member dedicated client service and marketing
support team that facilitates investment transactions and
provides analysis and reporting to clients.
Product
Development
We have developed over 40 new investment products over the last
ten years. We have several other fund products in the
development pipeline for 2009, including emerging markets,
credit, macro and distressed strategies. Consistent innovation
and product development has stemmed from our close relationship
to our client base, our investment teams skill and market
knowledge and also our responsiveness to client and market
demands. The following chart shows the historical development of
current GLG Funds:
We are focused on further developing our multi-strategy approach
and diversified product offerings. We have continued to
emphasize the importance of innovation and responsiveness to
client and market demands. We believe that the close and
long-term relationships that we enjoy with our clients are a key
source of market research helping to drive development of
successful products. Since 2005, the process of product
development has been more fully formalized and is now
coordinated through our non-investment manager
Co-Chief
Executive Officer.
Idea Generation. Product development is driven
by discussions with clients, internal research, internal
analysis of market trends and competitor offerings. Product
development is sometimes initiated through
sector-focused
research from investment analysts.
Feasibility Testing. New products are
initially vetted for feasibility to confirm our ability to
support the new fund or strategy operationally and to highlight
mitigating risks and other factors affecting feasibility.
Initial due diligence is followed by relevant feasibility checks
based on extensive investment experience from investment
professionals and client managers.
Product Setup. Once a new product has
undergone review and feasibility testing, the product
development team arranges appropriate prime brokerage and
counterparty relationships, and coordinates with legal counsel
to set up the legal structures of any new funds or products and
to develop fund or product prospectuses in conjunction with the
marketing team.
Client Management. Both investment managers
and marketing professionals who serve as client relationship
managers meet with existing and potential investors about each
relevant new product.
16
Operational
Processes and Infrastructure
Investment
Management Process
We have a systematic investment approach which combines bottom
up analysis with macroeconomic analysis and technical trading,
resulting in an emphasis on both the qualitative and
quantitative assessment of investment opportunities. We look at
all instruments across the capital structure, from equity to
subordinated loans. With extensive coordination between analysts
and traders, investment ideas are scrutinized and validated at
multiple stages. Our organizational structure facilitates the
sharing of ideas between equity, credit and emerging markets
specialists. Similarly, industry teams work across regions to
develop global views and relative values strategies between
investments located in different geographical areas.
Analysts. Our sector and general analysts
utilize their industry expertise to generate and analyze ideas
for long and short investments by meeting with corporate
management and performing original analytical work. Our strong
relationships in the brokerage community provide analysts with
significant access to
third-party
and industry expertise.
Traders. Our traders confirm the short-term
validity of fundamental analysis and optimize the best entry and
exit points for trading ideas. Our strong relationships in the
brokerage community provide traders with best execution and
liquidity across asset classes.
Investment Managers. Our investment managers
integrate recommendations from analysts and traders, taking into
account the macroeconomic environment, portfolio construction
and relevant strategies. They also manage risk and ensure that
capital is adequately used. In October 2008, we also added a
Chief Investment Strategist who works with our investment
professionals on global asset allocation and on developing our
global macro platform and thematic funds.
Throughout this process, we utilize an extensive risk management
process, as described in the following paragraphs.
Portfolio
Risk Management
Effective risk management is central to the operation of our
business. We use both quantitative and qualitative assessments
in an effort to offer high annual returns combined with a low
level of return volatility. Risk management helps manage
volatility and avoid positions that could lead to excessive
losses.
Positions in the GLG Funds are actively managed, allowing for
timely reallocation in response to changes in economic, business
or market conditions. Investment professionals are typically
authorized to trade fixed amounts of capital subject to various
constraints and limitations including but not limited to
value-at-risk,
trading losses and position concentrations.
Our Risk Committee, which includes the non-investment manager
Co-Chief Executive Officer, oversees the risk management
function for the GLG Funds and managed accounts. The Risk
Committee is responsible for setting and ensuring adherence to
risk limits, directing the development of risk management
infrastructure, identifying risks to the GLG Funds and managed
accounts, allocating capital, and developing fund-level hedging
strategies. The Risk Committee has four members with substantial
investment and risk management experience.
Risk management personnel provide daily risk reporting across
the GLG Funds and managed accounts, develop risk management
infrastructure, and monitor the risk and performance of
individual investment professionals within the business. We use
both third-party commercial risk management software and
proprietary systems to analyze and monitor risk in the GLG Funds
and managed accounts. Daily risk reports measure exposures,
expected volatility,
value-at-risk
(typically using a 98% confidence level, over a one day
horizon), and liquidity. These reports also include stress tests
based on historical and hypothetical scenarios, measures of
aggregate exposures and sensitivities, and measures of credit
risk and attributes of risk by region, country, asset class and
investment professional. Additional reports analyze individual
liquidity exposures and idiosyncratic or specific risks relevant
to individual positions or groups of trades. Customized risk
reports are also prepared and distributed to both the Risk
Committee and individual investment managers.
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General
Operational and Legal Risk Management
We believe that we have adopted an approach to minimizing
operational risk that is robust and systematic. This approach to
operational excellence is a high-level differentiator that
enables us to continue serving the most demanding private and
institutional clients.
We have separate finance, operations, middle office, risk
management, technology, human resources and client support
functions run by seasoned industry professionals who report
either to our Chief Operating Officer or to our Chief Financial
Officer. The business has separate legal and compliance and
internal audit functions.
The Systems and Controls Committee, which includes the
non-investment manager Co-Chief Executive Officer, the Chief
Operating Officer, the Senior Legal Counsel and the Chief
Compliance Officer, meets monthly to consider operational
management of our business, with focus on controls, legal and
regulatory matters and any other related issues.
Systems
We have developed a strong information technology department of
42 experienced staff in addition to outside contractors. The
department is split into infrastructure, support and development
groups. We believe the strength of our specialized in-house
development group, including a dedicated quantitative
development team, is a significant competitive advantage. We
operate a number of key proprietary and external systems. We
have focused on maintaining the scalability of our systems
platform and have an ongoing review process to ensure the
systems can support planned growth in both assets and trading
volume. Security and resiliency have been the highest priorities
in the network design. We operate data centers both at our main
offices and at off-site locations. We have appointed a managed
service provider that provides 24 hour/7 day support
through a dedicated link from our network operations center.
In the event of an emergency affecting our London or New York
offices, or London or New York City in general, that results in
either access being denied to or the total loss of our London or
New York offices, we will implement our disaster recovery plan
to assist in the smooth transition to a temporary workplace to
minimize disruption. Under this plan, our incident management,
business management and business continuity teams will
coordinate with each other to assess the nature of a disaster,
implement an immediate plan and work together during the
recovery process to mitigate the loss to our business. If our
London or New York offices will not be available for some time,
we have established the use of disaster recovery sites with
office space available for key personnel and remote access to
critical business information in both locations.
Regulation
As a publicly traded company in the United States, we are
subject to the U.S. federal securities laws and regulation
by the U.S. Securities and Exchange Commission (the
SEC). GLG Partners LP is authorized and regulated in
the United Kingdom by the Financial Services Authority (the
FSA). GLG Partners LP has a relationship management
team at the FSA with whom it has a regular dialogue. Other
regulators supervising specific GLG entities and funds include
the Irish Financial Services Regulatory Authority (the
IFSRA), the Cayman Islands Monetary Authority
(CIMA) and the Commission de Surveillance du Secteur
Financier in Luxembourg. Certain of the GLG Funds are also
listed on the Irish Stock Exchange, the Luxembourg Stock
Exchange or the Cayman Islands Stock Exchange. GLG Inc. is
subject to regulation by the SEC as a registered investment
adviser following its registration with the SEC as of
January 17, 2008.
Compliance
and Internal Audit
We have made a significant investment in the infrastructure
supporting controls and compliance. Our management believes that
it is important to instill a culture of compliance throughout
our organization. The primary functions of our compliance and
internal audit team are to provide assurance to our senior
management team through the implementation of a risk-based
monitoring program and internal audit plan. This team also
advises, educates and supports our business. The compliance and
internal audit functions are
18
performed by a dedicated team of seven professionals, including
the Chief Compliance Officer, who reports to the Co-Chief
Executive Officers.
Regulatory
Framework in the United Kingdom
Authorization by the FSA. The current U.K.
regulatory regime is based upon the Financial Services and
Markets Act 2000 (the FSMA), together with secondary
legislation and other rules made under the FSMA. Under
section 19 of the FSMA, it is an offense for any person to
carry on regulated activities in the
United Kingdom unless it is an authorized person or
otherwise exempt from the need to be authorized. The various
regulated activities are set out in the Financial
Services and Markets Act 2000 (Regulated Activities) Order 2001
(as amended) (the RAO). They include, among other
things: advising on investments; arranging deals in investments;
dealing in investments as agent; managing investments (i.e.,
portfolio management) and the safeguarding and administration of
assets (including the arranging of such safeguarding and
administration).
Before authorizing a firm to carry on regulated activities, the
FSA must be satisfied that it meets (and will continue to meet)
a number of threshold conditions set out in the
FSMA. For example, firms must have adequate financial resources,
not have close links of a nature that would impede
the FSAs supervision of the firm and generally satisfy the
FSA that they are fit and proper to be authorized.
FSA Handbook. We are subject to certain rules
set out in the FSA Handbook, which also provides guidance on the
application and interpretation of these rules. In particular, we
must comply with certain conduct of business standards relating
to, among other things, the advertising and marketing of
financial products, treating customers fairly, advising on and
selling investments, and managing conflicts of interest.
The FSA Handbook also contains rules governing our senior
management arrangements, systems and controls. In particular,
these require the appointment of one or more members of senior
management to take responsibility for: (1) the
apportionment of significant responsibilities among directors
and senior managers so that it is clear who has responsibility
for the different areas of the firms business (allowing
for the proper supervision and control of the firms
activities by its governing body and relevant senior managers);
and (2) overseeing the establishment and maintenance of
systems and controls which are appropriate to the particular
business of the firm. The person with responsibility for these
functions, together with any other person who performs a
controlled function within GLG, is required to be
approved by the FSA under its Approved Persons regime. Persons
performing a controlled function include directors,
the compliance officer, the money laundering reporting officer,
persons carrying out significant management functions and
portfolio managers and marketers.
The FSA has the power to take a wide range of disciplinary
actions against regulated firms and any FSA approved persons,
including public censure, the imposition of fines, the
variation, suspension or termination of the firms
authorization or the removal of approved status from individuals.
Principles for businesses. We are subject to
the FSAs high-level principles which are intended to
ensure fairness and integrity in the provision of financial
services in the United Kingdom.
In particular, they require a firm to:
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conduct its business with integrity;
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conduct its business with due skill, care and diligence;
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take reasonable care to organize and control its affairs
responsibly and effectively, with adequate risk management
systems;
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maintain adequate financial resources;
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observe proper standards of market conduct;
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pay due regard to the interests of customers and treat them
fairly;
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pay due regard to the information needs of its clients and
communicate information to them in a way which is clear, fair
and not misleading;
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manage conflicts of interest fairly, both between itself and its
customers and between a customer and another client;
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take reasonable care to ensure the suitability of its advice and
discretionary decisions for any customer who is entitled to rely
upon its judgment;
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arrange adequate protection for clients assets when it is
responsible for them; and
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deal with its regulators in an open and co-operative way, and
disclose to the FSA in an appropriate manner anything relating
to the firm of which the FSA would reasonably expect notice.
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Restrictions on changes in control. Firms
authorized by the FSA are subject to restrictions regarding
persons who may act as a controller of the firm.
Broadly, a controller for the purposes of the
FSAs rules means a person who alone or with associates
holds (directly or indirectly) 10% or more of the shares or
voting rights in a regulated firm or its parent company. Under
FSMA, a person who proposes to become a controller of an
FSA-authorized firm, or an existing controller who proposes to
increase their interest to 20% or more, 33% or more, or 50% or
more must first notify and obtain the approval of the FSA, with
the FSA having up to three months to approve any such proposed
change in control. The FSA is permitted to serve a notice of
objection to the acquisition of or increase in control and, if
it does serve such a notice, is required to specify in the
notice its reasons for the objections. Breach of the
notification and approval requirements is a criminal offense,
although there are rights of appeal against any objection by the
FSA.
A person who ceases to be a 10% controller or who reduces an
existing interest below the 50%, 33% or 20% level must only
provide written notice to the FSA. FSA approval is not required
for reduction or cessation of control. Breach of the
notification requirements is a criminal offense. Certain
notification obligations are also imposed on authorized firms in
relation to any changes of control they undergo.
Consumer complaints and compensation. Rules
made by the FSA under FSMA have established a compensation
scheme, which provides for limited compensation to be paid to
certain categories of customers who suffer losses as a
consequence of an authorized firm being unable to meet its
liabilities.
A financial ombudsman service (FOS) has also been
established under the FSMA. The FOS operates independently of
the FSA and allows certain categories of customers to escalate
complaints about a firm (for example in relation to mis-selling
or the provision of a poor service or product by the firm) to
the ombudsman.
Regulatory capital. Regulatory capital
requirements form an integral part of the FSAs prudential
supervision of authorized firms. The regulatory capital rules
oblige firms to hold a certain amount of capital at all times
(taking into account the particular risks to which the firm may
be exposed given its business activities), thereby helping to
ensure that firms can meet their liabilities as they fall due
and safeguarding their (and their counterparties)
financial stability. The FSA also expects firms to take a
proactive approach to monitoring and managing risks, consistent
with its high level requirement for firms to have adequate
financial resources.
Regulatory capital requirements exist on two levels. The first
is a solo requirement aimed at individual authorized firms (with
the relevant firm being required to submit periodic reports to
demonstrate compliance with the relevant requirement). The
second is a consolidated (or group) requirement and relates to a
part of or the entire group of which an authorized firm or firms
form part. The FSAs rules in relation to capital
requirements were updated in 2007 to implement the recast EU
Capital Requirements Directive (CRD), and came fully
into force in the United Kingdom in January 2008. The CRD, which
amended two earlier capital requirements Directives (The Banking
Consolidation Directive and the Capital Adequacy Directive),
introduced a more risk-sensitive approach to capital adequacy
(with a particular emphasis on operational risk) and represents
the European implementation of the Basel Committees
International Convergence of Capital Measurement and Capital
Standards framework dated June 2004.
20
Money laundering. The U.K. Money Laundering
Regulations 2007 came into force on December 15, 2007. The
Regulations, which implement the Third EU Money Laundering
Directive, require, broadly speaking, any person who carries on
financial services business in the United Kingdom to observe
certain administrative procedures and checks (e.g., Know
Your Client) designed to minimize the scope for money
laundering. Failure to maintain the necessary procedures is a
criminal offense. The Proceeds of Crime Act 2002 also contains a
number of offenses in relation to money laundering.
Regulatory
Framework in the European Union
We are permitted to provide cross-border services into a number
of other members of the European Economic Area
(EEA), under a European investment services
passport. This passport derives from the
pan-European regime established by the EU Markets in Financial
Instruments Directive (MiFID) which regulates the
provision of investment services and activities throughout the
EEA.
MiFID grants investment firms which are authorized in any one
EEA member state the right to provide investment services on a
cross-border basis, or through the establishment of a branch to
clients located in other EEA member states (known as host
member states) on the basis of their home member state
authorization without the need for separate authorization by the
competent authorities in the relevant host member state. This is
known as passporting. In order to avail itself of
the passport, a firm must simply notify its home state regulator
that it intends to do so. MiFID was required to be implemented
across the EEA on November 1, 2007. MiFID made substantial
and important changes to the way in which investment business is
conducted across the EEA. These include, among others, the
requirement that the conduct of business rules of a host member
state are not to apply to a firm providing services within its
territory on a cross-border basis (host member state conduct of
business rules will apply to branches). We have implemented
MiFID and we believe our business is now compliant with the
requirements of MiFID.
Regulatory
Framework in Ireland
GLG Partners Asset Management Limited (GPAM) has
been authorized by the IFSRA as a management company under the
European Union (Undertakings for Collective Investment in
Transferable Securities) Regulations 2003 (as amended) (the
UCITS Regulations). As a manager authorized by the
IFSRA, GPAM is subject to the supervision of the IFSRA. These
supervisory requirements include:
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GPAM must maintain a minimum capital requirement as prescribed
by the IFSRA;
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GPAM may not be replaced as manager of a fund without the
approval of the IFSRA;
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appointments of directors to GPAM require the prior approval of
the IFSRA and the IFSRA must be notified immediately of
resignations;
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a minimum of two directors of GPAM must be Irish residents;
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approval of the IFSRA is required for any change in ownership or
in significant shareholdings of GPAM. A significant shareholding
is defined as a direct or indirect holding of shares or other
interest in a management company which represents 10% or more of
the capital or voting rights, or any direct or indirect holding
of less than 10% which, in the opinion of the IFSRA, makes it
possible to exercise a significant influence over the management
company;
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half-yearly financial and annual audited accounts of GPAM must
be filed with the IFSRA. Annual audited accounts of the
corporate shareholder(s) of GPAM must also be submitted;
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GPAM is obliged to satisfy the IFSRA on a continuing basis that
it has sufficient management resources to effectively conduct
its business; and
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GPAM is required to consult with the IFSRA prior to engaging in
significant new activities.
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GLG Partners LP has been approved by the IFSRA to act as
promoter and investment manager of Irish authorized collective
investment schemes pursuant to the UCITS Notices and the
Non-UCITS Notices issued by the IFSRA.
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The IFSRA will require that any change in ownership or in
significant shareholdings of GLG Partners LP be approved by it.
A significant shareholding is as defined above.
As of December 31, 2008, GPAM and GLG Partners LP acted as
manager, promoter and investment manager, respectively of the
following Irish GLG Funds: GLG Investments plc, GLG
Investments IV plc, GLG Investments V plc, GLG Investments
VI plc and GLG Investments VII plc (each, a UCITS fund),
GLG Global Convertible Fund plc (a professional investor
fund) and GLG Global Opportunity Fund plc (a qualified
investor fund).
These GLG Funds are subject to the investment restrictions
imposed by the IFSRA in respect of UCITS or non-UCITS funds as
appropriate and as set out in the prospectus for the relevant
fund. GPAM and GLG Partners LP are required to observe the terms
of the prospectus in carrying out their duties.
The failure by the IFSRA to approve a change in control of GPAM
and/or GLG
Partners LP could result in the authorization of the above GLG
Funds being withdrawn if it is not possible to appoint
alternative promoters, managers and investment managers.
In addition to the GLG Funds which are listed on the Irish Stock
Exchange, a large number of Cayman domiciled GLG Funds are also
listed on the Irish Stock Exchange. A failure to comply with the
Listing Rules for Investment Funds as set down by the Irish
Stock Exchange may result in delisting from the Irish Stock
Exchange.
Regulatory
Framework in Luxembourg
GLG Partners LP is the promoter, investment manager and
principal sales agent of the GLG Multi-Strategy Fund SICAV,
a regulated investment company with variable capital domiciled
in Luxembourg and listed on the Luxembourg Stock Exchange. GLG
Partners LP has been approved by the Commission de Surveillance
du Secteur Financier as promoter of Luxembourg undertakings for
collective investment, and as investment manager of the GLG
Multi-Strategy Fund SICAV.
Regulatory
Framework in the Cayman Islands
CIMA regulates GLG Partners (Cayman) Limited (GPCL)
in connection with its provision of mutual fund administration
services to the GLG Funds incorporated in the Cayman Islands.
GPCL is the holder of an unrestricted mutual fund
administrators license issued by CIMA pursuant to the
Mutual Funds Law (as amended) of the Cayman Islands (the
Mutual Funds Law).
Each of GPCL, GLG Partners International (Cayman) Limited and
GLG Partners Services LP is registered with CIMA as an excluded
person pursuant to the Securities Investment Business Law (as
amended) of the Cayman Islands (the SIB Law) in
connection with their respective provision of services
constituting securities investment business to
various GLG Funds. None of these entities is regulated by CIMA
in connection with its provision of services constituting
securities investment business.
The majority of the GLG Funds which are incorporated in the
Cayman Islands are registered as mutual funds with, and are
regulated by, CIMA in terms of the Mutual Funds Law. A number of
the GLG Funds which are incorporated in the Cayman Islands are
not so registered as they do not issue equity interests which
are redeemable at the option of the investors in such funds and
therefore do not constitute mutual funds as defined
in the Mutual Funds Law (and therefore do not require
registration or regulation thereunder). Others are not yet
registered as they are in the early stages of their launch
arrangements and it is anticipated that any such funds will in
due course be so registered under the Mutual Funds Law. A number
of the Cayman Islands incorporated funds are listed on the Irish
Stock Exchange, one is listed on the Cayman Islands Stock
Exchange and a number are currently unlisted. Only one of the
GLG Funds which are subject to the Mutual Funds Law is required
to be licensed or employ a licensed mutual fund administrator
(although GPCL is so licensed) since the minimum aggregate
investment purchasable by a prospective investor in each of such
GLG Funds is equal to or exceeds either (a) in
relation to those GLG Funds which were registered with CIMA
prior to November 14, 2006, $50,000 or (b) in relation
to those GLG Funds which have been registered with CIMA since
November 14, 2006, $100,000 or its equivalent in any other
currency. The GLG Fund which is subject to the Mutual Funds Law
and has a minimum aggregate investment of less than the
specified level
22
falls within a different regulatory regime from the others and
has appointed GPCL to provide its principal office
in the Cayman Islands. As regulated mutual funds, the GLG Funds
which are incorporated in the Cayman Islands and which are
registered under the Mutual Funds Law are subject to supervision
by CIMA. Essentially, such funds must file their offering
documents
and/or
details of any changes that materially affect any information in
such documents with CIMA. They must also file annually with CIMA
accounts approved by an approved auditor, together with a return
containing particulars specified by CIMA, within six months of
their financial year end or within such extension of that period
as CIMA may allow.
The Mutual Funds Law provides that a licensed mutual fund
administrator such as GPCL may not issue shares and that a
person owning or having an interest in shares or the transfer of
shares in such licensed mutual fund administrator may not
transfer or otherwise dispose of or deal in those shares or that
interest, unless CIMA has given its approval to the issue,
transfer, disposal or dealing, as the case may be, and any
conditions of the approval are complied with. This restriction
applies to all levels of ownership in a licensed mutual fund
administrator, including the ultimate parent, and therefore,
unless the waiver described below is obtained and maintained,
may have a potential impact on the trading of our shares.
The Mutual Funds Law provides that CIMA may, in respect of a
licensed mutual fund administrator or its ultimate parent whose
shares are publicly traded on a stock exchange recognized by
CIMA (including the New York Stock Exchange), waive the
obligation to obtain such approval, subject to certain
conditions. We applied for and obtained such waiver from CIMA in
relation to GPCL and trading in shares of the ultimate parent
listed on the New York Stock Exchange. The waiver is subject to
a condition that GPCL, as a licensed mutual fund administrator,
will, as soon as reasonably practicable, notify CIMA of:
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any change in control of GPCL;
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the acquisition by any person or group of persons of shares
representing more than 10% of the issued share capital or total
voting rights of GPCL; or
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the acquisition by any person or group of persons of shares
representing more than 10% of the issued share capital or total
voting rights of the Company, as the ultimate parent of GPCL.
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In addition, any waiver is subject to a condition that GPCL
will, as soon as reasonably practicable, provide such
information to CIMA, and within such period of time, as CIMA may
require for the purpose of enabling an assessment as to whether
persons acquiring direct or indirect control or ownership of
GPCL in the circumstances set out above are fit and proper
persons to have such control or ownership. An additional waiver
has been submitted to CIMA in relation to the levels of
intermediate ownership between GPCL and the ultimate parent
listed on the New York Stock Exchange and a decision thereon is
pending. Such waiver, if granted, is likely to be subject to the
same conditions as the existing waiver summarized above.
Regulatory
Framework in the United States
On January 17, 2008, GLG Inc. became registered as an
investment adviser under the Investment Advisers Act, and is
subject to the jurisdiction of the SEC and the federal
securities laws of the United States.
Information regarding GLG Inc. is included in GLG Inc.s
Form ADV Part I, which is on file with the SEC and
publicly available at the SECs website, www.sec.gov.
Investment advisers registered with the SEC are subject to many
important regulations, including, but not limited to, the
following:
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The requirement that an investment adviser must have a
compliance program;
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The requirement to provide clients and prospective clients with
written disclosure statements;
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The requirement to have a code of ethics and to implement
certain insider trading detection and prevention procedures;
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The requirement to maintain certain books and records.
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In addition, registered investment advisers may be examined by
the SEC Staff.
23
Accounts for all of our U.S. advisory clients are managed
pursuant to investment management agreements with GLG Inc. GLG
Partners LP may, from time to time, make available to GLG Inc.
certain personnel to perform investment advisory and related
services with respect to the accounts of such U.S. advisory
clients.
Pursuant to an Investment Services and Advisory Agreement,
effective January 17, 2008, GLG Partners LP appointed GLG
Inc. as a discretionary investment manager with respect to a
portion of the assets of the following GLG Funds which are
structured as
non-U.S. investment
vehicles: GLG Credit Fund, GLG European Long-Short Fund, GLG
Event Driven Fund, GLG Global Utilities Fund, GLG Market Neutral
Fund, GLG North American Opportunity Fund and GLG Technology
Fund.
Certain GLG Funds that are structured as
non-U.S. investment
vehicles offer shares to U.S. persons. Offerings to
U.S. persons are made in private placements in accordance
with Rule 506 of Regulation D under the Securities Act
of 1933, as amended, or the Securities Act, and in reliance on
Section 3(c)(7) of the Investment Company Act of 1940, as
amended, or the Investment Company Act. Accordingly,
U.S. persons investing in such GLG Funds generally must be
accredited investors and qualified
purchasers as defined under U.S. federal securities
laws.
Other
In addition, we are subject to securities and exchange
regulations in the jurisdictions in which we trade securities.
Competition
The asset management industry is intensely competitive, and we
expect it to remain so. We compete on a regional, industry and
niche basis. We face competition in the pursuit of investors for
our funds and managed accounts primarily from specialized
investment funds, hedge funds and financial institutions. Many
of these competitors are substantially larger and may have
considerably greater financial, technical and marketing
resources than will be available to us. In addition, given the
broad-based market disruptions over the past 12 to
18 months, the asset management industry is undergoing a
period of consolidation, with a general reduction in the number
of competitors, particularly among alternative asset managers.
In the current market environment, the barriers to entry for
competitors in the asset management industry have increased
significantly. As a result of these trends, we expect that in
the near future, the competitive landscape, particularly for
alternative asset managers, will be made up of a smaller number
of stronger competitors with significant resources.
We also compete with specialized investment funds, hedge funds,
financial institutions, corporate buyers and others in acquiring
positions in attractive investment opportunities for the GLG
Funds and managed accounts. Several of these competitors have
similar investment objectives to the GLG Funds and managed
accounts, which may result in direct competition for investment
opportunities and investors. Some of these competitors may also
have a lower cost of capital and access to funding sources that
are not available to us, which may create competitive
disadvantages for us with respect to investment opportunities.
In addition, some of these competitors may have higher risk
tolerances, different risk assessments or lower return
thresholds, which could allow them to consider a wider variety
of investments and to bid more aggressively than us for
investments that we want to make for the GLG Funds and managed
accounts.
Even in a consolidating industry environment, competition for
the attraction and retention of qualified personnel can be
intense. Our ability to compete effectively in our business will
depend upon our ability to attract new personnel and retain and
motivate our existing personnel.
Personnel
Our personnel consist of 346 individuals as of December 31,
2008, including 40 individuals in New York. Our
institutionalized team-based investment process is driven by 120
investment professionals. A key feature of our organizational
structure is that approximately one-third of our personnel are
directly involved in the
24
process of investment management and revenue generation. By
optimizing our administrative functions, we maintain an
efficient back- and middle-office operation and, as a result, a
reduced cost base.
Available
Information
We maintain an Internet website at www.glgpartners.com. Our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, along with our annual
report to shareholders and other information related to our
company, are available free of charge on this site as soon as
reasonably practicable after we electronically file or furnish
these reports with the SEC. Our Internet website and the
information contained therein or connected thereto are not
intended to be incorporated into this Annual Report on
Form 10-K.
The inclusion of our Internet website address in this report
does not include or incorporate by reference into this report
any information on our Internet website.
The certifications of our Co-Chief Executive Officers and our
Chief Financial Officer required pursuant to Sections 302
and 906 of the Sarbanes-Oxley Act of 2002 are included as
Exhibits to this Annual Report on
Form 10-K.
Our Co-Chief Executive Officers certified to the New York Stock
Exchange (the NYSE) on July 1, 2008 pursuant to
Section 303A.12 of the NYSEs listing standards, that
they were not aware of any violation by the Company of the
NYSEs corporate governance listing standards as of that
date.
25
FORWARD-LOOKING
STATEMENTS
In addition to historical information, this Annual Report on
Form 10-K
contains statements relating to our future results (including
certain projections and business trends) that are
forward-looking statements within the meaning of
Section 21E of the Exchange Act and are subject to the
safe harbor created by such sections. Our actual
results may differ materially from those projected as a result
of certain risks and uncertainties. Our forward-looking
statements include, but are not limited to, statements regarding
our expectations, hopes, beliefs, intentions or strategies
regarding the future. In addition, any statements that refer to
projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions,
are forward-looking statements. The words
anticipates believe,
continue, could, estimate,
expect, intend, may,
might, plan, possible,
potential, predict, project,
should, would and similar expressions
may identify forward-looking statements, but the absence of
these words does not mean that a statement is not
forward-looking.
The forward-looking statements contained in this Annual Report
on
Form 10-K
are based on our current expectations and beliefs concerning
future developments and their potential effects on us and speak
only as of the date of such statement. There can be no assurance
that future developments affecting us will be those that we have
anticipated. These forward-looking statements involve a number
of risks, uncertainties (some of which are beyond our control)
or other assumptions that may cause actual results or
performance to be materially different from those expressed or
implied by these forward-looking statements. These risks and
uncertainties include, but are not limited to, those factors
described under Item 1A, Risk Factors and the
following:
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volatility in the financial markets;
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market conditions for the GLG Funds and managed accounts;
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performance of the GLG Funds and managed accounts, the related
performance fees and the associated impacts on revenues, net
income, cash flows and fund inflows and outflows;
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the cost of retaining our key investment and other personnel or
the loss of such key personnel;
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risks associated with the expansion of our business in size and
geographically;
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operational risk, including counterparty risk;
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litigation and regulatory enforcement risks, including the
diversion of management time and attention and the additional
costs and demands on our resources; and
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risks associated with the use of leverage, investment in
derivatives, availability of credit, interest rates and currency
fluctuations,
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as well as other risks and uncertainties, including those set
forth herein and those detailed from time to time in our other
SEC filings. These forward-looking statements are made only as
of the date hereof, and we undertake no obligation to update or
revise the forward-looking statements, whether as a result of
new information, future events or otherwise, except as otherwise
required by law.
26
Our business, financial condition and results of operations can
be impacted by a number of risk factors, any one of which could
cause our actual results to vary materially from recent results
or from our anticipated future results. Any of these risks could
materially and adversely affect our business, financial
condition and results of operations, which in turn could
materially and adversely affect the price of our common stock or
other securities.
Risks
Related to Our Business
Difficult
market conditions, market disruptions and volatility have
adversely affected and may in the future continue to adversely
affect our business in many ways, each of which could materially
reduce our revenue and cash flow and adversely affect our
business, results of operations or financial
condition.
Our business is materially affected by conditions in the global
financial markets and economic conditions throughout the world
that are outside our control, such as interest rates,
availability of credit, inflation rates, economic uncertainty,
changes in laws (including laws relating to taxation), trade
barriers, commodity prices, currency exchange rates and controls
and national and international political circumstances
(including wars, terrorist acts or security operations).
Recently, global credit and other financial markets have
suffered and continue to suffer substantial stress, volatility,
illiquidity and disruption. Market turbulence reached
unprecedented levels during the third and fourth quarters of
2008, as loss of investor confidence in the financial system
resulted in an historically unprecedented lack of liquidity,
decline in asset values, and the bankruptcy or acquisition of,
or government assistance to, several major domestic and
international financial institutions. These factors, combined
with volatile commodity prices and foreign exchange rates,
contributed to recessionary economic conditions globally and a
deterioration in consumer and corporate confidence and could
further exacerbate the overall market disruptions and risks to
market participants, including the GLG Funds and managed
accounts. These market conditions may affect the level and
volatility of securities prices and the liquidity and the value
of investments in the GLG Funds and managed accounts, and we may
not be able to or may choose not to manage our exposure to these
market conditions.
Our profitability may also be adversely affected by fixed costs
and the possibility that we would be unable to or may choose not
to scale back other costs within a time frame sufficient to
match any decreases in revenue relating to changes in market and
economic conditions.
Global market conditions are inherently outside of our control
and cannot be predicted. If these conditions continue, they may
impact our ability to consistently generate non-volatile
investment performance and attract new AUM, and may result in
higher levels of redemptions from the GLG Funds and managed
accounts than they have historically experienced prior to the
third quarter of 2008. These factors may reduce our revenue
growth, income and our ability to pay dividends on our shares of
common stock and may slow or reduce the growth of our business
or may contract our business. In particular, we may face the
following heightened risks:
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The investment performance of the GLG Funds and managed accounts
may be negatively impacted. Negative fund performance reduces
AUM, which decreases the management fees, administration fees
and performance fees we earn. Lower revenues may result in lower
adjusted net income and, therefore, reduced amounts available
for dividends on our shares of common stock or increased risk
that we will be unable to comply with financial covenants in our
credit facility.
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Performance fees, which historically have comprised a
substantial portion of our annual revenues, are largely
contingent on the GLG Funds and managed accounts generating
positive annual investment performance in excess of high
water marks or generating investment performance in excess
of certain benchmarks.
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Our
revenue, net income and cash flow are dependent upon performance
fees, which may make it difficult for us to achieve steady
earnings growth on a semi-annual basis.
Our revenue, net income and cash flow are all highly variable,
primarily due to the fact that performance fees can vary
significantly from period to period, in part, because
performance fees are recognized as revenue only when
contractually payable, or crystallized, from the GLG
Funds and managed accounts to which they relate, generally on
June 30 and December 31 of each year for the majority of the GLG
Funds. Although prior to 2008 we have historically had low
inter-group correlations across asset classes, we may also
experience fluctuations in our results from period to period due
to a number of other factors, including changes in the values of
the GLG Funds investments, changes in the amount of
distributions, dividends or interest paid in respect of
investments, changes in our operating expenses, the degree to
which we encounter competition and general economic and market
conditions. Such variability may lead to volatility in the
trading price of our common stock and cause our results for a
particular period not to be indicative of our performance in a
future period. It may be difficult for us to achieve steady
growth in net income and cash flow on a semi-annual basis, which
could in turn lead to large adverse movements in the price of
our common stock or increased volatility in our stock price
generally.
With a few exceptions, the GLG Funds and managed accounts have
high water marks, whereby performance fees are
earned by us only to the extent that the net asset value of a
GLG Fund or managed account at the end of a semi-annual period
exceeds the highest net asset value on the last date on which a
performance fee was earned. To the extent any of the GLG Funds
and managed accounts generate negative investment performance or
generate positive performance less than the applicable high
water mark or benchmark, we would not earn performance fees for
that GLG Fund or managed account until the high water mark is
re-achieved or the benchmark exceeded. Certain of the GLG Funds
and managed accounts also have LIBOR hurdles whereby performance
fees are not earned during a particular period until the returns
of such funds surpass the LIBOR rate. The performance fees we
earn are therefore dependent on the net asset value of the GLG
Funds and managed accounts, which could lead to significant
volatility in our semi-annual results. Because our revenue, net
income and cash flow can be highly variable from period to
period, we plan not to provide any guidance regarding our
expected semi-annual and annual operating results. The lack of
guidance may affect the expectations of public market analysts
and could cause increased volatility in our stock price.
Fluctuations
in currency exchange rates could materially affect our business,
results of operations and financial condition.
We use U.S. dollars as our reporting currency. Our clients
invest in GLG Funds and managed accounts in different
currencies, including Pounds Sterling and Euros. In addition,
GLG Funds and managed accounts hold investments denominated in
many foreign currencies. To the extent that our fee revenues are
based on AUM denominated in such foreign currencies, our
reported fee revenues may be significantly affected by the
exchange rate of the U.S. dollar against these currencies.
Typically, an increase in the exchange rate between
U.S. dollars and these currencies will reduce the impact of
revenues denominated in these currencies in our financial
statements. For example, management fee revenues derived from
each Euro of AUM denominated in Euros will decline in
U.S. dollar terms if the value of the U.S. dollar
appreciates against the Euro. In addition, the calculation of
the amount of our AUM is effected by exchange rate movements as
AUM denominated in currencies other than the U.S. dollar
are converted to U.S. dollars. We also incur a significant
portion of our expenditures in currencies other than
U.S. dollars. As a result, our business is subject to the
effects of exchange rate fluctuations with respect to any
currency conversions and our ability to hedge these risks and
the cost of such hedging or our decision not to hedge could
impact the performance of the GLG Funds and our business,
results of operations and financial condition.
In
order to retain our investment professionals during periods of
poor performance, we may have to pay our investment
professionals a significant amount, even if we earn low or no
performance fees, which could have an adverse impact on our
business, results of operations or financial
condition.
Competition for investment professionals in the alternative
asset management industry is intense. We have set compensation
at levels that we believe are competitive against compensation
offered by other alternative
28
asset managers and leading investment banks against whom we
compete for senior management and other key personnel,
principally those located in London, while taking into account
the performance of the GLG Funds and managed accounts. We
believe these forms of remuneration are important to align the
interests of our senior management and key personnel with those
of investors in the GLG Funds. However, even if we earn low or
no performance fees, we may be required to pay significant
compensation and limited partner profit share to retain our key
personnel. In these circumstances, these amounts may represent a
greater percentage of our revenues than they have historically.
We pay a substantial portion of our compensation expense in the
form of annual bonuses and limited partner profit share, which
are variable and discretionary. Typically, the performance fees
we earn fund a significant amount of the cash bonuses and
limited partner profit share that we pay. In periods where we
earn little or no performance fees, our ability to pay cash
bonuses and limited partner profit share will be reduced. This
may affect our ability to retain and attract investment
professionals and other key personnel.
Investors
in the GLG Funds and investors with managed accounts can
generally redeem investments with only short periods of notice
and the rate of redemptions could accelerate if the GLG Funds
and managed accounts underperform, which could make it more
difficult to manage the liquidity levels of the GLG Funds and
managed accounts, reduce AUM and adversely affect our
revenues.
Investors in the GLG Funds and investors with managed accounts
may generally redeem their investments with only short periods
of notice. Investors may reduce the aggregate amount of their
investments, or transfer their investments to other funds or
asset managers with different fee rate arrangements, for any
number of reasons, including investment performance, changes in
prevailing interest rates and financial market performance, or
for no reason. If interest rates are rising
and/or stock
markets are declining, the pace of fund and managed account
redemptions could accelerate. Redemptions of investments in the
GLG Funds could also take place more quickly than assets may be
sold on account of those funds to meet the price of such
redemptions, which could result in the relevant funds
and/or our
being in breach of applicable legal, regulatory and contractual
requirements in relation to such redemptions, resulting in
possible regulatory and stockholder actions against us
and/or the
GLG Funds. Any such action could potentially cause further
redemptions
and/or make
it more difficult to attract new investors. The redemption of
investments in the GLG Funds or in managed accounts could
adversely affect our revenues, which are substantially dependent
upon the AUM in the GLG Funds. If redemptions of investments
cause our revenues to decline, they could have a material
adverse effect on our business, results of operations or
financial condition.
As a result of the recent market developments and the potential
for increased and continuing disruptions and the resulting
uncertainty, we have recently experienced an increase in the
level of redemptions from the GLG Funds and managed accounts.
Redemption rates may stay elevated globally while market
conditions remain unsettled. If the level of redemption activity
persists at above normal levels, it could become more difficult
to manage the liquidity requirements of the GLG Funds, making it
more difficult or more costly for the GLG Funds to liquidate
positions rapidly to meet margin calls, redemption requests or
otherwise. In addition to the impact on the market value of AUM,
the illiquidity and volatility of the global financial markets
have negatively affected our ability to manage inflows and
outflows from the GLG Funds. Our ability to attract new capital
to existing GLG Funds or to develop investment platforms may be
limited during this period. The temporary closures of securities
exchanges in certain foreign markets, such as Brazil and Russia,
could further negatively impact the liquidity of the GLG Funds
that invest in those markets. Under the terms of the
prospectuses for the GLG Funds, the respective boards of
directors of the GLG Funds have the right to restrict
redemptions from the GLG Funds for certain periods in the event
of exceptional circumstances. Several alternative asset
managers, including us, have recently exercised similar rights
with respect to the funds they manage and we have and may in the
future recommended that the boards of directors of certain of
the GLG Funds exercise the rights available to them. The
exercise of these rights may have an adverse effect on the
ability of the GLG Funds to attract additional AUM.
If the GLG Funds or managed accounts underperform, existing fund
investors may decide to reduce or redeem their investments or
transfer asset management responsibility to other asset managers
and we may be unable to obtain new asset management business.
Poor performance relative to other asset management firms
29
may result in reduced investments in the GLG Funds and managed
accounts and increased redemptions from the GLG Funds and
managed accounts. As a result, investment underperformance could
have a material adverse effect on our business, results of
operations or financial condition.
We may
face further redemptions from the GLG Funds and managed accounts
for reasons not specifically related to investment performance,
which may further reduce AUM or adversely impact our ability to
attract new investments, resulting in a material adverse effect
on our business, results of operations or financial
condition.
Investors worldwide have reduced or eliminated their investments
in many asset classes as confidence in the global financial
system has eroded. These actions have resulted in increased
redemptions for the asset management industry worldwide,
including hedge funds. Redemption rates may stay elevated
globally while market conditions remain unsettled. The GLG Funds
and managed accounts are not immune to this trend and
significant, additional redemptions from the GLG Funds and
managed accounts that are not specifically related to investment
performance may occur, which would reduce our AUM. For example,
to the extent the GLG Funds have fund of hedge fund investments
from aggregators who are themselves faced with client
redemptions, those aggregators may choose to or be forced to
redeem from the GLG Funds to obtain liquidity for their
redeeming clients. In addition, our ability to attract new
capital to existing GLG Funds or developing investment platforms
may be limited during this period.
We are
dependent on the continued services of our Principals and other
key personnel. The loss of key personnel could have a material
adverse effect on us.
Our Principals and other key personnel have contributed to the
growth and success of our business. We are dependent on the
continued services of Messrs. Gottesman, Roman and Lagrange
and other key personnel for our future success. The loss of any
Principal or other key personnel may have a significant effect
on our business, results of operations or financial condition.
The market for experienced asset management professionals is
extremely competitive and can be characterized by frequent
movement of employees among firms. Due to the competitive market
for asset management professionals and the success achieved by
some of our key personnel, the costs to attract and retain key
personnel are significant and could increase over time. In
particular, if we lose any of our Principals or other key
personnel, there is a risk that we may also experience outflows
from AUM or fail to obtain new business. For example, the April
2008 announcement of the departure of the previous portfolio
manager of the GLG Emerging Markets Fund and three other
emerging markets funds in October 2008 contributed to the
decline in our net AUM and, together with the performance
of these funds, resulted in the redemption of approximately
$4.4 billion from these GLG Funds during 2008. The
inability to attract or retain the necessary highly skilled key
personnel could have a material adverse effect on our business,
results of operations or financial condition.
The
cost of compliance with international employment, labor,
benefits and tax regulations may adversely increase our costs,
affect our revenue and impede our ability to expand
internationally.
Since we operate our business internationally, we are subject to
many different employment, labor, benefit and tax laws in each
country in which we operate, including laws and regulations
affecting employment practices and our relations with the
Principals and some of our key personnel who participate in the
limited partner profit share arrangement. If we are required to
comply with new regulations or new or different interpretations
of existing regulations, or if we are unable to comply with
these regulations or interpretations, our business could be
adversely affected, or the cost of compliance may make it
difficult to expand into new international markets, or we may be
liable for additional costs, such as social security or social
insurance, which may be substantial. Additionally, our
competitiveness in international markets may be adversely
affected by regulations requiring, among other things, the
awarding of contracts to local contractors, the employment of
local citizens
and/or the
purchase of services from local businesses or that favor or
require local ownership.
30
If we
experience rapid growth, whether through attracting new
investments, acquiring other asset management businesses or
otherwise, it may place significant demands on our
administrative, operational and financial
resources.
Rapid growth may cause significant demands on our legal,
accounting, technology and operational infrastructure and
increased expenses. The complexity of these demands, and the
expense required to address them, may be a function not only of
the amount by which our AUM have grown, but of significant
differences in the investing strategies of our different funds.
In addition, we are required to continuously develop our systems
and infrastructure in response to the increasing sophistication
of the investment management market and legal, accounting and
regulatory developments. Our future growth depends, among other
things, on our ability to maintain an operating platform and
management system sufficient to address our growth and requires
us to incur significant additional expenses and commit
additional senior management and operational resources. As a
result, we face significant challenges:
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in maintaining adequate financial and business controls;
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in implementing new or updated information and financial systems
and procedures; and
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in training, managing and appropriately sizing our work force
and other components of our business on a timely and
cost-effective basis.
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During 2008, we added a number of new portfolio managers for the
GLG Funds, including for the emerging markets, macro, distressed
debt and special situations strategies. In December 2008, we
agreed to acquire Société Générale Asset
Management UK (SGAM UK), Société
Générales UK long-only asset management
business, which is expected to be completed in March 2009. The
acquisition includes SGAM UKs operations, which had
approximately $8.5 billion of AUM as of December 31,
2008, and its investment and support staff, based primarily in
London. In January 2009, we announced that GLG Partners LP will
become the investment manager of the funds and accounts managed
by Pendragon Capital, whose founders will be joining GLG
Partners LP as portfolio managers, subject to the consent of
Pendragons investors, which we anticipate will be obtained
prior to the end of the first quarter of 2009. Integrating these
new portfolio managers and their teams, operations, funds and
accounts may be expensive, time-consuming and a further strain
on our resources and may not be successful. The diversion of
managements attention and any delays or difficulties
encountered in connection with these acquisitions and the
integration of these portfolio managers, operations, funds and
accounts may have an adverse effect on our business, results of
operations or financial condition.
There can be no assurance that we will be able to manage our
growth, acquisitions or expanding operations effectively or that
we will be able to continue to grow, and any failure to do so
could adversely affect our ability to generate revenue and
control our expenses.
There
can be no assurance that our expansion into the United States or
other markets will be successful.
While we are currently in the process of developing distribution
capability in the United States, the Middle East and Asia,
expanding our operations into the United States or other markets
will be difficult due to a number of factors, including the fact
that several of these markets are well-developed, with
established competitors and different regulatory regimes. Our
failure to continue to grow our revenues (whether or not as a
result of a failure to increase AUM), expand our business or
control our cost base could have a material adverse effect on
our business, results of operations or financial condition.
Damage
to our reputation, including as a result of personnel
misconduct, failure to manage inside information, fraud,
restricting redemptions from certain GLG Funds or side-pocketing
certain illiquid private placement investments, could have a
material adverse effect on our business.
Our reputation is one of our most important assets. Our
relationships with individual and institutional investors and
other significant market participants are very important to our
business. Any deterioration in our reputation held by one or
more of these market participants could lead to a loss of
business or a failure to win new fund mandates. For example, we
are exposed to the risk that litigation, regulatory action,
misconduct,
31
operational failures, negative publicity or press speculation,
whether or not valid, could harm our reputation. Factors that
could adversely affect our reputation include but are not
limited to:
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fraud, misconduct or improper practice by any of our personnel,
including failure to comply with applicable regulations or
non-adherence by a portfolio manager to the investment
guidelines applicable to each GLG Fund. Such actions can be
particularly detrimental in the provision of financial services
and could involve, for example, fraudulent transactions entered
into for a clients account, diversion of funds, the
intentional or inadvertent release of confidential information
or failure to follow internal procedures. Such actions could
expose us to financial losses resulting from the need to
reimburse customers or other business partners or as a result of
fines or other regulatory sanctions, and may significantly
damage our reputation;
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failure to manage inside information. We frequently trade in
multiple securities of the same issuer. In the course of
transactions involving these securities, we may receive inside
information in relation to certain issuers. If we do not
sufficiently control the use of this inside information or any
other inside information we receive, we
and/or our
employees could be subject to investigation and criminal or
civil liability;
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failure to manage conflicts of interest. As we have expanded the
scope of our business and client base, we have been increasingly
exposed to potential conflicts of interest. If we fail, or
appear to fail, to deal appropriately with conflicts of
interest, we could face significant damage to our reputation,
litigation or regulatory proceedings or penalties;
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restricting redemptions from certain GLG Funds. The GLG Funds
have the right to restrict redemptions from the GLG Funds for
certain periods in the event of exceptional circumstances. The
exercise of these rights to restrict redemptions may be
perceived as a weakness and fund investors may suffer a reduced
ability to withdraw their original investments in the affected
GLG Funds, resulting in significant reputational damage and
could lead to a reduction in investments in the GLG Funds and
hinder our ability to attract new investments. In addition, it
may prompt fund investors to redeem their existing investments
in other GLG Funds that have not elected to exercise these
rights; and
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side-pocketing certain illiquid private placement and other not
readily realizable investments. Certain GLG Funds have and may
in the future side-pocket certain private placement and other
not readily realizable investments into separate special asset
vehicles, providing investors with illiquid interests in the new
special asset vehicles in lieu of returning their invested
capital. As fund investors suffer a reduced ability to withdraw
their original investments from the GLG Funds due to this side
pocketing, our reputation may be subject to substantial damage.
This reputational harm may hinder our ability to obtain new
investments and may prompt investors to redeem their existing
investments in other GLG Funds or managed accounts.
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Damage to our reputation as a result of these or other factors
could have a material adverse effect on our business, results of
operations or financial condition.
Operational
risks may disrupt our business, result in losses or limit our
growth.
We rely heavily on our financial, accounting and other data
processing systems. If any of these systems do not operate
properly or are disabled, we could suffer financial loss, a
disruption of our business, liability to the GLG Funds,
regulatory intervention or reputational damage.
In addition, we operate in a business that is highly dependent
on information systems and technology. Our information systems
and technology may not continue to be able to accommodate our
growth, and the cost of maintaining such systems may increase
from its current level. Such a failure to accommodate growth, or
an increase in costs related to such information systems, could
have a material adverse effect on us.
Furthermore, we depend on our office in London, where most of
our personnel are located, for the continued operation of our
business. A disaster or a disruption in the infrastructure that
supports our business, including a disruption involving
electronic communications or other services used by us or third
parties with
32
whom we conduct our business, or directly affecting our London
office, could have a material adverse impact on our ability to
continue to operate our business without interruption. Our
disaster recovery programs may not be sufficient to mitigate the
harm that may result from such a disaster or disruption. In
addition, insurance and other safeguards might only partially
reimburse us for our losses, if at all.
Through outsourcing arrangements, we and the GLG Funds rely on
third-party administrators and other providers of middle-and
back-office support and development functions, such as prime
brokers, custodians, market data providers and certain risk
system, portfolio and management and telecommunications system
providers. Any interruption in our ability to rely on the
services of these third parties or deterioration in their
performance could impair the quality (including the timing) of
our services. Furthermore, if the contracts with any of these
third-party providers are terminated, we may not find
alternative outsource service providers on a timely basis or on
equivalent terms. The occurrence of any of these events could
have a material adverse effect on our business, results of
operations or financial condition.
Our
business may suffer as a result of loss of business from key
private and institutional investors.
We generate a significant proportion of our revenue from a small
number of our top clients. As of December 31, 2008, the
assets of our top individual client accounted for approximately
5% of our net AUM. As of December 31, 2008, our
largest institutional investor account represented approximately
10% of our net AUM, with the top five accounts collectively
contributing approximately 23% of our net AUM. The loss of
all or a substantial portion of the business provided by one or
more of these clients would have a material impact on the income
we derive from management and performance fees and consequently
have a material adverse effect on our business, results of
operations or financial condition. We may be subject to
regulatory investigation or enforcement action or a change in
regulation in the jurisdictions in which we operate.
We are
subject to substantial litigation and regulatory enforcement
risks, and we may face significant liabilities and damage to our
professional reputation as a result of litigation allegations or
regulatory investigations and the attendant negative
publicity.
The investment decisions we make in our asset management
business subject us to the risk of regulatory investigations and
enforcement actions in connection with our investment
activities, as well as third-party litigation arising from
investor dissatisfaction with the performance of those
investment funds and a variety of other litigation claims. In
general, we are exposed to risk of litigation by GLG Fund
investors if a GLG Fund suffers losses resulting from the
negligence, willful default, bad faith or fraud of the manager
or the service providers to whom the manager has delegated
responsibility for the performance of its duties. We have in the
past been, and we may in the future be, the subject of
investigations and enforcement actions by regulatory authorities
resulting in fines and other penalties, which may be harmful to
our reputation, as well as our business, results of operations
or financial condition.
On June 21, 2007, the Autorité des Marchés
Financiers (AMF), the French securities regulator,
imposed a fine of 1.5 million ($2.0 million)
against us in connection with our trading in the shares of
Vivendi Universal S.A. (Vivendi) based on
confidential information prior to a November 14, 2002
issuance of Vivendi notes which are mandatorily redeemable for
Vivendi convertible securities. We appealed this decision to the
Court of Appeals (First Chamber) in Paris and the Conseil
dEtat on August 21, 2007. On November 26, 2008,
the Court of Appeals issued a ruling dismissing our appeal.
On January 25, 2008, the AMF notified us of proceedings
relating to GLGs trading in the shares of Infogrames
Entertainment (Infogrames) on February 8 and 9,
2006, prior to the issuance by Infogrames on February 9,
2006 of a press release announcing poor financial results. The
AMFs decision to initiate an investigation into GLGs
trades in Infogrames was based on a November 19, 2007
report prepared by the AMFs Department of Market
Investigation and Supervision (the Infogrames
Report). According to the Infogrames Report, the trades
challenged by the AMF generated an unrealized capital gain for
GLG as of the opening on February 10, 2006 of
179,000. The AMF investigation of us relates solely to the
conduct of a former employee; however, we were named as the
respondent. If sustained, the charge against us could give rise
to an administrative fine under French securities laws.
33
As a result of regulatory actions, increased litigation in the
financial services industry or other reasons, we could be
subject to civil liability, criminal liability or sanctions
(including revocation of the licenses of our employees or
limited partners), censures fines, or temporary suspension or
permanent bar from conducting business. Regulatory proceedings
could also result in adverse publicity or negative perceptions
regarding our business and divert managements attention
from the day-to-day management of our business. Any regulatory
investigations, proceedings, consequent liabilities or sanctions
could have a material adverse effect on our business, results of
operations or financial condition.
In addition, we are exposed to risks of litigation or
investigation relating to transactions which present conflicts
of interest that are not properly addressed. In such actions, we
would be obligated to bear legal, settlement and other costs
(which may be in excess of available insurance coverage).
Although we would be indemnified by the GLG Funds, our rights to
indemnification may be challenged. If we are required to incur
all or a portion of the costs arising out of litigation or
investigations as a result of inadequate insurance proceeds or
failure to obtain indemnification from the GLG Funds, our
results of operations, financial condition and liquidity would
be materially adversely affected. Each of the GLG Funds is
structured as a limited liability company, incorporated in the
Cayman Islands, Ireland or Luxembourg. The laws of these
jurisdictions, particularly with respect to shareholders rights,
partner rights and bankruptcy, differ from the laws of the
United States and could change, possibly to the detriment of the
GLG Funds and us.
We are
subject to intense competition and could lose business to our
competitors.
The asset management industry is extremely competitive.
Competition includes numerous national, regional and local asset
management firms and broker-dealers, commercial bank and thrift
institutions, and other financial institutions. Many of these
organizations offer products and services that are similar to,
or compete with, those offered by us and have substantially more
personnel and greater financial resources than we do. Our key
areas for competition include historical investment performance,
our ability to source investment opportunities, our ability to
attract and retain the best investment professionals, quality of
service, the level of fees generated or earned by our managers
and our investment managers stated investment strategy. We
also compete for investment assets with banks, insurance
companies and investment companies. Our ability to compete may
be adversely affected if we underperform in comparison to
relevant benchmarks or peer groups.
The competitive market environment may result in increased
pressure on revenue margins (e.g., by the provision of
management fee rebates). Our profit margins and earnings are
dependent in part on our ability to maintain current fee levels
for the products and services that we offer. In the current
environment, many competitor asset managers have experienced
substantial declines in investment performance, increased
redemptions, or counterparty exposures which impair their
businesses. Some of these asset managers have reduced their fees
in an attempt to avoid additional redemptions. Competition
within the alternative asset management industry could lead to
pressure on us to reduce the fees that we charge our clients for
products and services. A failure to compete effectively in this
environment may result in the loss of existing clients and
business, and of opportunities to capture new business, each of
which could have a material adverse effect on our business,
results of operations or financial condition.
Furthermore, consolidation in the asset management industry may
accelerate, as many asset managers are unable to withstand the
substantial declines in investment performance, increased
redemptions, and other pressures impacting their businesses,
including increased regulatory, compliance and control
requirements. Some of our competitors may acquire or combine
with other competitors. The combined business may have greater
resources than we do and may be able to compete more effectively
against us and acquire rapidly significant market share.
Certain
of our investment management and advisory agreements are subject
to termination on short notice.
Institutional and individual clients, and firms and agencies
with which we have strategic alliances, can terminate their
relationships with us for various reasons, including
unsatisfactory investment performance,
34
interest rate changes and financial market performance.
Termination of these relationships could have a material adverse
effect on our business, results of operations and financial
condition. Each of the GLG Funds has appointed either GPCL (in
the case of Cayman Islands funds and the Luxembourg fund) or
GPAM (in the case of the Irish funds) as the manager under the
terms of a management agreement, which is terminable on
30 days written notice by either party (i.e.,
the fund or the manager). The articles of association of each
GLG Fund provide that the fund cannot terminate the management
agreement unless holders of not less than 50% of the outstanding
issued share capital have previously voted in favor of the
termination at a general meeting of the fund. For each GLG Fund,
the manager has appointed GLG Partners LP as investment manager
under the terms of an investment management agreement, which is
terminable on 30 days written notice by either party
(i.e., the manager or the investment manager).
The
historical returns attributable to the GLG Funds may not be
indicative of our future results or of any returns expected on
an investment in our common stock.
The historical and potential future returns of the GLG Funds are
not directly linked to returns on our capital. Therefore, you
should not conclude that continued positive performance of the
GLG Funds will necessarily result in positive returns on an
investment in our common stock. However, poor performance of the
GLG Funds would cause a decline in our revenue from such funds,
and would therefore have a negative effect on our performance
and in all likelihood the returns on an investment in our common
stock.
Our
insurance arrangements may not be adequate to protect
us.
Our business entails the risk of liability related to litigation
from clients or third-party vendors and actions taken by
regulatory agencies. There can be no assurance that a claim or
claims will be covered by insurance or, if covered, will not
exceed the limits of available insurance coverage, or that any
insurer will remain solvent and will meet its obligations to
provide us with coverage or that insurance coverage will
continue to be available with sufficient limits at a reasonable
cost. Renewals of insurance policies may expose us to additional
costs through higher premiums or the assumption of higher
deductibles or co-insurance liability. The future costs of
maintaining insurance or meeting liabilities not covered by
insurance could have a material adverse effect on our business,
results of operations or financial condition.
We use
substantial amounts of leverage to finance our business, which
exposes us to substantial risks.
We have used a significant amount of borrowings to finance our
business operations as a public company, including for the
provision of working capital, warrant and share repurchases,
making minimum tax distributions and limited partner profit
share distributions, acquisition financing and general business
purposes. This exposes us to the typical risks associated with
the use of substantial leverage, including those discussed below
under Risks Related to the GLG
Funds There are risks associated with the GLG
Funds use of leverage. These risks could result in
an increase in our borrowing costs and could otherwise adversely
affect our business in a material way. In addition, when our
credit facilities expire, we will need to negotiate new credit
facilities with our existing lender, replace them by entering
into credit facilities with new lenders or find other sources of
liquidity, and there is no guarantee that we will be able to do
so on attractive terms or at all, particularly given the current
crisis in the credit markets. See Part II, Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources for a further discussion of our
liquidity.
An
increase in our borrowing costs may adversely affect our
earnings and liquidity.
We have borrowed an aggregate of $570.0 million under our
revolving credit and term loan facilities. When these facilities
become due on November 2, 2012, we will be required to
refinance them by entering into new credit facilities or issuing
debt securities, which could result in higher borrowing costs,
or issuing equity, which would dilute existing stockholders. We
could also repay the revolving credit and term loan facilities
by using cash on hand or cash from the sale of our assets. No
assurance can be given that we will be able to enter into new
credit facilities or issue debt or equity securities in the
future on attractive terms, or at
35
all, particularly given the current crisis in the credit
markets, or that we will have sufficient cash on hand to repay
the revolving credit and term loan facilities.
The term loans and revolving loans bear interest at a floating
interest rate (currently 4.255%) based on
1-month
LIBOR plus the applicable margin (currently 1.125%) based on
certain financial ratios applicable to us and our consolidated
subsidiaries. As such, the interest expense we incur will vary
with changes in the applicable base rate. An increase in
interest rates would adversely affect the market value of any
fixed-rate debt investments
and/or
subject them to prepayment or extension risk, which may
adversely affect our earnings and liquidity.
If we
were deemed an investment company under the
Investment Company Act, applicable restrictions could make it
impractical for us to continue our business as contemplated and
could have a material adverse effect on our
business.
A person will generally be deemed to be an investment
company for purposes of the Investment Company Act, if:
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it is or holds itself out as being engaged primarily, or
proposes to engage primarily, in the business of investing,
reinvesting or trading in securities; or
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absent an applicable exemption, it owns or proposes to acquire
investment securities having a value exceeding 40% of the value
of its total assets (exclusive of U.S. government
securities and cash items) on an unconsolidated basis.
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We believe that we are engaged primarily in the business of
providing asset management and financial advisory services and
not in the business of investing, reinvesting or trading in
securities. We also believe that the primary source of income
from our business will be properly characterized as income
earned in exchange for the provision of services. We are an
asset management and financial advisory firm and do not propose
to engage primarily in the business of investing, reinvesting or
trading in securities. Accordingly, we do not believe that we
are an orthodox investment company as defined in
Section 3(a)(1)(A) of the Investment Company Act and
described in the first bullet point above. Further, we have no
material assets other than our equity interests in our
subsidiaries, which in turn have no material assets, other than
equity interests in other subsidiaries and inter-company debt.
We do not believe our equity interests in our subsidiaries or
the equity interests of these subsidiaries in our subsidiaries
are investment securities. Moreover, because we believe that the
subscriber shares in certain GLG Funds are neither securities
nor investment securities, we believe that less than 40% of our
total assets (exclusive of U.S. government securities and
cash items) on an unconsolidated basis are comprised of assets
that could be considered investment securities. Accordingly, we
do not believe that we are an inadvertent investment company by
virtue of the 40% test in Section 3(a)(1)(C) of the
Investment Company Act as described in the second bullet point
above.
The Investment Company Act and the rules thereunder contain
detailed parameters for the organization and operation of
investment companies. Among other things, the Investment Company
Act and the rules thereunder limit prohibited transactions with
affiliates, impose limitations on the issuance of debt and
equity securities, generally prohibit the issuance of options
and impose certain governance requirements. We intend to conduct
our operations so that we will not be deemed to be an investment
company under the Investment Company Act. If anything were to
happen which would cause us to be deemed to be an investment
company under the Investment Company Act, requirements imposed
by the Investment Company Act, including limitations on our
capital structure, ability to transact business with affiliates
(including our subsidiaries) and ability to compensate key
employees, could make it impractical for us to continue our
business as currently conducted, impair the agreements and
arrangements between and among us, our subsidiaries and our
senior managing directors, or any combination thereof, and
materially adversely affect our business, financial condition
and results of operations. In addition, we may be required to
limit the amount of investments that we make as a principal or
otherwise conduct our business in a manner that does not subject
us to the registration and other requirements of the Investment
Company Act.
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Recently, legislation was proposed in the U.S. that would
subject hedge funds and private investment funds to increased
SEC regulation and oversight by removing the exceptions from the
definition of investment company typically relied
upon by hedge funds to avoid any of the requirements of the
Investment Company Act and instead replacing them with
exemptions from certain of the requirements of the Investment
Company Act. As a result, these hedge funds and private
investment funds would be investment companies for
purposes of the Investment Company Act. The proposed legislation
would require that hedge funds or private investment funds that
are investment companies with at least
$50 million in assets or AUM must meet the following
additional conditions in order to maintain the exemption under
the Investment Company Act:
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registration with the SEC;
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maintaining books and records required by the SEC;
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cooperation with SEC examination or information requests;
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filing of annual public information statements which would
include, among other things:
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the names and addresses of beneficial owners, any company with
an ownership interest in the fund and the funds primary
accountant and primary broker;
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an explanation of the structure of ownership in the fund;
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a statement of any minimum required investment;
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the total number of limited partners, members or other
investors; and
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the current value of the funds assets and AUM; and
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the establishment of certain anti-money laundering programs,
policies and procedures that are reasonably designed to identify
non-U.S. investors
and their beneficial owners.
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Should this legislation be adopted, the GLG Funds may become
subject to these additional registration, reporting and other
requirements. As a result, our compliance costs and burdens may
increase and the additional restrictions and requirements may
constrain our ability to conduct our business as currently
conducted, which may adversely affect our business, results of
operations or financial condition.
We and
the GLG Funds may become subject to additional regulations which
could increase the costs and burdens of compliance or impose
additional restrictions which could have a material adverse
effect on our business and the performance of the GLG
Funds.
We may need to modify our strategies, businesses or operations,
face increased constraints or incur additional costs in order to
satisfy new regulatory requirements or to compete in a changed
business environment.
Our business is subject to regulation by various regulatory
authorities that are charged with protecting the interests of
our customers. The activities of certain GLG entities are
regulated primarily by the FSA in the United Kingdom and are
also subject to regulation in the various other jurisdictions in
which it operates, including the IFSRA, the CIMA and the
Commission de Surveillance du Secteur Financier in Luxembourg.
The activities of GLG Inc. are regulated by the SEC following
its registration as a U.S. investment adviser in January
2008. In addition, the GLG Funds are subject to regulation in
the jurisdictions in which they are organized. These and other
regulators in these jurisdictions have broad regulatory powers
dealing with all aspects of financial services including, among
other things, the authority to make inquiries of companies
regarding compliance with applicable regulations, to
grant and in specific circumstances to vary or
cancel permits and to regulate marketing and sales
practices, advertising and the maintenance of adequate financial
resources. We are also subject to applicable anti-money
laundering regulations and net capital requirements in the
jurisdictions in which we operate.
37
In addition, the regulatory environment in which we operate
frequently changes and has seen significant increased regulation
in recent years. We may be materially adversely affected as a
result of new or revised legislation or regulations or by
changes in the interpretation or enforcement of existing laws
and regulations.
Our industry has been and may continue to be subject to
increased regulation and public scrutiny. Such additional
regulation could, among other things, increase our compliance
costs or limit our ability to pursue investment opportunities.
Recent rulemaking by the SEC, FSA and other regulatory
authorities outside the United States and the United Kingdom,
have imposed trading restrictions and reporting requirements on
short selling, which have impacted certain of the investment
strategies of the GLG Funds and managed accounts, and continued
restrictions on or further regulations of short sales could
negatively impact the performance of the GLG Funds and managed
accounts.
Risks
Related to the GLG Funds
We currently derive our revenues from management fees and
administration fees based on the value of the assets under
management in the GLG Funds and the accounts managed by us, and
performance fees based on the performance of the GLG Funds and
the accounts managed by us. Our stockholders are not investors
in the GLG Funds and the accounts managed by us, but rather
stockholders of an alternative asset manager. Our revenues could
be adversely affected by many factors that could reduce assets
under management or negatively impact the performance of the GLG
Funds and accounts managed by us.
Valuation
methodologies for certain assets in the GLG Funds can be subject
to significant subjectivity.
In calculating the net asset values of the GLG Funds,
administrators of the GLG Funds may rely on methodologies for
calculating the value of assets in which the GLG Funds invest
that we or other third parties supply. Such methodologies are
advisory only but are not verified in advance by us or any third
party, and the nature of some of the funds investments is
such that the methodologies may be subject to significant
subjectivity and little verification or other due diligence and
may not comply with generally accepted accounting practices or
other valuation principles. Any allegation or finding that such
methodologies are or have become, in whole or in part, incorrect
or misleading could have an adverse effect on the valuation of
the relevant GLG Funds and, accordingly, on the management fees
and any performance fees receivable by us in respect of such
funds.
Some
of the GLG Funds and managed accounts are subject to emerging
markets risks.
Some of the GLG Funds and managed accounts invest in sovereign
debt issues by emerging market countries as well as in debt and
equity investments of companies and other entities in emerging
markets. Many emerging markets are developing both economically
and politically and may have relatively unstable governments and
economies based on only a few commodities or industries. Many
emerging market countries do not have firmly established product
markets, and companies may lack depth of management or may be
vulnerable to political or economic developments such as
nationalization of key industries. Investments in companies and
other entities in emerging markets and investments in emerging
market sovereign debt may involve a high degree of risk and may
be speculative. Risks include (1) greater risk of
expropriation, confiscatory taxation, nationalization, social
and political instability (including the risk of changes of
government following elections or otherwise) and economic
instability; (2) the relatively small current size of some
of the markets for securities and other investments in emerging
markets issuers and the current relatively low volume of
trading, resulting in lack of liquidity and in price volatility;
(3) certain national policies which may restrict a GLG
Funds or a managed accounts investment opportunities
including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; (4) the
absence of developed legal structures governing private or
foreign investment and private property; (5) the potential
for higher rates of inflation or hyper-inflation;
(6) currency risk and the imposition, extension or
continuation of foreign exchange controls; (7) interest
rate risk; (8) credit risk; (9) lower levels of
democratic accountability; (10) differences in accounting
standards and auditing practices which may result in unreliable
financial information; and (11) different corporate
governance frameworks. The emerging markets risks described
above increase counterparty risks for the GLG Funds and managed
accounts investing in those markets. In addition, investor
38
risk aversion to emerging markets can have a significant adverse
affect on the value
and/or
liquidity of investments made in or exposed to such markets and
can accentuate any downward movement in the actual or
anticipated value of such investments which is caused by any of
the factors described above.
Emerging markets are characterized by a number of market
imperfections, analysis of which requires experience in the
market and a range of complementary specialist skills. These
inefficiencies include (1) the effect of politics on
sovereign risk and asset price dynamics; and
(2) institutional imperfections in emerging markets, such
as deficiencies in formal bureaucracies, historical or cultural
norms of behavior and access to information driving markets.
While we seek to take advantage of these market imperfections to
achieve investment performance for the GLG Funds and managed
accounts, we cannot guarantee that will be able do so in the
future. A failure to do so could have a material adverse effect
on our business, growth prospects, net inflows of AUM, revenues,
results of operations
and/or
financial condition.
Many
of the GLG Funds invest in foreign countries and securities of
issuers located outside of the United States and the United
Kingdom, which may involve foreign exchange, political, social
and economic uncertainties and risks.
Many of the GLG Funds invest a portion of their assets in the
equity, debt, loans or other securities of issuers located
outside the United States and the United Kingdom. In addition to
business uncertainties, such investments may be affected by
changes in exchange values as well as political, social and
economic uncertainty affecting a country or region. Many
financial markets are not as developed or as efficient as those
in the United States and the United Kingdom, and as a result,
liquidity may be reduced and price volatility may be higher. The
legal and regulatory environment may also be different,
particularly with respect to bankruptcy and reorganization.
Financial accounting standards and practices may differ, and
there may be less publicly available information in respect of
such companies.
Restrictions imposed or actions taken by foreign governments may
adversely impact the value of our fund investments. Such
restrictions or actions could include exchange controls, seizure
or nationalization of foreign deposits and adoption of other
governmental restrictions which adversely affect the prices of
securities or the ability to repatriate profits on investments
or the capital invested itself. Income received by the GLG Funds
from sources in some countries may be reduced by withholding and
other taxes. Any such taxes paid by a GLG Fund will reduce the
net income or return from such investments. While the GLG Funds
will take these factors into consideration in making investment
decisions, including when hedging positions, no assurance can be
given that the GLG Funds will be able to fully avoid these risks
or generate sufficient risk-adjusted returns.
There
are risks associated with the GLG Funds investments in
high yield and distressed debt.
The GLG Funds may invest in obligors and issuers in weak
financial condition, experiencing poor operating results, having
substantial financial needs or negative net worth, facing
special competitive problems, or in obligors and issuers that
are involved in bankruptcy or reorganization proceedings. Among
the problems involved in investments in troubled obligors and
issuers is the fact that it may frequently be difficult to
obtain full information as to the conditions of such obligors
and issuers. The market prices of such investments are also
subject to abrupt and erratic market movements and significant
price volatility, and the spread between the bid and offer
prices of such investments may be greater than normally
expected. It may take a number of years for the market price of
such investments to reflect their intrinsic value. Some of the
investments held by the GLG Funds may not be widely traded, and
depending on the investment profile of a particular GLG Fund,
that funds exposure to such investments may be substantial
in relation to the market for those investments. In addition,
there is no recognized market for some of the investments held
in GLG Funds, with the result that such investments are likely
to be illiquid. As a result of these factors, the investment
objectives of the relevant funds may be more difficult to
achieve.
39
Fluctuations
in interest rates may significantly affect the returns derived
from the GLG Funds investments.
Fluctuations in interest rates may significantly affect the
return derived from investments within the GLG Funds, as well as
the market values of, and the corresponding levels of gains or
losses on, such investments. Such fluctuations could materially
adversely affect investor sentiment towards fixed income and
convertible debt instruments generally and the GLG Funds in
particular and consequently could have a material adverse effect
on our business, results of operations or financial condition.
The
GLG Funds are subject to risks due to potential illiquidity of
assets.
The GLG Funds may make investments or hold trading positions in
markets that are volatile and which may become illiquid. Timely
divestiture or sale of trading positions can be impaired by
decreased trading volume, increased price volatility,
concentrated trading positions, limitations on the ability to
transfer positions in highly specialized or structured
transactions to which it may be a party, and changes in industry
and government regulations. It may be impossible or costly for
the GLG Funds to liquidate positions rapidly in order to meet
margin calls, redemption requests or otherwise, particularly if
there are other market participants seeking to dispose of
similar assets at the same time or the relevant market is
otherwise moving against a position or in the event of trading
halts or daily price movement limits on the market or otherwise.
Moreover, these risks may be exacerbated for the GLG Funds that
are funds of hedge funds. For example, if one of these funds of
hedge funds were to invest a significant portion of its assets
in two or more hedge funds that each had illiquid positions in
the same issuer, the illiquidity risk for these funds of hedge
funds would be compounded.
There
are risks associated with the GLG Funds use of
leverage.
The GLG Funds have, and may in the future, use leverage by
borrowing on the account of funds on a secured
and/or
unsecured basis and pursuant to repurchase arrangements
and/or
deferred purchase agreements. Leverage can also be employed in a
variety of other ways including margining (that is, an amount of
cash or securities an investor deposits with a broker when
borrowing to buy investments) and the use of futures, warrants,
options and other derivative products. Generally, leverage is
used with the intention of increasing the overall level of
investment in a fund. Higher investment levels may offer the
potential for higher returns. This exposes investors to
increased risk as leverage can increase the funds market
exposure and volatility. For instance, a purchase or sale of a
leveraged investment may result in losses in excess of the
amount initially deposited as margin for the investment. This
increased market exposure and volatility could have a material
adverse effect on the return of the funds.
In the
current tight credit environment, the GLG Funds and accounts we
manage may not be able to obtain credit for leveraging or
hedging purposes at the same level or cost as they have in the
past, which could have a material adverse effect on the
performance of the GLG Funds and managed accounts.
Following the failure of Lehman Brothers and the acquisitions of
Bear Stearns and Merrill Lynch, there has been a significant
consolidation in the financial services industry and there are
fewer prime brokers available to service hedge funds and other
investment funds. The remaining prime brokers are reducing
significantly the amount of credit available to such funds,
including the GLG Funds and managed accounts, for leveraging or
hedging purposes or imposing stricter margin and other terms on
such borrowings. As a result, the GLG Funds and managed accounts
may not be able to employ leveraging or hedging strategies to
the same degree as in the past to increase the overall level of
investments in the funds to generate higher returns or to use
futures, warrants, options and other derivative products to
hedge those investments. In addition, the increased financing
costs of employing such leveraging or hedging strategies may
partially or entirely offset any potential performance gains to
be derived from the leveraging or hedging strategy employed by
the GLG Funds and managed accounts. These limitations and costs
could have a material adverse effect on the returns generated by
the GLG Funds and managed accounts.
40
In addition, the special assets vehicles into which certain
private placement and other not readily realizable investments
in the portfolios of several of the GLG Funds were contributed
may not be able to obtain credit to implement hedging strategies
with regard to these investments to the same extent as when
these investments formed part of the portfolios of the main GLG
Funds. The inability to hedge these investments could negatively
impact the investment returns obtained by the special assets
vehicles. Previously, when these investments were included in
the broader portfolio of a particular GLG Fund, the GLG Fund was
able to borrow against those investments in order to implement
its leveraging and hedging strategies.
There
are risks associated with the GLG Funds investments in
derivatives.
The GLG Funds may make investments in derivatives. These
investments are subject to a variety of risks. Examples of such
risks may include, but are not limited to:
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limitation of risk assessment methodologies. Decisions to enter
into these derivatives and other securities contracts will be
based on estimates of returns and probabilities of loss derived
from our own calculations and analysis. There can be no
assurance that the estimates or the methodologies, or the
assumptions which underlie such estimates and methodologies,
will turn out to be valid or appropriate;
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risks underlying the derivative and securities contracts. A
general rise in the frequency, occurrence or severity of certain
non-financial risks such as accidents
and/or
natural catastrophes will lead to a general decrease in the
returns and the possibility of returns from these derivatives
and securities contracts, which will not be reflected in the
methodology or assumption underlying the analysis of any
specific derivative or securities contract; and
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particular risks. The particular instruments in which we will
invest on behalf of the GLG Funds may produce an unusually and
unexpectedly high amount of losses, which will not be reflected
in the methodology or assumptions underlying the analysis of any
specific derivative or securities contract.
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The
GLG Funds and accounts we manage are subject to risks in using
prime brokers, custodians, administrators and other
agents.
All of the GLG Funds and managed accounts depend on the services
of prime brokers, custodians, administrators and other agents
and third parties in connection with certain securities
transactions. As a result of ongoing consolidation in the
financial services industry, our access to certain financial
intermediaries, such as prime brokers or trading counterparties,
may be reduced or eliminated. This may reduce our ability to
diversify the exposures of the GLG Funds and managed accounts to
these intermediaries which may increase operational risks or
transaction costs, which may result in lower investment
performance by the GLG Funds and managed accounts. In addition,
the smaller number of service providers may result in tighter
terms for transactions with the GLG Funds and managed accounts
and the loss of specialized expertise with certain products used
by the GLG Funds and managed accounts.
Following
the collapse of Lehman Brothers, the GLG Funds and several GLG
clients with managed accounts have claims as creditors and/or as
trust asset claimants against Lehman Brothers International
(Europe) (LBIE) and, in some cases, other Lehman
Brothers entities. These claims will likely take an extended
period of time to resolve and, in some cases, may remain
unsatisfied. There are also a number of open factual and legal
issues surrounding such claims.
On September 15, 2008, Lehman Brothers Holdings Inc. (the
ultimate parent company of the UK Lehman Brothers firms) filed
for Chapter 11 bankruptcy in the United States and LBIE,
the principal European broker-dealer for the Lehman Brothers
group, was placed into administration by order of the English
court. Lehman Brothers prime brokerage unit in the United
Kingdom was one of the business groups forming part of LBIE.
Other Lehman Brothers entities have also filed for or commenced
insolvency-related proceedings, including Lehman Brothers Inc.
(LBI), Lehman Brothers U.S. broker-dealer.
Nearly all of the GLG Funds and several of the GLG institutional
managed accounts at that time utilized LBIE as a prime broker.
All of the GLG Funds and managed accounts at that time had LBIE,
and a small
41
number of GLG Funds and managed accounts had LBI, as a trading
counterparty. In addition, all of GLGs private client
managed accounts at that time used LBIE, and a small number of
GLGs private clients additionally used LBI, as a custodian
and broker for their accounts.
As a consequence of LBIE being in administration, the GLG Funds
and, to the best of our knowledge, the managed accounts which
used LBIE as a prime broker, have been unable to access their
assets, including all securities and cash, deposited with LBIE.
In addition, the appointment of the joint administrators in
respect of LBIE triggered defaults under certain agreements
between each GLG Fund and LBIE, including certain trading
agreements, resulting in either (i) automatic termination
of these agreements or (ii) the entitlement of the relevant
GLG Fund to terminate the relevant agreement. The GLG Funds have
in general elected to terminate their agreements with LBIE to
quantify amounts owing to and from LBIE under trading
agreements, reduce market risks, reduce exposure to a net
amount, limit LBIEs rights
and/or
crystallize rights and obligations between the parties with a
view to allowing LBIE to release assets, among other factors.
We currently estimate that the combined net direct exposure of
the GLG Funds to LBIE and other entities in the Lehman Brothers
group amounts to approximately $95.0 million. Our
assessment of this exposure is based upon a number of
assumptions which we believe to be reasonable based upon
information which is currently available to us, including that:
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amounts which LBIE was required to treat as client money under
the rules of the U.K. Financial Services Authority and not use
in the course of its business were and are, in fact, so held,
and that there will be no material under-segregation or
shortfall in recoveries of client monies (although we note that
the joint administrators of LBIE have indicated that the
insolvencies of affiliates of LBIE in multiple jurisdictions and
other factors may result in under-segregation or shortfalls
which could negatively impact recovery of client money deposits
materially);
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even though LBIE or its affiliates may be entitled to withhold
assets to satisfy any net indebtedness owed to them, there will
be no material shortfall in the recovery of assets held on trust
by LBIE as a custodian, or by LBI as a sub-custodian for LBIE,
or by any other sub-custodian appointed by LBIE with regard to
the assets of a GLG Fund;
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the information we have received to date from the administrators
of LBIE in relation to the re-hypothecation of GLG Fund assets
by LBIE is true and accurate;
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unsettled transactions between GLG Funds and LBIE at the time
LBIE entered into administration proceedings will be determined
on the basis of a cash settlement of those trades, in accordance
with contractual agreements between the affected GLG Fund and
LBIE, or cancelled, in each case, as determined by us;
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the cash settlement amounts for terminated over-the-counter
derivatives and other transactions will be as determined by us;
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the recovery on amounts estimated to be unsecured claims against
LBIE is valued at zero; and
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there are no other facts or factors, which if known to us, would
lead us to conclude that the business of LBIE was conducted
otherwise than in accordance with the contractual documentation
or that any of our assumptions is incorrect.
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Our exposure estimate is based upon legal and professional
opinion obtained for the purpose of determining the rights and
obligations of the GLG Funds. The current NAVs of the GLG Funds
reflect these assumptions, including that the recovery on
amounts estimated to be unsecured claims will be valued at zero
and that assets, which based on our records are held in custody
by LBIE, should be marked to market.
It has not been possible, thus far, to obtain any meaningful
visibility or transparency from Lehman Brothers or the
PricewaterhouseCoopers administrators appointed in respect of
LBIE in relation to the actual location and status of custody
assets. It is not possible to say with certainty if or when
these assets will be returned to the GLG Funds, whether the
above assumptions will be validated, or whether the size of the
GLG Funds apparent entitlement should be adjusted upwards
or downwards. It is possible that, in respect of some
42
or all of the long positions, the GLG Funds will not receive the
return of assets from Lehman Brothers and may instead be exposed
as a general creditor of one or more of the insolvent Lehman
Brothers entities. Accordingly, until we are able to fully
reconcile our information and assumptions with the
administrators of LBIE
and/or
resolve any outstanding commercial and legal disagreement or
uncertainties with LBIE, these estimates could change or the
assumptions may prove to be incorrect, and the estimated
exposure of the GLG Funds could be materially greater or lesser.
We are unable to estimate the exposure our institutional managed
accounts have to LBIE as a prime broker because the clients in
these cases maintain the relationships with their third party
service providers, such as prime brokers, custodians and
administrators, nor do we have access to the terms of their
agreements with LBIE or know the extent of exposure these
clients may have to LBIE outside of our managed account.
As a consequence of the administration of LBIE and the
liquidation proceedings under the Securities Investor Protection
Act of 1970, as amended, of LBI, our private clients have been
unable to access their assets, including all securities and
cash, in their respective accounts with LBIE or LBI managed by
us. To the extent our private clients assets constitute
securities held in custody by LBIE or LBI, we believe the
clients should recover these securities to the extent these
securities do not collateralize amounts owing by our clients to
LBIE or LBI. To the extent our private clients assets
constitute cash held by LBIE as client money, we believe the
clients should recover in the same proportion as all LBIE
clients recover client money, with any shortfall possibly (but
we cannot say with certainty) resulting in an unsecured claim
against the LBIE estate. To the extent private clients are owed
amounts under trading contracts with LBIE or LBI, we believe
such amounts will constitute unsecured claims against LBIE or
LBI, as the case may be. Notwithstanding the foregoing, the
position of any individual private client will depend on the
facts and circumstances surrounding such private clients
claims, as well as their particular legal rights and obligations
pursuant to their agreements with LBIE or LBI.
The GLG Funds have, in the aggregate, recognized losses as a
result of the foregoing and, the GLG Funds and managed accounts
may incur additional losses if our estimates change
and/or the
assumptions we have made or outside opinions we have obtained
prove incorrect. In any event, the GLG Funds and managed
accounts will suffer substantial delay before there is a final
resolution as to exposure and the ultimate recovery. If our
clients, including the GLG Funds, do not fully recover their
assets, suffer losses or substantial delays, they might redeem
their investments, lose confidence in us and or make claims
against us, our affiliates
and/or the
GLG Funds.
The
GLG Funds and accounts we manage are subject to counterparty
risk with regard to over-the-counter instruments and other swap
or hedging transactions. The actual or perceived weakness of
counterparties could increase the exposure of the GLG Funds and
managed accounts to these counterparty and credit
risks.
In light of the current instability of the financial markets,
the GLG Funds and managed accounts also face the increased risk
of potential bankruptcies or significant credit deterioration of
major financial institutions, including prime brokers,
custodians and other agents, some of which have substantial
relationships with the GLG Funds and managed accounts,
increasing exposure to the related counterparty risks.
Furthermore, the combinations of financial service firms
announced in the third and fourth quarters of 2008 have
increased the concentration of counterparty risk for the GLG
Funds and managed accounts. The credit quality of these
exposures may be affected by many factors, such as economic and
business conditions or deterioration in the financial condition
of an individual counterparty, group of counterparties or asset
classes. Difficulties of this nature affecting counterparties
have the potential to result in significant exposures, whether
counterparty, credit or otherwise, for the GLG Funds and managed
accounts and negatively impact our business and results of
operations.
In the event of the insolvency of any counterparty or any prime
broker or custodian, the GLG Funds and managed accounts may only
rank as unsecured creditors in respect of sums due to them or
may be exposed to the under-segregation of assets, fraud or
other factors which may result in the recovery of less than all
of the property of the GLG Funds or managed accounts than was
held in custody or safekeeping. Any losses will be
43
borne by the GLG funds and managed accounts and there could be a
substantial delay in recovering these assets. In addition, cash
held by the GLG Funds and managed accounts with a prime broker
or custodian may not be segregated from the prime brokers
or custodians own cash, and the GLG Funds and managed
accounts may therefore rank as unsecured creditors in relation
thereto. Defaults by, or even rumors or questions about, the
solvency of counterparties with which we execute transactions on
behalf of the GLG Funds and managed accounts may increase
operational risks or transaction costs, which may result in
lower investment performance by the GLG Funds and managed
accounts.
The GLG Funds and managed accounts may also enter into currency,
interest rate, total return or other swaps which may be
surrogates for other instruments such as currency forwards and
interest rate options. The value of such instruments, which
generally depends upon price movements in the underlying assets
as well as counterparty risk, will influence the performance of
the GLG Funds and managed accounts and, therefore, a decrease in
the value of such instruments could have a material adverse
effect on our business, results of operations or financial
condition. In particular, certain GLG Funds frequently trade in
debt securities and other obligations, either directly or on an
assignment basis. Consequently, those GLG Funds will be subject
to risk of default by the debtor or obligor in relation to their
debt securities and other obligations, which could result in
lower investment performance by those GLG Funds and have a
material adverse effect on our business, results of operations
or financial condition.
The
GLG Funds and managed accounts are subject to systemic
risk due to the interconnectedness and recent
consolidation of financial institutions as the failure of any
one institution may expose the GLG Funds and managed accounts to
risk of loss.
The financial markets generally are characterized by extensive
interconnections among financial institutions. These
interconnections present significant risks to the GLG Funds and
managed accounts as the failure or perceived weakness of any
counterparties has the potential to expose the GLG Funds and
managed accounts to risk of loss. Financial institutions,
including banks, broker-dealers and insurance companies, have
historically been the most significant counterparties of the GLG
Funds and managed accounts. Credit risk may arise through a
default by one of several large institutions that are dependent
on one another to meet their liquidity or operational needs, so
that a default by one institution causes a series of defaults by
the other institutions. This systemic risk may
adversely affect the financial intermediaries (such as clearing
agencies, clearing houses, banks, securities firms and
exchanges) with which the GLG Funds and managed accounts
interact on a daily basis.
Concerns
of counterparties about the financial strength of the GLG Funds
and managed accounts may impact their willingness to enter into
transactions with the GLG Funds and managed
accounts
If the GLG Funds and managed accounts experience diminished
financial strength or stability, actual or perceived, including
due to market or regulatory developments, business developments
or results of operations, counterparties may become less willing
to enter into transactions with the GLG Funds and managed
accounts or our ability to enter into financial transactions on
behalf of the GLG Funds and managed accounts on terms acceptable
to us may be materially compromised.
GLG
Fund investments are subject to numerous additional
risks.
GLG Fund investments, including investments by its external fund
of hedge funds products in other hedge funds, are subject to
numerous additional risks, including the following:
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certain of the GLG Funds are newly established funds without any
operating history or are managed by management companies or
general partners who do not have a significant track record as
an independent manager;
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generally, there are few limitations on the execution of the GLG
Funds investment strategies, which are subject to the sole
discretion of the management company of such funds;
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the GLG Funds may engage in short-selling, which is subject to
the theoretically unlimited risk of loss because there is no
limit on how much the price of a security may appreciate before
the short position is closed out. A GLG Fund may be subject to
losses if a security lender demands return of the lent
securities and an alternative lending source cannot be found or
if the GLG Fund is otherwise unable to borrow securities that
are necessary to hedge its positions;
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credit risk may arise through a default by one of several large
institutions that are dependent on one another to meet their
liquidity or operational needs, so that a default by one
institution causes a series of defaults by the other
institutions. This systemic risk may adversely
affect the financial intermediaries (such as clearing agencies,
clearing houses, banks, securities firms and exchanges) with
which the GLG Funds interact on a daily basis;
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the efficacy of investment and trading strategies depends
largely on the ability to establish and maintain an overall
market position in a combination of financial instruments.
Trading orders may not be executed in a timely and efficient
manner due to various circumstances, including systems failures
or human error. In such event, the GLG Funds might only be able
to acquire some but not all of the components of the position,
or if the overall position were to need adjustment, the GLG
Funds might not be able to make such adjustment. As a result,
the GLG Funds would not be able to achieve the market position
selected by the management company or general partner of such
funds, and might incur a loss in liquidating their
position; and
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the investments held by the GLG Funds are subject to risks
relating to investments in commodities, equities, bonds,
futures, options and other derivatives, the prices of which are
highly volatile and may be subject to the theoretically
unlimited risk of loss in certain circumstances, including if
the fund writes a call option. Price movements of commodities,
futures and options contracts and payments pursuant to swap
agreements are influenced by, among other things, interest
rates, credit market conditions, changing supply and demand
relationships, trade, fiscal, monetary and exchange control
programs and policies of governments and national and
international political and economic events and policies. The
value of futures, options and swap agreements also depends upon
the price of the commodities underlying them. In addition, the
assets of the GLG Funds are subject to the risk of the failure
of any of the exchanges on which their positions trade or of
their clearinghouses or counterparties. Most
U.S. commodities exchanges limit fluctuations in certain
commodity interest prices during a single day by imposing
daily price fluctuation limits or daily
limits, the existence of which may reduce liquidity or
effectively curtail trading in particular markets.
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The
due diligence process that we undertake in connection with
investments by the GLG Funds may not reveal all facts that may
be relevant in connection with an investment.
Before making investments, we conduct due diligence that we deem
reasonable and appropriate based on the facts and circumstances
applicable to each investment. When conducting due diligence, we
may be required to evaluate important and complex business,
financial, tax, accounting, environmental and legal issues.
Outside consultants, legal advisors, accountants and investment
banks may be involved in the due diligence process in varying
degrees depending on the type of investment. Nevertheless, when
conducting due diligence and making an assessment regarding an
investment, we rely on the resources available to us, including
information provided by the target of the investment and, in
some circumstances, third-party investigations. The due
diligence investigation that we carry out with respect to any
investment opportunity may not reveal or highlight certain facts
that could adversely affect the value of the investment.
The
GLG Funds make investments in companies that the GLG Funds do
not control.
Investments by most of the GLG Funds include debt instruments
and equity securities of companies that the GLG Funds do not
control. Such instruments and securities may be acquired by the
GLG Funds through trading activities or through purchases of
securities from the issuer. These investments are subject to the
risk that the company in which the investment is made may make
business, financial or management decisions with which we do not
agree or that the majority stakeholders or the management of the
company may take
45
risks or otherwise act in a manner that does not serve our
interests. If any of the foregoing were to occur, the values of
investments by the GLG Funds could decrease and our financial
condition, results of operations and cash flow could suffer as a
result.
Risk
management activities may adversely affect the return on the GLG
Funds investments.
When managing their exposure to market risks, the GLG Funds may
from time to time use forward contracts, options, swaps, credit
default swaps, caps, collars and floors or pursue other
strategies or use other forms of derivative instruments to limit
our exposure to changes in the relative values of investments
that may result from market developments, including changes in
prevailing interest rates, currency exchange rates and commodity
prices. The success of any hedging or other derivative
transactions generally will depend on the ability to correctly
predict market changes, the degree of correlation between price
movements of a derivative instrument, the position being hedged,
the creditworthiness of the counterparty and other factors. As a
result, while the GLG Funds may enter into a transaction in
order to reduce their exposure to market risks, the transaction
may result in poorer overall investment performance than if it
had not been executed. Such transactions may also limit the
opportunity for gain if the value of a hedged position increases.
The
GLG Funds may be subject to U.K. tax if we do not qualify for
the U.K. Investment Manager Exemption.
Certain of the GLG Funds may, under U.K. tax legislation, be
regarded as carrying on a trade in the United Kingdom through
their investment manager, GLG Partners LP. It is our intention
to organize our affairs such that neither the investment manager
nor the group companies that are partners in the investment
manager constitute a U.K. branch or permanent establishment of
the GLG Funds by reason of exemptions provided by
Section 127 of the Finance Act 1995 and Schedule 26 of
the Finance Act 2003. These exemptions, which apply in respect
of income tax and corporation tax respectively, are
substantially similar and are each often referred to as the
Investment Manager Exemption (IME).
We cannot assure you that the conditions of the IME will be met
at all times in respect of every fund. Failure to qualify for
the IME in respect of a fund could subject the fund to U.K. tax
liability, which, if not paid, would become the liability of GLG
Partners LP, as investment manager. This U.K. tax liability
could be substantial.
In organizing our affairs such that we are able to meet the IME
conditions, we will take account of a statement of practice
published by the U.K. tax authorities that sets out their
interpretation of the law. A revised version of this statement
was published on July 20, 2007. The revised statement
applies with immediate effect, but under grandfathering
provisions we may follow the original statement in respect of
the GLG Funds until December 31, 2009 and, therefore, the
revised statement has no impact until 2010. Furthermore, we
believe that the changes in practice that have been introduced
will not have a material impact on our ability to meet the IME
conditions in respect of the GLG Funds.
Risks
Related to Our Organization and Structure
Since
our principal operations are located in the United Kingdom, we
may encounter risks specific to companies located outside the
United States.
Since our principal operations are located in the United
Kingdom, we are exposed to additional risks that could
negatively impact our future results of operations, including
but not limited to:
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tariffs and trade barriers;
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regulations related to customs and import/export matters;
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tax issues, such as tax law changes and variations in tax laws
as compared to the United States;
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cultural differences; and
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foreign exchange controls.
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46
We are
a controlled company within the meaning of the NYSE
Listed Company Manual and, as a result, qualify for, and rely
on, exemptions from certain corporate governance standards,
which may limit the presence of independent directors on our
board of directors or board committees.
Our Principals, their Trustees and certain other GLG Shareowners
who have entered into a voting agreement beneficially own shares
of our common stock and Series A voting preferred stock
which collectively represent approximately 52% of our voting
power. Accordingly, they have the ability to elect our board of
directors and thereby control our management and affairs.
Therefore, we are a controlled company for purposes
of Section 303(A) of the NYSE Listed Company Manual.
As a controlled company, we are exempt from certain
governance requirements otherwise required by the NYSE,
including the requirement that we have a nominating and
corporate governance committee. Under these rules, a company of
which more than 50% of the voting power is held by an
individual, a group or another company is a controlled
company and is exempt from certain corporate governance
requirements, including requirements that (1) a majority of
the board of directors consist of independent directors,
(2) compensation of officers be determined or recommended
to the board of directors by a majority of its independent
directors or by a compensation committee that is composed
entirely of independent directors and (3) director nominees
be selected or recommended for selection by a majority of the
independent directors or by a nominating committee composed
solely of independent directors. We utilize some of these
exemptions. For example, we do not have a nominating committee.
Accordingly, the procedures for approving significant corporate
decisions can be determined by directors who have a direct or
indirect interest in the matters and you do not have the same
protections afforded to stockholders of other companies that are
required to comply with the rules of the NYSE. In addition, our
board of directors currently consists of 50% of independent
directors in reliance on the exemption from the majority
independent director requirement.
Because of their ownership of approximately 52% of our voting
power, our Principals, their Trustees and certain other GLG
Shareowners are also able to determine the outcome of all
matters requiring stockholder approval (other than those
requiring a super-majority vote) and are able to cause or
prevent a change of control of our company or a change in the
composition of our board of directors, and could preclude any
unsolicited acquisition of our company. In addition, because
they collectively may determine the outcome of a stockholder
vote, they could deprive stockholders of an opportunity to
receive a premium for their shares as part of a sale of our
company, and that voting control could ultimately affect the
market price of our common stock.
Certain
provisions in our organizational documents and Delaware law make
it difficult for someone to acquire control of us.
Provisions in our organizational documents make it more
difficult and expensive for a third party to acquire control of
us even if a change of control would be beneficial to the
interests of our stockholders. For example, our organizational
documents require advance notice for proposals by stockholders
and nominations, place limitations on convening stockholder
meetings and authorize the issuance of preferred shares that
could be issued by our board of directors to thwart a takeover
attempt. In addition, our organizational documents require the
affirmative vote of at least
662/3%
of the combined voting power of all outstanding shares of our
capital stock entitled to vote generally, voting together as a
single class, to adopt, alter, amend or repeal our by-laws;
remove a director (other than directors elected by a series of
our preferred stock, if any, entitled to elect a class of
directors) from office, with or without cause; and amend, alter
or repeal certain provisions of our certificate of incorporation
which require a stockholder vote higher than a majority vote,
including the amendment provision itself, or to adopt any
provision inconsistent with those provisions.
Because of their ownership of approximately 52% of the our
voting power, the Principals, their Trustees and certain other
GLG Shareowners are able to determine the outcome of all matters
requiring stockholder approval (other than those requiring a
super-majority vote) and are able to cause or prevent a change
of control of our company or a change in the composition of our
board of directors, and could preclude any unsolicited
acquisition of our company. Certain provisions of Delaware law
may also delay or prevent a transaction that could cause a
change in our control. The market price of our shares could be
adversely
47
affected to the extent that the Principals control over
us, as well as provisions of our organizational documents,
discourage potential takeover attempts that our stockholders may
favor.
An
active market for our common stock may not
develop.
Our common stock is currently listed on the NYSE and trades
under the symbol GLG. However, we cannot assure you
a regular trading market of our shares will develop on the NYSE
or elsewhere or, if developed, that any market will be
sustained. Accordingly, we cannot assure you of the likelihood
that an active trading market for our shares will develop or be
maintained, the liquidity of any trading market, your ability to
sell your shares when desired, or at all, or the prices that you
may obtain for your shares.
The
value of our common stock and warrants may be adversely affected
by market volatility.
Since the Acquisition, the market prices of our shares of common
stock and warrants have experienced significant volatility and
depreciation and they may continue to be subject to wide
fluctuations or further declines. In addition, the trading
volume in our shares and warrants may fluctuate and cause
significant price variations to occur. If the market prices of
our shares and warrants decline significantly, you may be unable
to resell your shares and warrants at or above your purchase
price, if at all. We cannot assure you that the market price of
our shares and warrants will not fluctuate or decline
significantly in the future. Some of the factors that could
negatively affect the price of our shares and warrants or result
in fluctuations in the price or trading volume of our shares and
warrants include:
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variations in our quarterly operating results or dividends;
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failure to meet analysts earnings estimates or failure to
meet, or the lowering of, our own earnings guidance;
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publication of research reports about us or the investment
management industry or the failure of securities analysts to
cover our shares;
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additions or departures of the Principals and other key
personnel;
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adverse market reaction to any indebtedness we may incur or
securities we may issue in the future;
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actions by stockholders;
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changes in market valuations of similar companies;
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speculation in the press or investment community;
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changes or proposed changes in laws or regulations or differing
interpretations thereof affecting our business or enforcement of
these laws and regulations, or announcements relating to these
matters;
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adverse publicity about the asset management industry generally
or individual scandals, specifically; and
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general market and economic conditions, including the
substantial volatility experienced in the financial markets in
September 2008 and following months.
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If prevailing market and business conditions or similar ones
continue to exist or worsen, we could experience continuing or
adverse effects on our business, results of operations or
financial condition.
We may
not be able to pay dividends on our common stock.
As a holding company, our ability to pay dividends is subject to
the ability of our subsidiaries to provide cash to us. We intend
to distribute dividends to our stockholders
and/or
repurchase our common stock at such time and in such amounts to
be determined by our board of directors. Accordingly, we expect
to cause our subsidiaries to make distributions to their
stockholders or partners, as applicable, in an amount sufficient
to enable us to pay such dividends to our stockholders or make
such repurchases, as applicable; however, no assurance can be
given that such distributions or stock repurchases will or can
be made. Our board can reduce or eliminate our dividend, or
decide not to repurchase our common stock, at any time, in its
discretion. For
48
example, in December 2008, in light of the existing economic
environment, our board determined not to continue paying a
regular dividend on its common stock in order to retain capital.
The board will consider
re-establishing
the regular quarterly dividend as well as the payment of a
special dividend as and when it determines appropriate in the
future. Our subsidiaries will be required to make minimum tax
distributions and intend to make limited partner profit share
distributions to our key personnel pursuant to our limited
partner profit share arrangement prior to distributing dividends
to our stockholders or repurchasing our common stock. If our
subsidiaries have insufficient funds to make these
distributions, we may have to borrow funds or sell assets, which
could materially adversely affect our liquidity and financial
condition. In addition, our subsidiaries earnings may be
insufficient to enable them to make required minimum tax
distributions or intended limited partner profit share
distributions to their stockholders, partners or members, as
applicable, because, among other things, our subsidiaries may
not have sufficient capital surplus to pay dividends or make
distributions under the laws of the relevant jurisdiction of
incorporation or organization or may not satisfy regulatory
requirements of capital adequacy, including the regulatory
capital requirements of the FSA in the United Kingdom or the
Financial Groups Directive of the European Community. We will
also be restricted from paying dividends or making stock
repurchases under our credit facility in the event of a default
or if we are required to make mandatory prepayment of principal
thereunder.
To
complete the Acquisition, we incurred a large amount of debt,
which will limit our ability to fund general corporate
requirements and obtain additional financing, limit our
flexibility in responding to business opportunities and
competitive developments and increase our vulnerability to
adverse economic and industry conditions.
We have incurred $570.0 million of indebtedness to finance
the Acquisition, transaction costs, deferred underwriting fees
and our operations. As a result of the substantial fixed costs
associated with these debt obligations, we expect that:
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a decrease in revenues will result in a disproportionately
greater percentage decrease in earnings;
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we may not have sufficient liquidity to fund all of these fixed
costs if our revenues decline or costs increase;
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we may have to use our working capital to fund these fixed costs
instead of funding general corporate requirements, including
capital expenditures; and
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we may not have sufficient liquidity to respond to business
opportunities, competitive developments and adverse economic
conditions.
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These debt obligations may also impair our ability to obtain
additional financing, if needed, and our flexibility in the
conduct of our business. Moreover, the terms of our indebtedness
restrict our ability to take certain actions, including the
incurrence of additional indebtedness, mergers and acquisitions,
investments at the parent company level and asset sales. Our
ability to pay the fixed costs associated with our debt
obligations depends on our operating performance and cash flow,
which will in turn depend on general economic conditions. A
failure to pay interest or indebtedness when due could result in
a variety of adverse consequences, including the acceleration of
our indebtedness. In such a situation, it is unlikely that we
would be able to fulfill our obligations under or repay the
accelerated indebtedness or otherwise cover our fixed costs.
In addition, we are bound by certain financial covenants
relating to our debt obligations. These financial covenants
require that we have fee paying AUM on December 31, 2008 of
at least $15 billion, which is tested annually and
increases $500 million per year until 2012, and that we
maintain at the end of each fiscal quarter a leverage ratio of
not more than 4.5:1, which is calculated on the basis of
adjusted earnings before interest, taxes, depreciation and
amortization on a last twelve months basis. While we were in
compliance with these financial covenants as of
December 31, 2008, there can be no assurance that we will
continue to be able to comply with these covenants in the
future. Failure to comply with these financial covenants could
result in
49
adverse consequences, including the acceleration of our
indebtedness. Factors that may affect our ability to comply with
these financial covenants include:
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the performance of the GLG Funds prior to the end of each
relevant measurement period;
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future net inflows and outflows;
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currency movements principally Euro versus the
U.S. dollar; and,
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the level of our cash compensation and general and
administration expenses.
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As a
result of the Acquisition, we incur significant non-cash
amortization charges related to equity-based compensation
expense associated with the vesting of certain equity-based
awards, which reduces our net income and may result in further
net losses.
Compensation and benefits post-acquisition reflect the
amortization of a significant non-cash equity-based compensation
expense associated with the vesting of equity-based awards over
the next four years. The compensation and benefits expense
relates to the 10,000,000 shares of our common stock issued
for the benefit of our employees, service providers and certain
key personnel under our 2007 Restricted Stock Plan;
33,000,000 shares of our common stock and $150 million
in cash and promissory notes issued for the benefit of certain
of our key personnel participating in our equity participation
plan; and 77,604,988 shares of common stock and 58,904,993
exchangeable Class B ordinary shares of FA Sub 2 Limited
subject to an agreement among our principals and trustees. These
shares are subject to certain vesting and forfeiture provisions,
and the related share-based compensation expenses are being
recognized on a straight-line basis over the requisite service
period. This treatment under GAAP reduces our net income and may
result in further net losses in future periods.
Fulfilling
our obligations as a public company will be expensive and time
consuming.
As a public company, we are required to prepare and file
periodic and other reports with the SEC under applicable
U.S. federal securities laws and to comply with other
requirements of U.S. federal securities laws, such as
establishing and maintaining disclosure controls and procedures
and internal control over financial reporting as required by
Section 404 of the Sarbanes-Oxley Act of 2002. In addition,
under the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC, as well as the rules of the New York
Stock Exchange, we are required to maintain certain corporate
governance practices and to adhere to a variety of reporting
requirements and accounting rules. Compliance with these
obligations requires significant time and resources from our
management and our finance and accounting staff, may require
additional staffing and infrastructure and will make some
activities more time consuming and costly. We incur significant
legal, accounting, insurance and financial costs as a public
company. As a result of the increased costs associated with
being a public company, our operating income as a percentage of
revenue is likely to be lower.
The
failure to address actual or perceived conflicts of interest
that may arise as a result of the investment by the Principals
and other key personnel of at least 50% of the after-tax cash
proceeds they received in the Acquisition in GLG Funds, may
damage our reputation and materially adversely affect our
business.
As a result of the $558 million of net AUM that the
Principals, the Trustees and certain key personnel have invested
in the GLG Funds as of December 31, 2008, other investors
in the GLG Funds may perceive conflicts of interest regarding
investments in the GLG Funds in which the Principals, the
Trustees and other key personnel are personally invested. Actual
or perceived conflicts of interests could give rise to investor
dissatisfaction or litigation and our reputation could be
damaged if we fail, or appear to fail, to deal appropriately
with these conflicts of interest. Investor dissatisfaction or
litigation in connection with conflicts of interest could
materially adversely affect our reputation and our business in a
number of ways, including as a result of redemptions by
investors from the GLG Funds and a reluctance of counterparties
do business with us.
50
We may
choose to redeem our outstanding warrants at a time that is
disadvantageous to our warrant holders.
We may redeem the warrants issued as a part of our publicly
traded units and the co-investment warrants at any time
beginning December 21, 2007, in whole and not in part, at a
price of $0.01 per warrant, upon a minimum of 30 days
prior written notice of redemption, if and only if, the last
sales price of our common stock equals or exceeds $14.25 per
share for any 20 trading days within a 30-trading day period
ending three business days before we send the notice of
redemption. Redemption of the warrants could force the warrant
holders (1) to exercise the warrants and pay the exercise
price therefor at a time when it may be disadvantageous for the
holders to do so, (2) to sell the warrants at the then
current market price when they might otherwise wish to hold the
warrants or (3) to accept the nominal redemption price
which, at the time the warrants are called for redemption, is
likely to be substantially less than the market value of the
warrants.
Our
outstanding warrants may be exercised in the future, which would
increase the number of shares eligible for future resale in the
public market and result in dilution to our stockholders. This
might have an adverse effect on the market price of our common
stock.
Excluding 12,000,003 warrants beneficially owned by our founders
and their affiliates, which are not currently exercisable, as of
February 23, 2009, there were 42,484,674 outstanding
warrants to purchase shares of common stock, which were
exercisable beginning on December 21, 2007. These warrants
would only be exercised if the $7.50 per share exercise price is
below the market price of our common stock. To the extent they
are exercised, additional shares of our common stock will be
issued, which will result in dilution to our stockholders and
increase the number of shares eligible for resale in the public
market. Sales of substantial numbers of such shares in the
public market could adversely affect the market price of our
shares.
Risks
Related to Taxation
Our
effective income tax rate depends on various factors and may
increase as our business expands into countries with higher tax
rates or as we repatriate more profits to the U.S.
There can be no assurance that we will continue to have a low
effective income tax rate. We are a U.S. corporation that
is subject to the U.S. corporate income tax on its taxable
income. Our low effective tax rate is primarily attributable to
the asset basis
step-up
resulting from the acquisition of GLG and the associated
15-year
goodwill amortization deduction for U.S. tax purposes.
Going forward, our effective income tax rate will be a function
of our overall earnings, the income tax rates in the
jurisdictions in which our entities do business, the type and
relative amount of income earned by our entities in these
jurisdictions and the timing and amount of repatriation of
profits back to the United States in the form of dividends. We
expect that our effective income tax rate may increase as our
business expands into countries with higher tax rates. In
addition, allocation of income among business activities and
entities is subject to detailed and complex rules and depends on
the facts and circumstances. No assurance can be given that the
facts and circumstances or the rules will not change from year
to year or that taxing authorities will not be able to
successfully challenge such allocations.
U.S.
persons who own 10% or more of our voting stock may be subject
to higher U.S. tax rates on a sale of the stock.
U.S. persons who hold 10% or more (actually
and/or
constructively) of the total combined voting power of all
classes of our voting stock may on the sale of the stock be
subject to U.S. tax at ordinary income tax rates (rather
than at capital gain tax rates) on the portion of their taxable
gain attributed to undistributed offshore earnings. This would
be the result if we are treated (for U.S. federal income
tax purposes) as principally availed to hold the stock of
foreign corporation(s) and the stock ownership in us satisfies
the stock ownership test for determining controlled foreign
corporation (CFC) status (determined as if we were a foreign
corporation). A foreign corporation is a CFC if, for an
uninterrupted period of 30 days or more during any taxable
year, more than 50% of its stock (by vote or value) is owned by
10% U.S. Shareholders. A U.S. person is a
10% U.S. Shareholder if such person owns
(actually
and/or
constructively) 10% or more of
51
the total combined voting power of all classes of stock entitled
to vote of such corporation. As of the end of 2008,
approximately 31% of our stock is treated as directly or
constructively owned by 10% U.S. Shareholders. Therefore,
any U.S. person who considers acquiring (directly,
indirectly
and/or
constructively) 10% or more of our outstanding stock should
first consult with his or her tax advisor.
Our
U.K. tax liability will be higher if the interest expense
incurred by our subsidiary FA Sub 3 Limited cannot be fully
utilized for U.K. tax purposes.
Our subsidiary FA Sub 3 Limited incurred debt to finance the
acquisition of GLG and is claiming a deduction for U.K. tax
purposes for the interest expense incurred on such debt. If the
interest expense incurred by FA Sub 3 Limited cannot be fully
utilized for U.K. tax purposes against U.K. income, our U.K. tax
liability might increase significantly. See also
Our tax position might change as a result of a
change in tax laws. below for a discussion of U.K.
government proposals on interest deductibility.
Our
tax position might change as a result of a change in tax
laws.
Since we operate our business in the United Kingdom, the United
States and internationally, we are subject to many different tax
laws. Tax laws (and the interpretations of tax laws by taxing
authorities) are subject to frequent change, sometimes
retroactively. There can be no assurance that any such changes
in the tax laws applicable to us will not adversely affect our
tax position.
Following the publication of a discussion document entitled
Taxation of foreign profits of companies on
June 21, 2007, the U.K. government published draft
legislation and guidance on December 9, 2008. The draft
legislation includes the introduction of a worldwide debt cap
which may restrict the deductibility of interest expense
incurred by U.K. resident entities. The draft legislation is
designed to ensure that the U.K. corporation tax deductions for
financing costs do not exceed the worldwide external finance
costs of the group. It should be noted that the provisions
released are a consultation draft and may be subject to
extensive revision before becoming law. A consultation period is
due to end on March 3, 2009 and the proposed date for
enactment of the draft legislation was April 1, 2009,
though a later date now appears possible. While it is not
currently anticipated that we will be adversely impacted by
these rules, no assurances can be given that the legislation, if
and when enacted, will not restrict the ability of our
subsidiary FA Sub 3 Limited to claim a tax deduction for the
full amount of its interest expense.
The U.S. Congress is considering changes to
U.S. income tax laws which would increase the
U.S. income tax rate imposed on carried
interest earnings and would subject to U.S. corporate
income tax certain publicly held private equity firms and hedge
funds structured as partnerships (for U.S. federal income
tax purposes). These changes would not apply to us because the
Company is already taxed in the United States as a
U.S. corporation and earns fee income and does not receive
a carried interest. No assurances can be given that
the U.S. Congress might not enact other tax law changes
that would adversely affect us.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
Our principal executive offices are located in 2,515 square
feet of leased office space at 399 Park Avenue, 38th floor,
New York, New York. We also lease approximately
10,000 square feet of office space at 390 Park Avenue,
20th Floor, New York, New York, a total of approximately
51,000 square feet of office space at One Curzon Street,
London, England, 620 square feet of office space at
Berkeley Street, London, England, approximately
1,185 square feet of office space in George Town, Grand
Cayman, Cayman Islands, and approximately 1,453 square feet
of office space in Geneva, Switzerland. We do not own any real
property. We consider these facilities to be suitable and
adequate for the management and operation of our business.
52
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Item 3.
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Legal
Proceedings
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On June 21, 2007, the Autorité des Marchés
Financiers (AMF), the French securities regulator,
imposed a fine of 1.5 million ($2.0 million)
against us in connection with our trading in the shares of
Vivendi Universal S.A. (Vivendi) based on
confidential information prior to a November 14, 2002
issuance of Vivendi notes which are mandatorily redeemable for
Vivendi convertible securities. We appealed this decision to the
Court of Appeals (First Chamber) in Paris and the Conseil
dEtat on August 21, 2007. On November 26, 2008,
the Court of Appeals issued a ruling dismissing our appeal.
On January 25, 2008, the AMF notified the Company of
proceedings relating to its trading in the shares of Infogrames
Entertainment (Infogrames) on February 8 and 9,
2006, prior to the issuance by Infogrames on February 9,
2006 of a press release announcing poor financial results. The
AMFs decision to initiate an investigation into GLGs
trades in Infogrames was based on a November 19, 2007
report prepared by the AMFs Department of Market
Investigation and Supervision (the Infogrames
Report). According to the Infogrames Report, the trades
challenged by the AMF generated an unrealized capital gain for
GLG as of the opening on February 10, 2006 of
179,000. The AMF investigation of the Company relates
solely to the conduct of a former employee; however the Company
was named as the respondent. If sustained, the charge against
the Company could give rise to an administrative fine under
French securities laws.
We are also subject to various claims and assessments and
regulatory inquiries and investigations in the normal course of
our business. While it is not possible at this time to predict
the outcome of any legal and regulatory proceedings with
certainty and while some investigations, lawsuits, claims or
proceedings may be disposed of unfavorably to us, based on our
evaluation of matters that are pending or asserted our
management believes the disposition of such matters will not
have a material adverse effect on our business, financial
condition or results of operations. An unfavorable ruling could
include money damages or injunctive relief.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Companys
security holders during the fourth quarter of the fiscal year
ended December 31, 2008.
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Item 4A.
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Executive
Officers of the Registrant
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The following table sets forth certain information concerning
each of our executive officers:
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Name
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Age
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Position
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Noam Gottesman
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Chairman of the Board and Co-Chief Executive Officer
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Emmanuel Roman
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Co-Chief Executive Officer
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Pierre Lagrange
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Senior Managing Director of GLG Partners LP
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Simon White
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Chief Operating Officer
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Jeffrey Rojek
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Chief Financial Officer
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Alejandro San Miguel
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General Counsel and Corporate Secretary
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Noam Gottesman has been our Chairman of the Board and
Co-Chief Executive Officer since November 2007. He has been a
Managing Director of GLG since he co-founded GLG Partners LP as
a division of LBIE in 1995. He has also served as GLGs
Co-Chief Executive Officer since September 2005 and served as
its Chief Executive Officer from September 2000 until September
2005. Prior to 1995, Mr. Gottesman was an Executive
Director of Goldman Sachs International, where he managed global
equity portfolios in the private client group.
Mr. Gottesman obtained a B.A. from Columbia University.
Emmanuel Roman has been our Co-Chief Executive Officer
since November 2007. He has been a Managing Director and a
Co-Chief Executive Officer of GLG since September 2005. From
2000 to April 2005, Mr. Roman served as a co-head of
Worldwide Global Securities Services of Goldman Sachs
International Limited. In 2003, Mr. Roman also became
co-head of the European Equities Division and a member of the
European Management Committee, a position he held until April
2005. In 1998, Mr. Roman was elected a partner of Goldman
Sachs after two years as a Managing Director. Mr. Roman
also served as
53
co-head of Worldwide Equity Derivatives at Goldman Sachs from
1996 to 2000. Mr. Roman obtained an M.B.A. in Finance and
Econometrics from the University of Chicago and a
bachelors degree from the University of Paris.
Pierre Lagrange has been a co-founder and Senior Managing
Director of GLG Partners LP since its formation in September
2000 and was a co-founder of the GLG Partners division of LBIE
in 1995. He has overall responsibility for a number of our
global equity products, including the GLG European Equity Fund,
the GLG Environment Fund, the GLG EAFE (Institutional) Fund and
our flagship GLG European Long-Short Fund. Prior to 1995,
Mr. Lagrange worked at Goldman Sachs managing global equity
portfolios and at JP Morgan in government bond trading. He has
an M.A. in Engineering from the Solvay Business School in
Brussels.
Simon White has been our Chief Operating Officer since
March 2008 and served as our Chief Financial Officer from
November 2007 to March 2008. He has been GLG Partners LPs
Chief Operating Officer since September 2000. From 1997 to
September 2000, he worked at Lehman Brothers as Executive
Director and Branch Manager of the GLG Partners division. From
1995 to 1997, he was Chief Administrative Officer of Lehman
Brothers European high net worth business. From 1993 to
1995, he was European Controller at Lehman Brothers. Prior to
1993, Mr. White worked at Credit Suisse First Boston and
PaineWebber in a number of senior business and support roles in
their London and New York offices. Mr. White is a chartered
accountant and a fellow of the Institute of Chartered
Accountants and has worked in the financial services business
since 1986.
Jeffrey Rojek has been our Chief Financial Officer since
March 2008. Prior to joining GLG, Mr. Rojek was an Audit
and Advisory Partner at KPMG, in the firms New York
financial services practice. He joined KPMG in 1991 and over his
nearly 18 year career there worked with global banking,
investment banking and other related financial services clients.
From 2004 to 2006, he was based in KPMGs national office
advising on audit and accounting issues related to financial
instruments. Prior to that, Mr. Rojek spent three years in
Singapore as KPMGs Regional Lead Partner for Deutsche
Bank, Citigroup and Jones Lang Lasalle. Mr. Rojek has an
M.B.A from Columbia University and a B.S. from Fordham
University.
Alejandro San Miguel has been our General Counsel
and Corporate Secretary since November 2007.
Mr. San Miguel was a partner at the law firm of
Chadbourne & Parke LLP, one of GLGs principal
outside law firms, from 2001 until November 2007. He joined the
law firm in 1996. Mr. San Miguel received a J.D. from
New York Law School and a B.A. from the University of
Pennsylvania.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
On December 21, 2006, our units began trading on the
American Stock Exchange under the symbol FRH.U. Each
of our units consists of one share of common stock and one
warrant. On January 29, 2007, the common stock and warrants
underlying our units began to trade separately on the American
Stock Exchange under the symbols FRH.WS and
FRH, respectively. Our securities were traded on the
American Stock Exchange until November 2, 2007.
On November 2, 2007, we initiated a $100.0 million
repurchase program for shares of our common stock and warrants
to purchase common stock which was approved by our Board of
Directors effective through May 2, 2008. On
February 4, 2008, the Board of Directors approved an
increase of our repurchase program by an additional
$100.0 million and extended the program through
August 31, 2008, and subsequently through February 4,
2009, and most recently through August 2, 2009.
Approximately $45 million remains available under the
program for the repurchase of common stock and warrants as of
February 25, 2009. Our repurchase program allows management
to repurchase shares and warrants at its discretion.
On November 5, 2007, our units, common stock and warrants
began trading on the NYSE under the symbols GLGU,
GLG and GLGWS, respectively. The
following sets forth the high and low sales price
54
of our units, common stock and warrants, as reported on the
American Stock Exchange and the NYSE for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
Common Stock
|
|
|
Warrants
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.15
|
|
|
$
|
10.01
|
|
|
$
|
10.00
|
|
|
$
|
8.90
|
|
|
$
|
1.50
|
|
|
$
|
1.10
|
|
Second Quarter
|
|
$
|
16.68
|
|
|
$
|
10.55
|
|
|
$
|
12.40
|
|
|
$
|
9.31
|
|
|
$
|
4.60
|
|
|
$
|
1.27
|
|
Third Quarter
|
|
$
|
16.80
|
|
|
$
|
12.00
|
|
|
$
|
12.34
|
|
|
$
|
9.95
|
|
|
$
|
4.55
|
|
|
$
|
1.95
|
|
Fourth Quarter
|
|
$
|
20.75
|
|
|
$
|
14.25
|
|
|
$
|
14.97
|
|
|
$
|
11.25
|
|
|
$
|
6.63
|
|
|
$
|
3.10
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
20.75
|
|
|
$
|
15.70
|
|
|
$
|
13.85
|
|
|
$
|
10.76
|
|
|
$
|
6.30
|
|
|
$
|
4.05
|
|
Second Quarter
|
|
$
|
17.04
|
|
|
$
|
9.54
|
|
|
$
|
12.25
|
|
|
$
|
7.67
|
|
|
$
|
4.80
|
|
|
$
|
1.82
|
|
Third Quarter
|
|
$
|
12.50
|
|
|
$
|
5.18
|
|
|
$
|
9.50
|
|
|
$
|
4.51
|
|
|
$
|
3.18
|
|
|
$
|
0.35
|
|
Fourth Quarter
|
|
$
|
6.00
|
|
|
$
|
1.59
|
|
|
$
|
5.95
|
|
|
$
|
1.86
|
|
|
$
|
0.67
|
|
|
$
|
0.00
|
|
On February 27, 2009 the last reported sale price for our
units, common stock and warrants on the NYSE was $2.27 per unit,
$2.17 per share and $0.09 per warrant, respectively. As of
December 31, 2008 there was one holder of record of our
units, six holders of record of our common stock and four
holders of record of our warrants, respectively.
The table below sets forth information with respect to purchases
made by or on behalf of the Company of warrants and shares of
common stock during the year ended December 31, 2008 by
month:
Issuer
Repurchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Approx.
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
Warrants or Shares
|
|
|
Warrants or Shares
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Purchased as Part of
|
|
|
that may yet be
|
|
|
|
Warrants or
|
|
|
Paid per
|
|
|
Publicly Announced
|
|
|
Purchased Under the
|
|
Period
|
|
Shares Repurchased
|
|
|
Warrant or Share
|
|
|
Plans or Programs
|
|
|
Plans or Programs
|
|
|
January 1 31, 2008
|
|
|
5,500,000 warrants
|
|
|
$
|
5.73
|
|
|
|
5,500,000 warrants
|
|
|
$
|
24,757,832.00
|
|
February 1 29, 2008
|
|
|
1,500,000 warrants
|
|
|
|
5.11
|
|
|
|
1,500,000 warrants
|
|
|
|
117,092,832.00
|
|
|
|
|
279,455 shares(1
|
)
|
|
|
12.37
|
|
|
|
279,455 shares
|
|
|
|
113,635,973.65
|
(1)
|
March 1 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,635,973.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 Total
|
|
|
7,000,000 warrants
|
|
|
|
|
|
|
|
7,000,000 warrants
|
|
|
|
|
|
|
|
|
279,455 shares
|
|
|
|
|
|
|
|
279,455 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,635,973.65
|
|
May 1 31, 2008
|
|
|
64,900 shares
|
|
|
|
8.15
|
|
|
|
64,900 shares
|
|
|
|
113,107,038.65
|
|
June 1 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,107,038.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2 Total
|
|
|
64,900 shares
|
|
|
|
|
|
|
|
64,900 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,107,038.65
|
|
August 1 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,107,038.65
|
|
September 1 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,107,038.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,107,038.65
|
|
November 1 30, 2008
|
|
|
1,179,822 shares
|
|
|
|
3.13
|
|
|
|
1,179,822 shares
|
|
|
|
109,414,195.79
|
|
December 1 31, 2008
|
|
|
15,317 shares
|
|
|
|
2.22
|
|
|
|
15,317 shares
|
|
|
|
109,380,192.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 Total
|
|
|
1,195,139 shares
|
|
|
|
|
|
|
|
1,195,139 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Total
|
|
|
7,000,000 warrants
|
|
|
|
|
|
|
|
7,000,000 warrants
|
|
|
|
|
|
|
|
|
1,539,494 shares
|
|
|
|
|
|
|
|
1,539,494 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
(1) |
|
The repurchase of these shares was reported in the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 but the amounts were
inadvertently not deducted from the maximum approximate dollar
value of warrants or shares that may yet be purchased under the
plans or programs. |
The Company declared a regular quarterly dividend of $0.025 per
share of common stock in each of the first, second and third
quarters of 2008 on all outstanding shares of common stock,
including unvested shares of restricted stock under the
Companys equity-based plans. There was no quarterly
dividend declared or paid for the fourth quarter of 2008. On
February 25, 2008 the first quarterly dividend was declared
payable on April 21, 2008 to holders of record on
April 10, 2008. On June 16, 2008 the second quarterly
dividend was declared payable on July 21, 2008 to holders
of record on July 10, 2008. On September 26, 2008 the
third quarterly dividend was declared payable on
October 21, 2008 to holders of record on October 10,
2008. On December 30, 2008, the Company announced that its
Board of Directors had determined not to continue paying a
regular quarterly dividend on it common stock, including for the
fourth quarter of 2008.
Quarterly dividends of $0.025 per share on the Exchangeable
Shares were also declared, payable by the Company on each of
April 21, 2008, July 21, 2008 and October 21,
2008, to holders of the FA Sub 2 Limited Exchangeable Shares,
who are entitled to dividends based on the
58,904,993 shares of common stock of the Company into which
the Exchangeable Shares are exchangeable.
The Company is subject to restrictions on the declaration and
payment of dividends to its shareholders under the terms of the
credit agreement for its term and revolving loan facilities.
Pursuant to the credit agreement, the Company can declare and
pay dividends so long as both before and after giving effect to
the dividend, (1) the Company maintains at the end of each
fiscal quarter a leverage ratio of not more than 4.5:1,
calculated on the basis of adjusted earnings before interest,
taxes, depreciation and amortization (as defined in the credit
agreement) on a last twelve months basis, and (2) no
default or event of default under the credit agreement has
occurred and is continuing at the date of declaration or payment
of the dividend or would result therefrom.
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data for the five fiscal years
ended December 31, 2008 was derived from the audited
combined and consolidated financial statements of GLG and its
subsidiaries. In November 2007, we completed the acquisition of
GLG. Effective upon the consummation of the acquisition,
(1) each Acquired Company became a subsidiary of ours,
(2) the business and assets of GLG became our only
operations and (3) we changed our name to GLG Partners,
Inc. As the Acquisition was considered a reverse acquisition
recapitalization for accounting purposes, the combined
historical financial statements of GLG became our historical
financial statements. The selected financial data should be read
in conjunction with Managements
56
Discussion and Analysis of Financial Condition and Results of
Operations and the combined and consolidated financial
statements and notes thereto appearing elsewhere in this Annual
Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(US dollars in thousands)
|
|
|
Combined and Consolidated Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
138,988
|
|
|
$
|
137,958
|
|
|
$
|
186,273
|
|
|
$
|
287,152
|
|
|
$
|
317,787
|
|
Performance fees, net
|
|
|
178,024
|
|
|
|
279,405
|
|
|
|
394,740
|
|
|
|
678,662
|
|
|
|
107,517
|
|
Administration fees, net
|
|
|
|
|
|
|
311
|
|
|
|
34,814
|
|
|
|
64,224
|
|
|
|
69,145
|
|
Transaction charges
|
|
|
191,585
|
|
|
|
184,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
6,110
|
|
|
|
1,476
|
|
|
|
5,039
|
|
|
|
10,080
|
|
|
|
542
|
|
Total net revenues and other income
|
|
|
514,707
|
|
|
|
603,402
|
|
|
|
620,866
|
|
|
|
1,040,118
|
|
|
|
494,991
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
(196,784
|
)
|
|
|
(345,918
|
)
|
|
|
(168,386
|
)
|
|
|
(810,212
|
)
|
|
|
(874,937
|
)
|
Limited partner profit share
|
|
|
|
|
|
|
|
|
|
|
(201,450
|
)
|
|
|
(401,000
|
)
|
|
|
(77,979
|
)
|
Compensation, benefits and profit share
|
|
|
(196,789
|
)
|
|
|
(345,918
|
)
|
|
|
(369,836
|
)
|
|
|
(1,211,212
|
)
|
|
|
(952,916
|
)
|
General, administrative and other
|
|
|
(42,002
|
)
|
|
|
(64,032
|
)
|
|
|
(68,404
|
)
|
|
|
(108,926
|
)
|
|
|
(121,749
|
)
|
Total expenses
|
|
|
(238,786
|
)
|
|
|
(409,950
|
)
|
|
|
(438,240
|
)
|
|
|
(1,320,138
|
)
|
|
|
(1,074,665
|
)
|
Income (loss) from operations
|
|
|
275,921
|
|
|
|
193,452
|
|
|
|
182,626
|
|
|
|
(280,020
|
)
|
|
|
(579,674
|
)
|
Interest income, net
|
|
|
519
|
|
|
|
2,795
|
|
|
|
4,657
|
|
|
|
2,350
|
|
|
|
(16,613
|
)
|
Income (loss) before income taxes
|
|
|
276,440
|
|
|
|
196,247
|
|
|
|
187,283
|
|
|
|
(277,670
|
)
|
|
|
(596,287
|
)
|
Income taxes
|
|
|
(48,372
|
)
|
|
|
(25,345
|
)
|
|
|
(29,225
|
)
|
|
|
(64,000
|
)
|
|
|
(14,231
|
)
|
Income (loss) before minority interests
|
|
$
|
228,068
|
|
|
$
|
170,902
|
|
|
$
|
158,058
|
|
|
$
|
(341,670
|
)
|
|
|
(610,518
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
227,739
|
|
|
$
|
170,250
|
|
|
$
|
157,876
|
|
|
$
|
(310,508
|
)
|
|
|
(629,697
|
)
|
Distributions to Principals and Trustees
|
|
$
|
(222,074
|
)
|
|
$
|
(106,531
|
)
|
|
$
|
(165,705
|
)
|
|
$
|
(330,972
|
)
|
|
|
(118,354
|
)
|
Dividend Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,210
|
)
|
Net (loss)/income per share, basic
|
|
$
|
1.68
|
|
|
$
|
1.25
|
|
|
$
|
1.16
|
|
|
$
|
(2.11
|
)
|
|
$
|
(2.97
|
)
|
Net (loss)/income per share, diluted
|
|
$
|
1.17
|
|
|
$
|
0.87
|
|
|
$
|
0.81
|
|
|
$
|
(2.11
|
)
|
|
$
|
(2.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(US dollars in thousands)
|
|
|
Combined and Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
136,378
|
|
|
$
|
236,261
|
|
|
$
|
273,148
|
|
|
$
|
429,422
|
|
|
$
|
316,195
|
|
Fees receivable
|
|
|
163,235
|
|
|
|
246,179
|
|
|
|
251,963
|
|
|
|
389,777
|
|
|
|
42,106
|
|
Working capital
|
|
|
20,395
|
|
|
|
42,387
|
|
|
|
183,388
|
|
|
|
220,583
|
|
|
|
112,604
|
|
Property and equipment, net
|
|
|
4,342
|
|
|
|
3,290
|
|
|
|
6,121
|
|
|
|
9,079
|
|
|
|
14,076
|
|
Total assets
|
|
|
310,592
|
|
|
|
495,340
|
|
|
|
557,377
|
|
|
|
984,137
|
|
|
|
489,682
|
|
Accrued compensation and benefits
|
|
|
125,850
|
|
|
|
247,745
|
|
|
|
289,301
|
|
|
|
467,887
|
|
|
|
148,531
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
5,100
|
|
|
|
16,092
|
|
|
|
50,765
|
|
Loans payable and revolving credit facility
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
570,000
|
|
|
|
570,000
|
|
Minority interests
|
|
|
719
|
|
|
|
1,370
|
|
|
|
1,552
|
|
|
|
1,911
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
117,980
|
|
|
|
180,229
|
|
|
|
175,158
|
|
|
|
(246,141
|
)
|
|
|
(376,249
|
)
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion and analysis in
conjunction with our combined and consolidated financial
statements and the related notes included in or incorporated
into Part II, Item 8 of this Annual Report on
Form 10-K
and the Risk Factors included in Part I, Item 1A of
this Annual Report on
Form 10-K,
as well as other cautionary statements and risks described
elsewhere in this Annual Report on
Form 10-K.
The information in this section contains forward-looking
statements. Our actual results may differ significantly from the
results suggested by these forward-looking statements and our
historical results. Some factors that may cause our results to
differ are described in Risk Factors under
Part I, Item 1A of this Annual Report on
57
Form 10-K.
We wish to caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date
made.
General
Our
Business
We are a
U.S.-listed
asset management company offering our clients a diverse range of
alternative and traditional investment products and account
management services. Our primary business is to provide
investment management advisory services for various investments
funds and companies (the GLG Funds). We currently
derive our revenues primarily from management fees and
administration fees charged to the GLG Funds and accounts we
manage based on the value of the assets in these funds and
accounts, and performance fees charged to the GLG Funds and
accounts we manage based on the performance of these funds and
accounts. Substantially all of our assets under management, or
AUM, are attributable to third-party investors, and the funds
and accounts we manage are not consolidated into our financial
statements. As of December 31, 2008, our net AUM (net
of assets invested in other GLG Funds) were approximately
$15.0 billion, down from approximately $24.6 billion
as of December 31, 2007. As of December 31, 2008, our
gross AUM (including assets invested in other GLG Funds)
were approximately $16.5 billion, down from approximately
$29.0 billion as of December 31, 2007.
On December 19, 2008, we entered into an agreement with
Société Générale Asset Management to acquire
Société Générale Asset Management UK
(SGAM UK), Société
Générales UK long-only asset management
business, for £4.5 million ($6.5 million) cash.
The transaction is expected to be completed at the end of March
2009. Under the terms of the acquisition, we will acquire SGAM
UKs operations, which had approximately $8.5 billion
of AUM as of December 31, 2008 and its investment and
support staff, based primarily in London. We will act as a
sub-adviser to SGAM UK until the closing of the transaction.
On November 2, 2007, we completed the acquisition (the
Acquisition) of GLG Partners Limited, GLG Holdings
Limited, Mount Granite Limited, Albacrest Corporation, Liberty
Peak Ltd., GLG Partners Services Limited, Mount Garnet Limited,
Betapoint Corporation, Knox Pines Ltd., GLG Partners Asset
Management Limited and GLG Partners (Cayman) Limited (each, an
Acquired Company and collectively, the
Acquired Companies) pursuant to a Purchase Agreement
dated as of June 22, 2007 (the Purchase
Agreement) among us, our wholly owned subsidiaries, FA Sub
1 Limited, FA Sub 2 Limited and FA Sub 3 Limited, Jared
Bluestein, as the buyers representative, Noam Gottesman,
as the sellers representative, and the equity holders of
the Acquired Companies (the GLG Shareowners).
Effective upon the consummation of the Acquisition,
(1) each Acquired Company became a subsidiary of ours,
(2) the business and assets of the Acquired Companies and
certain affiliated entities (collectively, the GLG
Entities) became our only operations and (3) we
changed our name to GLG Partners, Inc.
In exchange for their equity interests in the Acquired
Companies, the GLG Shareowners received:
|
|
|
|
|
$976,107,300 in cash;
|
|
|
|
$23,892,700 in promissory notes in lieu of all of the cash
consideration payable to electing GLG Shareowners;
|
|
|
|
230,000,000 shares of our common stock, par value $0.0001
per share which consists of:
|
|
|
|
|
|
138,095,007 shares of our common stock, including
10,000,000 shares of our common stock issued for the
benefit of our employees, service providers and certain key
personnel under our 2007 Restricted Stock Plan (the
Restricted Stock Plan);
|
|
|
|
33,000,000 shares of our common stock payable by us upon
exercise of certain put or call rights with respect to
33,000,000 ordinary shares issued by FA Sub 1 Limited to certain
GLG Shareowners. Each of the ordinary shares issued by FA Sub 1
Limited to these GLG Shareowners has been put by the holder to
us in exchange for one share of our common stock; and
|
58
|
|
|
|
|
58,904,993 shares of our common stock to be issued upon the
exchange of 58,904,993 Exchangeable Shares (the
Exchangeable Shares) issued by FA Sub 2 Limited to
certain GLG Shareowners. Each Exchangeable Share is exchangeable
at any time at the election of the holder for one share of our
common stock; and
|
|
|
|
58,904,993 shares of our Series A preferred stock, par
value $0.0001 per share issued with the corresponding
Exchangeable Shares which carry only voting rights and nominal
economic rights and which will automatically be redeemed on a
share-for-share basis as Exchangeable Shares are exchanged for
shares of our Common Stock.
|
The aggregate of $1.0 billion in cash and promissory notes
necessary to pay the cash portion of the purchase price to the
GLG Shareowners was financed through a combination of
(1) approximately $571.1 million of proceeds raised in
our initial public offering and the co-investment by the
sponsors of Freedom Acquisition Holdings, Inc., Berggruen
Holdings North America Ltd. and Marlin Equities II, LLC,
immediately prior to the consummation of the Acquisition and
(2) bank debt financing of $530.0 million of the
$570.0 million available under the new credit facilities.
The remaining capacity under the credit facilities has been
drawn down for working capital and general corporate purposes.
The Acquisition is accounted for as a reverse acquisition. The
combined group composed of the Acquired Companies has been
treated as the acquiring entity and the continuing reporting
entity for accounting purposes. Upon completion of the
Acquisition, our assets and liabilities were recorded at
historical cost and added to those of the Acquired Companies.
Because we had no active business operations prior to
consummation of the Acquisition, the Acquisition was accounted
for as a recapitalization of the Acquired Companies.
In this Managements Discussion and Analysis of Financial
Condition and Results of Operations, references to
GLG should be taken to refer to the combined
business of the GLG Entities prior to November 2, 2007, and
references to we, us, our and
the Company shall be taken to refer to the business
of GLG Partners, Inc. and its subsidiaries from and after
November 2, 2007.
Factors
Affecting Our Business
Our business and results of operations are impacted by the
following factors:
|
|
|
|
|
Assets under management. Our revenues from
management and administration fees are directly linked to AUM.
As a result, our future performance will depend on, among other
things, our ability both to retain AUM and to grow AUM from
existing and new products.
|
|
|
|
Fund and managed account performance. Our
revenues from performance fees are linked to the performance of
the GLG Funds and accounts we manage. Performance also affects
AUM because it influences investors decisions to invest
assets in, or withdraw assets from, the GLG Funds and accounts
managed by us.
|
|
|
|
Currency exchange rates. The GLG Funds
typically offer share classes denominated in multiple currencies
and as a result, earn fees in those currencies based on the AUM
denominated in those currencies. Consequently, our fee revenues
are affected by exchange rate movements.
|
|
|
|
Personnel, systems, controls and
infrastructure. We depend on our ability to
attract, retain and motivate leading investment and other
professionals. Our business requires significant investment in
our fund management platform, including infrastructure and
back-office personnel. We have in the past paid, and expect to
continue in the future to pay, these professionals significant
compensation and a share of our profits.
|
|
|
|
Fee rates. Our management and administration
fee revenues are linked to the fee rates we charge the GLG Funds
and accounts we manage as a percentage of their AUM. Our
performance fees are linked to the rates we charge the GLG Funds
and accounts we manage as a percentage of their
performance-driven asset growth, subject to high water
marks, whereby performance fees are earned by us only to
the extent that the net asset value of a GLG Fund at the end of
a measurement period exceeds the
|
59
|
|
|
|
|
highest net asset value on a preceding measurement period end
for which we earned performance fees,
and/or
subject, in some cases, to performance hurdles.
|
In addition, our business and results of operations may be
affected by a number of external market factors. These include
global asset allocation trends, regulatory developments and
overall macroeconomic activity. Due to these and other factors,
our operating results may reflect significant volatility from
period to period.
We operate in only one business segment, the management of
global investment funds and accounts.
Critical
Accounting Policies
For the period prior to November 2, 2007, our accounts are
presented based upon the combined financial statements of the
GLG Entities, which have been prepared in accordance with
generally accepted accounting principles in the United States,
or GAAP, and in accordance with the criteria presented below.
For the period from and after November 2, 2007, our
accounts are presented based on the consolidated financial
statements of GLG Partners, Inc. and its consolidated
subsidiaries.
The preparation of financial statements in accordance with GAAP
requires the use of estimates and assumptions that could affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities and the reported amounts of
revenues, expenses and other income. Actual results could differ
materially from these estimates. The following is a summary of
our critical accounting policies that are most affected by
judgments, estimates and assumptions.
Combination
and Consolidation Criteria
Upon consummation of the Acquisition, the GLG Entities became
our wholly owned subsidiaries and from that date the financial
statements have been prepared on a consolidated basis and
consolidate those entities over which the legal parent, GLG
Partners, Inc., has control over significant operating,
financial or investing decisions. Prior to the Acquisition and
for all comparative periods, the combined financial statements
presented are those of the accounting acquirer, GLG. The
combined financial statements of GLG combine those entities in
which the Principals and the Trustees had control over
significant operating, financial or investing decisions. Equity
balances have been retroactively restated to conform to the
capital structure of the legal acquirer, GLG Partners, Inc.
We consolidate certain entities we control through a majority
voting interest or otherwise in which we are presumed to have
control pursuant to Financial Accounting Standards Board
(FASB) Emerging Issues Task Force (EITF)
Issue
No. 04-5,
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights
(EITF 04-5).
All intercompany transactions and balances have been eliminated.
We have determined that the GLG Funds that we manage are
Variable Interest Entities under the guidance of FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46(R)) in that the
management contract cannot be terminated by a simple majority of
unrelated investors. We have determined that we are not the
Primary Beneficiary and, accordingly, we do not consolidate any
of the GLG Funds. We earn substantially all of our revenue from
the GLG Funds and managed accounts. In addition, the
Acquisition-related
cash compensation has been invested in two GLG Funds, and our
results are exposed to changes in the fair value of these funds.
Assets
Under Management
Our assets under management, AUM, are comprised of cash
balances, discretionary managed accounts and fund assets. The
net asset value (NAV) of AUM related to discretionary managed
accounts is determined by the third party custodian of those
accounts. Our related management, administration and performance
fees are determined pursuant to the terms of the respective
clients investment management agreement, which in turn
refer to the NAV of those accounts as determined by the
custodian. The NAV of fund assets in the GLG
60
Funds is determined by the third party administrator of the GLG
Funds. The administrators of the GLG Funds utilize the fair
value methodology described below in determining the NAV of the
respective fund assets.
Management, administration and performance fees depend on, among
other things, the fair value of AUM. The fair value of financial
instruments traded in active markets (such as publicly traded
derivatives and trading securities) is based on closing quoted
market prices at the balance sheet date. The quoted value of
financial assets and liabilities not traded in an active market
that are held by the funds is the current mid price
based on prices from multiple broker quotes
and/or
prices obtained from recognized financial data service
providers. When a fund holds OTC derivatives it uses mid-market
prices as a basis for establishing fair values. Futures and
options are valued based on closing market prices. Forward and
swap contracts are valued based on current observable market
inputs
and/or
prices obtained from recognized financial data service providers.
For investments that do not have a readily ascertainable market
value, such as private placements of equity and debt securities,
the most recent transaction price is utilized as the best
available information related to the fair value of the
investment. Events and developments related to the underlying
portfolio companies are continuously monitored and carefully
considered to determine if a change to the current carrying
value is warranted. For investments where it is determined that
the most recent transaction price is not the best indicator of
fair value, fair value is determined by using a number of
methodologies and procedures, including but not limited to
(1) performing comparisons with prices of comparable or
similar securities; (2) obtaining valuation-related
information from issuers; (3) discounted cash flow models;
(4) related transactions subsequent to the acquisition of
the investment;
and/or
(5) consulting other analytical data and indicators of
value. The methodologies and processes used will be based on the
specific attributes related to an investment and available
market data and comparative information, depending on the most
reliable information at the time.
The prospectus for each GLG Fund sets out the procedure
shareholders of the GLG Funds are required to follow in order to
redeem their investment, which includes the notice period.
Investors are required to provide the relevant GLG Fund with
written notice of a redemption request prior to the specified
deadline for the requested redemption date (defined as a Dealing
Day). The table below sets forth the typical range of notice
periods which apply to the GLG Funds. Such redemption request is
irrevocable but may, with the approval of any director of the
relevant GLG Fund, be cancelled at any point prior to the
business day prior to the relevant Dealing Day (defined as the
Valuation Day).
|
|
|
|
|
|
|
General Range of Redemption Request
|
|
GLG Fund
|
|
Advance Notice Periods*
|
|
|
Single-manager alternative strategy funds
|
|
|
5-60 days
|
|
Long-only funds
|
|
|
1-5 days
|
|
Internal FoHF
|
|
|
10-30 days
|
|
External FoHF
|
|
|
45-90 days
|
|
|
|
|
* |
|
Days are defined in the prospectus of each GLG Fund and the
definition may be business days or calendar days depending on
the GLG Fund. |
Revenue
Recognition
Performance
Fees
Performance fee rates are calculated as a percentage of
investment gains less management and administration fees,
subject to high water marks and, in the case of most
long-only funds, six external funds of funds, or FoHF, five
single-manager alternative strategy funds and certain managed
accounts, to performance hurdles, over a measurement period,
generally six months. We have elected to adopt the preferred
method of recording performance fee income, Method 1 of Emerging
Issues Task Force (EITF) Topic D-96,
Accounting for Management Fees Based on a Formula
(Method 1). Under Method 1, we do not recognize
performance fee revenues until the end of the measurement period
when the amounts are contractually payable, or
crystallized.
61
The majority of the GLG Funds and accounts managed by us have
contractual measurement periods that end on each of June 30 and
December 31. As a result, the performance fee revenues for
our first fiscal quarter and third fiscal quarter results do not
reflect revenues from uncrystallized performance fees during
these three month periods. These revenues will be reflected
instead at the end of the fiscal quarter in which such fees
crystallize.
Compensation
and Limited Partner Profit Share
Compensation expense related to performance fees is accrued
during the period for which the related performance fee revenue
is recognized and is adjusted monthly based on year-to-date
profitability and revenues recognized on a year-to-date basis.
We also have a limited partner profit share arrangement which
remunerates certain individuals through distributions of profits
from two of our subsidiaries, GLG Partners LP and GLG Partners
Services LP, paid either to two limited liability partnerships
in which those individuals are members or directly to certain
individuals who are limited partners of GLG Partners Services
LP. Through these partnership interests and under the terms of
services agreements between the subsidiaries and the limited
liability partnerships, these individuals are entitled to
priority draws and an additional discretionary share of the
profits earned by the subsidiaries. These partnership draws and
profit share distributions are referred to as limited
partner profit shares and are discussed further under
Expenses Employee Compensation and
Benefits and Limited Partner Profit Share below. Charges
related to the limited partner profit share arrangement are
recognized as operating expenses as the related revenues are
recognized and associated services provided.
Equity-Based
Compensation
Prior to December 31, 2006, GLG had not granted any
equity-based awards. In March 2007, GLG established the equity
participation plan to provide certain key individuals, limited
partnership interests in two limited partnerships, Sage Summit
LP and Lavender Heights Capital LP, with the right to receive a
percentage of the proceeds derived from an initial public
offering relating to the Acquired Companies or a third-party
sale of the Acquired Companies. Upon consummation of the
Acquisition, Sage Summit LP and Lavender Heights Capital LP
received collectively 15% of the total consideration of cash and
our capital stock payable to the owners of the Acquired
Companies in the Acquisition. The equity participation plan is
subdivided into an A Sub-Plan and a B
Sub-Plan. These limited partnerships distributed to A
Sub-Plan limited partners an aggregate of 25% of such amounts
upon consummation of the Acquisition, and the remaining 75% will
be distributed to the limited partners in three equal
installments upon vesting over a three-year period on the first,
second and third anniversaries of the consummation of the
Acquisition, subject to the ability of the general partners of
the limited partnerships, whose respective boards of directors
consist of the Trustees, to accelerate vesting. B Sub-Plan
member entitlements vest in equal installments on the first,
second, third and fourth anniversaries of the consummation of
the Acquisition subject to the ability of the general partners
of the limited partnerships, whose respective boards of
directors consist of the Trustees, to accelerate vesting. The
unvested portion of such amounts will be subject to forfeiture
back to Sage Summit LP and Lavender Heights Capital LP (and not
to us) in the event of termination of the individual as a
limited partner prior to each vesting date, unless such
termination is without cause after there has been a change in
control of our company or due to death or disability. To the
extent awards granted under the equity participation plan are
forfeited, these amounts may be reallocated by Sage Summit LP
and Lavender Heights Capital LP to their then existing or future
limited partners (i.e., participants in the plan).
Because forfeited awards are returned to the limited
partnerships, and not to us, the forfeited shares remain issued
and outstanding and the cash and shares held by the limited
partnerships may be reallocated without further dilution to our
shareholders. The equity portion of this plan is being accounted
for in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment (SFAS 123(R)),
and the EITF Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services
(EITF 96-18),
which require that such equity instruments are recorded at their
fair value on the measurement date, which date is typically upon
the inception of the services
62
that will be performed, remeasured at subsequent dates to the
extent the awards are unvested, and amortized into expense over
the vesting period on an accelerated basis.
Ten million shares of our common stock, which were part of the
purchase price in respect of the Acquisition, were reserved for
allocation under the Restricted Stock Plan. Of these shares,
9,877,000 shares were allocated to our employees, service
providers and certain key personnel in November 2007. As of
December 31, 2008, 1,883,000 shares of this reserve
were unallocated following forfeitures (net of new allocations)
of 1,984,000 since the Acquisition. These awards are subject to
vesting, typically over four years, which may be accelerated. We
also adopted the 2007 Long-Term Incentive Plan, or the 2007
LTIP, which provides for the grants of incentive and
non-qualified stock options, stock appreciation rights, common
stock, restricted stock, restricted stock units, performance
units and performance shares to employees, service providers,
non-employee directors and certain key personnel who hold direct
or indirect limited partnership interests in certain GLG
entities. We are authorized to issue up to 40 million
shares under the 2007 LTIP. Shares of restricted stock awarded
under the Restricted Stock Plan and the 2007 LTIP are issued and
outstanding shares, except in the case of awards under these
plans to personnel who are members of the limited partner profit
share arrangement in which case shares are issued and become
outstanding only as the awards vest. Unvested awards under the
2007 LTIP and Restricted Stock Plan which are forfeited, to the
extent shares are issued, are returned to us and cancelled. Our
board of directors has adopted, subject to shareholder approval,
our 2009 Long-Term Incentive Plan, or the 2009 LTIP. The 2009
LTIP replaces in its entirety our 2007 LTIP, which will be
terminated other than with respect to outstanding awards, and
authorizes the delivery of a maximum of 40,000,000 shares,
in addition to the approximately 5,000,000 authorized shares
that currently remain available for awards under the 2007 LTIP.
In addition, to the extent that any outstanding awards under our
2007 LTIP as of the date the 2009 LTIP is approved by the
shareholders are cancelled, forfeited or otherwise lapse
unexercised pursuant to the terms of that plan, the shares
underlying those awards shall be available for awards under the
2009 LTIP.
In addition, the Principals and the Trustees have entered into
an agreement among principals and trustees which will provide
that, in the event a Principal voluntarily terminates his
employment with us for any reason prior to the fifth anniversary
of the closing of the Acquisition, a portion of the equity
interests held by that Principal and his related Trustee as of
the closing of the Acquisition will be forfeited to the
Principals who are still employed by us and their related
Trustees.
All of these arrangements are accounted for in accordance with
SFAS 123(R) (or
EITF 96-18
in respect of awards to non-employees under the Restricted Stock
Plan and LTIP) and will be amortized into expense over the
applicable vesting period using the accelerated method. As a
result, following the completion of the Acquisition,
compensation and benefits reflect the amortization of
significant non-cash equity-based compensation expenses
associated with the vesting of these equity-based awards, which
under GAAP acts to reduce our net income and may result in net
losses. The agreement provides for vesting of 17.5% on the
consummation of the Acquisition, and 16.5% on each of the first
through fifth anniversaries of the Acquisition.
SFAS 123(R) requires a company to estimate the cost of
share-based payment awards based on estimated fair values. The
value of the portion of the award that is ultimately expected to
vest is recognized as expense over the requisite service period.
For awards with performance conditions, we will make an
evaluation at the grant date and future periods as to the
likelihood of the performance targets being met. Compensation
expense is adjusted in future periods for subsequent changes in
the expected outcome of the performance conditions until the
vesting date. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
At the initial grant date of our equity awards on
November 2, 2007, management made the following assumptions
with respect to forfeiture rates:
|
|
|
|
|
The size of the awards to employees, service providers and key
personnel under the equity participation plan and LTIP was
considered to be a substantial retention incentive;
|
63
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|
|
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Incentives for the awards to employees, service providers and
key personnel under the equity participation plan and LTIP were
considered sufficiently large that a zero percent forfeiture
rate was estimated, subject to review as actual forfeitures
occur;
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Disincentives for forfeiture related to the agreement among
principals and trustees were considered to be so punitive that
the probability of forfeiture was estimated as zero; and
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For awards under the Restricted Stock Plan, we used different
forfeiture rates for individual employees, service providers and
key personnel.
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During the second quarter of 2008, we reviewed these assumptions
and found that retention rates (based on the limited
post-Acquisition experience) were similar across various
groupings of employees, service providers and key personnel,
other than for the Principals and Trustees. Our expectation is
that the equity awards will continue to have a significant
impact on retention. Historical turnover by shares awarded is
consistent with the turnover statistics by headcount, excluding
the impact of one individual with a significant share award
which we consider not to be representative of our population.
Consequently, in the second quarter of 2008, we revised our
forfeiture assumptions with respect to forfeitures among our
stock awards under the Restricted Stock Plan, equity
participation plan and LTIP to an assumed rate of 10% per annum.
The forfeiture assumption for the agreement among the principals
and trustees remains at zero. In the third quarter of 2008, we
also changed our forfeiture assumption with respect to
forfeitures of the cash component of the equity participation
plan to align with the equity component to an assumed rate of
10% per annum.
Income
Tax
We earn profits through a number of subsidiaries located in a
number of different jurisdictions, each of which has its own tax
system.
Prior to the Acquisition, the only GLG entity earning
significant profits subject to company-level income taxes was
GLG Holdings Limited, which was subject to U.K. corporate income
tax. Most of the balance of the profit was earned by
pass-through or other entities that did not incur significant
company-level income taxes.
Following the Acquisition in addition to a portion of our income
being subject to U.K. taxation, U.S. taxation will be
imposed on our profits earned within the United States as well
as on our profits earned outside the United States that are
repatriated back to the United States in the form of dividends
or that are classified as Subpart F income for U.S. income
tax purposes (e.g., dividends and interest). We expect to
repatriate some of our profits in this manner and experience
U.S. taxation on those repatriated profits. In connection
with the Acquisition, we recognized for U.S. income tax
purposes the value of goodwill and certain other intangibles
which we are amortizing and deducting for U.S. income tax
purposes over a
15-year
period. This amortization deduction is taken into account in
determining how much of the repatriated profits and Subpart F
income is subject to U.S. taxation. Depending on the amount
of profits earned outside the United States, including the
amount of Subpart F income, and the amount of profits
repatriated, this tax amortization deduction will effectively
reduce U.S. tax expense on repatriated profits and Subpart
F income. Allocation of income among business activities and
entities is subject to detailed and complex rules applied to
facts and circumstances that generally are not readily
determinable at the date financial statements are prepared.
Accordingly, estimates are made of income allocations in
computing financial statement effective tax rates that may
differ from actual allocations determined when tax returns are
prepared or after examination by tax authorities.
We account for taxes using the asset and liability method in
accordance with SFAS No. 109, Accounting for Income
Taxes, under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
A valuation allowance is established when we believe it is more
likely than not that a deferred tax asset will not be realized.
64
Net
Revenues
All fee revenues are presented in this Annual Report on
Form 10-K
net of any applicable rebates or sub-administration fees.
Where a single-manager alternative strategy fund or internal
FoHF managed by us invests in an underlying single-manager
alternative strategy fund managed by us, the investing
fund is the top-level GLG Fund into which a client
invests and the investee fund is the underlying GLG
Fund into which the investing fund invests. For example, the GLG
European Long-Short Fund invests in the GLG Utilities Fund. In
that case, the GLG European Long-Short Fund is the investing
fund and the GLG Utilities Fund is the investee fund.
Management
Fees
Our gross management fee rates are set as a percentage of
fund AUM. Management fee rates vary depending on the
product, as set forth in the table below (subject to fee
treatment of
fund-in-fund
reinvestments as described below):
|
|
|
|
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General Range of Gross Fee Rates
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|
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(% of AUM)
|
Product
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As of December 31, 2008
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Single-manager alternative strategy funds*
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1.50% 2.50%**
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Long-only funds
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0.75% 2.25%
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Internal FoHF
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0.25% 1.50%** (at the investing fund level)
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External FoHF
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1.00% 1.95%
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* |
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Excludes the GLG European Long-Short (Special Assets) Fund, the
GLG Emerging Markets (Special Assets) Fund 2 and the GLG
North American Opportunity (Special Assets) Fund established
during November 2008 into which certain private placements and
other not readily realizable investments were contributed by the
GLG European Long-Short Fund, the GLG Emerging Markets Fund and
the GLG North American Opportunity Fund, respectively, for the
purpose of liquidating them, where the management fee is 0.50%. |
|
** |
|
When one of the single-manager alternative strategy funds or
internal FoHFs managed by us invests in an underlying
single-manager alternative strategy fund managed by us,
management fees are charged at the investee fund level, except
in the case of the GLG Multi Strategy Fund where fees are
charged at both the investee and investing fund levels. |
Management fees are generally paid monthly, one month in arrears.
Most GLG Funds managed by us have share classes with
distribution fees that are paid to third-party institutional
distributors with no net economic impact to us. In certain
cases, we may rebate a portion of our gross management fees in
order to compensate third-party institutional distributors for
marketing our products and, in a limited number of historical
cases, in order to incentivize clients to invest in funds
managed by us.
Due to the changing mix of our AUM related to the impact of
redemptions from higher yielding alternative strategy funds
during the quarter ended September 30, 2008 and continuing
in the quarter ended December 31, 2008, the inflow in
October 2008 of a material institutional managed account which
earns a wholesale level management fee, the SGAM UK sub-advisory
agreement and the eventual post-acquisition inclusion of the
entirety of SGAM UKs long-only AUM, and the side-pocketing
of certain private placement investments and other investments
that are not readily realizable in some of the funds that we
manage into special asset vehicles (management fees on special
assets vehicles are generally charged at a rate significantly
below those of the original fund), we expect that our combined
management fee yield will trend to lower levels in future
quarters. The ultimate management fee yield in future periods is
dependent on specific inflows, outflows and other related
factors.
65
Performance
Fees
Our gross performance fee rates are set as a percentage of fund
performance, calculated as investment gains (both realized and
unrealized), less management and administration fees, subject to
high water marks and, in the case of most long-only
funds, six external FoHFs and five single-manager alternative
strategy funds, to performance hurdles. As a result, even when a
GLG Fund has positive fund performance, we may not earn a
performance fee due to negative fund performance in prior
measurement periods and in some cases due to a failure to reach
a hurdle rate. High water marks and performance hurdles,
however, are determined on a fund by fund basis and performance
fees are not netted across funds, other than in the case of the
special assets funds related to the GLG Emerging Markets Fund,
the GLG Euro Long-Short Fund and the GLG North American
Opportunity Fund. The special assets funds do not earn a
performance fee until an investors high water mark across
both the special assets fund and its original fund is exceeded.
Accordingly, any funds above high water marks and applicable
performance hurdles at the end of the relevant measurement
period will contribute to performance fee revenue. As of
December 31, 2008, all of our long-only funds and a vast
majority of our single-manager alternative strategy funds
subject to high water marks were below their respective high
water marks. Accordingly, even if our funds that are below high
water marks have positive performance in subsequent performance
periods, our ability to earn performance fees during those
periods will be adversely impacted due to the number of funds
subject to high water marks and the amounts to be recovered.
Performance fee rates vary depending on the product, as set
forth in the table below (subject to fee treatment of
fund-in-fund
investments as described below):
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|
|
|
General Range of Gross Fee Rates
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|
|
(% of Investment Gains)
|
Product
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|
As of December 31, 2008
|
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Single-manager alternative strategy funds
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20% 30%*
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Long-only funds
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20% (may be subject to performance hurdle)
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Internal FoHF
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0% 20%* (at the investing fund level)
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External FoHF
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5% 10% (may be subject to performance hurdle)
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* |
|
When one of the single-manager alternative strategy funds or
internal FoHFs managed by us invests in an underlying
single-manager alternative strategy fund managed by us,
performance fees are charged at the investee fund level. In
addition, performance fees are charged at both the investee and
investing fund levels on the GLG Global Aggressive Fund, to the
extent, if any, that the performance fee charged at the
investing fund level is greater than the performance fee charged
at the investee fund level. |
We have adopted Method 1 for recognizing performance fee
revenues and under Method 1 do not recognize performance fee
revenues until the end of the measurement period when the
amounts are crystallized, which for the majority of the
investment funds and accounts managed by us is on June 30 and
December 31.
Due to the impact of foreign currency exposures on management
and performance fees, we have elected to utilize cash flow hedge
accounting to hedge a portion of our anticipated foreign
currency denominated revenue. The effective portion of the hedge
is recorded as a component of other comprehensive income and is
released into management or performance fee income,
respectively, when the hedged revenues impact the income
statement. The ineffective portion of the hedge is recorded each
period as derivative gain or loss in other income or other
expense, respectively. See Quantitative and Qualitative
Disclosures About Market Risk Exchange Rate
Risk in Part II, Item 7A of this Annual Report
for a further discussion of our foreign exchange and hedging
activities.
Administration
Fees
Our gross administration fee rates are set as a percentage of
fund AUM. Administration fee rates vary depending on the
product. From our gross administration fees, we pay
sub-administration fees to third-party administrators and
custodians, with the residual fees recognized as our net
administration fee. Administration fees are generally paid
monthly, one month in arrears.
66
When one of the single-manager alternative strategy funds or
internal FoHFs managed by us invests in an underlying
single-manager alternative strategy fund managed by us,
administration fees are charged at both the investing and
investee fund levels.
Fees
on Managed Accounts
Managed account fee structures are negotiated on an
account-by-account
basis and may be more complex than for the GLG Funds. Across the
managed account portfolio, fee rates vary according to the
underlying mandate and, excluding one material managed account,
in the aggregate are generally within the performance and
management fee ranges charged with respect to comparable fund
products. In October 2008, a new material managed account funded
which provides for a management fee at institutional rates and a
performance fee based on exceeding certain benchmarks even in a
scenario with negative performance. Additionally, we signed a
sub-advisory agreement with SGAM UK in December 2008 which will
earn a management fee at an institutional rate.
Expenses
Employee
Compensation and Benefits and Limited Partner Profit
Share
To attract, retain and motivate the highest quality investment
and other professionals, we provide significant remuneration
through salary, discretionary bonuses, profit sharing and other
benefits.
The largest component of expenses is limited partner profit
share and employee compensation and other benefits payable to
our investment and other professionals. This includes
significant fixed annual salary, limited partner profit share
and other compensation based on individual, team and company
performance and profitability.
Beginning in mid-2006, GLG entered into partnership with a
number of our key personnel in recognition of their importance
in creating and maintaining the long-term value of our business.
These individuals ceased to be employees and either became
holders of direct or indirect limited partnership interests in
one of two of our subsidiaries GLG Partners LP and GLG Partners
Services LP, or formed two limited liability partnerships,
Laurel Heights LLP and Lavender Heights Capital LLP (the
LLPs), through which they provided services to the
GLG entities. Through these partnership interests, these key
individuals are entitled to partnership draws as priority
distributions, which are recognized in the period in which they
are payable. There is an additional limited partner profit share
distribution, which is recognized in the period in which the
related revenues are recognized and associated services
provided. This additional distribution represents a substantial
majority of the limited partner profit share for the year and is
typically paid at the beginning of the following year. Key
personnel that are participants in the limited partner profit
share arrangement do not receive any salaries or discretionary
bonuses from us, except for the salary paid by GLG Partners,
Inc. to our Chief Operating Officer.
Under GAAP, limited partner profit share is treated as an
operating expense in the period the limited partner provides
services.
Following the Acquisition, and as required by SFAS 123(R),
our GAAP employee compensation expense reflects share-based and
other compensation recognized in respect of (a) the equity
participation plan, the 10,000,000 shares allocated for the
benefit of employees, service providers and certain key
personnel under the Restricted Stock Plan, and the agreement
among the principals and trustees (collectively, the
Acquisition-related compensation expense) and
(b) dividends paid on unvested shares that are ultimately
not expected to vest.
Under GAAP, there is a charge to compensation expense for
Acquisition-related compensation expense based on certain
service conditions. However, management believes that this
charge does not reflect our ongoing core business operations and
compensation expense and excludes such amounts for purposes of
assessing our ongoing core business performance. In the case of
the Acquisition-related compensation expense associated with
Sage Summit LP and Lavender Heights Capital LP, because
(1) awards forfeited by participants in the equity
participation plan who terminated their service with us and who
are no longer limited partners are returned to Sage Summit LP
and Lavender Heights Capital LP, and not GLG, (2) the cash
67
and stock held by the limited partnerships may be reallocated to
then existing or future participants in the plan without further
dilution to our shareholders, (3) the amount of
consideration received by the entities in the Acquisition was
awarded prior to the Acquisition based on the contributions of
the participants in the equity participation plan prior to the
Acquisition and (4) the amount reduced the number of shares
which would otherwise have been paid to the Former GLG
shareowners in the Acquisition, management measures ongoing
business performance by excluding these amounts. In the case of
the Acquisition-related compensation expense associated with the
Restricted Stock Plan, because the amount allocated to the
Restricted Stock Plan was designed to recognize employees,
service providers and key personnel for their contribution to
GLG prior to the Acquisition and because the shares allocated to
the Restricted Stock Plan reduced the number of shares which
would otherwise have been paid to the former GLG Shareowners in
the Acquisition, management measures ongoing business
performance by excluding these amounts. In the case of the
Acquisition-related compensation expense associated with the
agreement among principals and trustees, because,
notwithstanding the service requirement in SFAS 123(R),
neither the vesting nor forfeiture provisions of that agreement
would be accretive or dilutive to our present or future
shareholders, management measures ongoing business performance
by excluding these amounts.
As a result of our view on the Acquisition-related compensation
expense, we present the measure
non-GAAP CBP,
which is a non-GAAP financial measure used to calculate adjusted
net income, as described below under Assessing
Business Performance, and which deducts
Acquisition-related compensation expense from GAAP compensation,
benefits and profit share expense, to show the total ongoing
cost of the services provided to us by both participants in the
limited partner profit share arrangement and employees in
relation to services rendered during the periods under
consideration.
The components of compensation, benefits and profit share are:
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Base compensation contractual compensation
paid to employees in the form of base salary, which is expensed
as incurred.
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|
Variable compensation payments that arise
from the contractual entitlements of personnel to a fixed
percentage of certain variable fee revenues attributable to such
personnel with respect to GLG Funds and managed accounts.
Variable compensation expense is recognized at the same time as
the underlying fee revenue is crystallized, which may be monthly
or semi-annually (on June 30 and December 31), depending on the
fee revenue source.
|
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|
Discretionary compensation payments that are
determined by our management in its sole discretion and are
generally linked to performance. In determining such payments,
our management considers, among other factors, the ratio of
total discretionary compensation to total revenues; however,
this ratio may vary between periods and, in particular,
significant discretionary bonuses may still be paid in a period
of low performance for retention and incentivization purposes.
This discretionary compensation is paid to employees in the form
of a discretionary cash bonus or share-based compensation.
Discretionary compensation is generally declared and paid
following the end of each calendar year. However, the estimated
discretionary compensation charge is adjusted monthly based on
the year-to-date profitability and revenues recognized on a
year-to-date basis. As the majority of the GLG Funds crystallize
their performance fees at June 30 and December 31, the
majority of discretionary compensation expense crystallizes at
year end and is typically paid in January following the year end.
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|
|
|
Limited partner profit share distributions of
limited partner profit share under the limited partner profit
share arrangement described below.
|
The key personnel who are participants in the limited partner
profit share arrangement, provide services to us through two
limited liability partnerships, Laurel Heights LLP and Lavender
Heights LLP, which are limited partners in GLG Partners LP and
GLG Partners Services LP, respectively. The amount of profits
(or limited partner profit share) attributable to each of the
LLPs is determined at our discretion based upon the
profitability of our business and our view of the contribution
to revenues and profitability from the services provided by each
limited partnership during that period. These profit shares are
recorded as operating expense matching the period in which the
related revenues are recognized and associated services
provided. A portion
68
of the partnership distribution is advanced monthly as a draw
against final determination of profit share. Once the final
profit allocation is determined, typically in January following
each year end, it will be paid to the LLPs, as limited partners,
less any amounts paid as advance drawings during the year. See
Allocation of Profit Shares to Individual
Members of LLPs below for a further discussion of the
allocations. In addition, as shares of restricted stock awarded
under our Restricted Stock Plan or LTIP to members of the LLPs
vest or as we pay cash dividends on the unvested shares of
restricted stock awarded under these plans to members of the
LLPs, we allocate additional profits to the LLPs sufficient for
the LLP to acquire from us the shares that are vesting or to pay
the relevant dividend. These additional profit shares are
recorded as operating expense in accordance with SFAS 123(R).
Other limited partners of GLG Partners Services LP who receive
profit allocations include two investment professionals who are
not members of Lavender Heights LLP, but whose profit
distributions from GLG Partners Services LP are determined in
the same manner as the allocation of profit shares to individual
members of the LLP described below and included in the limited
partner profit measure, as described below.
Allocation
of Profit Shares to Individual Members of LLPs
Profit allocations made to the LLPs by GLG Partners LP and GLG
Partners Services LP make up substantially all of the LLPs
net profits for each period. Members are entitled to a base
limited partner profit share priority drawing, which is a fixed
amount and paid as a priority partnership draw. Certain members
are also entitled to a variable limited partner profit share
priority drawing based on a fixed percentage of certain variable
fee revenues attributable to such personnel with respect to GLG
Funds and managed accounts, which are paid as a partnership
draw. After year end, the managing members of the LLPs will
declare discretionary allocations to the key personnel who
participate in the limited partner profit share arrangement and
who are LLP members from the remaining balance of the LLPs
net profits, after taking into account the base and variable
limited partnership profit share priority drawings, based on
their view of those individuals contribution to the
generation of these profits. This process will typically take
into account the nature of the services provided to us by each
key personnel, his or her seniority and the performance of the
individual during the period. These profit shares are recorded
as operating expenses matching the period in which the related
revenues are recognized and associated services provided. Profit
allocations, net of any amounts paid during the year as priority
partnership drawings, will typically be paid to the members in
January following each year end.
As our investment performance improves, our compensation costs
and performance-related limited partner profit share
distributions are expected generally to rise correspondingly. In
addition, equity-based compensation costs may vary significantly
from period to period depending on the market price of our
common stock, among other things. In order to retain our
investment professionals during periods of poor performance, we
may have to pay our investment professionals significant
amounts, even if we earn low or no performance fees. In these
circumstances these payments may represent a larger proportion
of our revenues than historically.
Acquisition-Related
Compensation Expense
Following the Acquisition, and as required by SFAS 123(R),
our GAAP compensation, benefits and profit share expense
reflects share-based and other compensation recognized with
respect to (a) the 15% of the total consideration of cash
and capital stock received collectively by Sage Summit LP and
Lavender Heights Capital LP in connection with the Acquisition
(including with respect to the cash portion of the awards under
the equity participation plan in the aggregate amounts of
$91 million, $46 million and $5 million for the
three
12-month
periods beginning with the consummation of the Acquisition), the
10,000,000 shares allocated for the benefit of employees,
service providers and certain key personnel under the Restricted
Stock Plan, and the agreement among the principals and trustees
and (b) dividends paid on unvested shares that are
ultimately not expected to vest. Additionally, we include in the
Acquisition-related compensation expense any gains or losses
realized from investments in GLG Funds held by Sage Summit LP
and Lavender Heights LP for equity participation plan
participants.
69
Under GAAP, there is a charge to compensation expense for
Acquisition-related compensation expense based on certain
service conditions. However, management believes that this
charge does not reflect our ongoing core business operations and
compensation expense and excludes such amounts for purposes of
assessing our ongoing core business performance. In the case of
the Acquisition-related compensation expense associated with
Sage Summit LP and Lavender Heights Capital LP, because awards
forfeited by participants in the equity participation plan who
are no longer limited partners are returned to Sage Summit LP
and Lavender Heights Capital LP, and not us, and the cash and
stock held by the limited partnerships may be reallocated to
then existing or future participants in the plan without further
dilution to our shareholders and because the amount of
consideration received by the entities in the Acquisition was
awarded based on the contributions of the participants in the
equity participation plan prior to the Acquisition and the
amount reduced the number of shares which would otherwise have
been paid to the GLG Shareowners in the Acquisition, management
measures ongoing business performance by excluding these
amounts. In the case of the Acquisition-related compensation
expense associated with the Restricted Stock Plan, because the
amount allocated to the Restricted Stock Plan was designed to
recognize employees, service providers and key personnel for
their contribution to GLG prior to the Acquisition and because
the shares allocated to the Restricted Stock Plan reduced the
number of shares which would otherwise have been paid to the GLG
Shareowners in the Acquisition, management measures ongoing
business performance by excluding these amounts. In the case of
the Acquisition-related compensation expense associated with the
agreement among principals and trustees, because,
notwithstanding the service requirement in SFAS 123(R),
neither the vesting nor forfeiture provisions of that agreement
would be accretive or dilutive to our present or future
shareholders, management measures ongoing business performance
by excluding these amounts.
As a result of our view on the Acquisition-related compensation
expense, we present the measure non-GAAP CBP, which is a
non-GAAP financial measure used to calculate adjusted net
income, as described below under Assessing
Business Performance, and which deducts
Acquisition-related compensation expense from GAAP compensation,
benefits and profit share expense, to show the total ongoing
cost of the services provided to us by both participants in the
limited partner profit share arrangement and employees in
relation to services rendered during the periods under
consideration.
General
and Administrative
Our non-personnel cost base represents the expenditure required
to provide an effective investment infrastructure and marketing
operation. Key elements of the cost base are, among other
things, professional services fees, temporary and contract
employees, travel, information technology and communications,
business development, marketing, occupancy, facilities and
insurance.
Assessing
Business Performance
As discussed above under Expenses
Compensation, Benefits and Limited Partner Profit Share,
we assess our personnel-related expenses based on the measure
non-GAAP CBP. Non-GAAP CBP reflects GAAP compensation,
benefits and profit share expense, adjusted to exclude the
Acquisition-related compensation expense described above under
Expenses Compensation, Benefits
and Limited Partner Profit Share and
Expenses Acquisition-Related
Compensation Expense.
In addition, we assess the underlying performance of our
business based on the measure adjusted net income,
which adjusts GAAP net (loss)/income before minority interest
for Acquisition-related compensation expense and deducts the tax
effect of Acquisition-related compensation expense and
cumulative dividends accrued for the holders of FA Sub 2 Limited
Exchangeable Shares. See Results of
Operations Adjusted Net Income for this
reconciliation for the periods presented.
Non-GAAP CBP is not a measure of financial performance
under GAAP and should not be considered as an alternative to
GAAP compensation, benefits and profit share expense. Further,
adjusted net income is not a measure of financial performance
under GAAP and should not be considered as an alternative to
GAAP net income as an indicator of our operating performance or
any other measures of performance derived in
70
accordance with GAAP. The non-GAAP financial measures we present
may be different from non-GAAP financial measures used by other
companies.
We are providing these non-GAAP financial measures to enable
investors, securities analysts and other interested parties to
perform additional financial analysis of our personnel-related
costs and our earnings from operations and because we believe
that they will be helpful to investors in understanding all
components of the personnel-related costs of our business. We
believe that the non-GAAP financial measures also enhance
comparisons of our core results of operations with historical
periods. In particular, we believe that the
non-GAAP
adjusted net income measure better represents economic income
than does GAAP net income primarily because of the adjustment
described above. In addition, we use these non-GAAP financial
measures in our evaluation of our core results of operations and
trends between fiscal periods and believe these measures are an
important component of our internal performance measurement
process. We also prepare forecasts for future periods on a basis
consistent with these non-GAAP financial measures.
Under our revolving credit and term loan facilities, we are
required to maintain compliance with certain financial covenants
based on adjusted earnings before interest expense, provision
for income taxes, depreciation and amortization, or adjusted
EBITDA, which is calculated based on the non-GAAP adjusted net
income measure, further adjusted to add back interest expense,
provision for income taxes, depreciation and amortization. Non-
GAAP adjusted net income has certain limitations in that it may
overcompensate for certain costs and expenditures related to our
business.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 states that
accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a
component of equity. SFAS 160 applies to all entities that
prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries
or that deconsolidate a subsidiary. SFAS 160 is effective
prospectively, except for certain retrospective disclosure
requirements, for fiscal years beginning after December 15,
2008. This statement will be effective for us beginning in
fiscal 2009. As described above, the primary impact of the
statement will be the reclassification of minority interests
from liabilities to stockholders equity and their
re-labeling as
non-controlling
interests. In addition, presently under ARB No. 51,
non-controlling interests only share in losses to the extent
that they have available equity to absorb losses. Under
SFAS 160, the non-controlling interests will fully share in
losses as well as profits.
Assets
Under Management
In January and February 2009, we have continued to experience
the trend of net outflows of AUM from our single-manager
alternative strategy funds, but at a slower rate of redemptions
and redemption requests when compared to the fourth quarter of
2008. The gross outflows of AUM from our single-manager
alternative strategy funds year to date (excluding amounts which
are reinvested in other GLG Funds or managed accounts to date)
have been less than 10% of our net AUM in our
single-manager alternative strategy funds. These gross outflows
of AUM have been offset by continuing inflows of AUM into our
managed accounts (excluding amounts which are reinvested from
other GLG Funds to date), including the expected addition of the
remainder of SGAM UKs long-only AUM not currently subject
to the sub-advisory arrangement upon the completion of the
acquisition expected at the end of March 2009 and other expected
known inflows. These trends to date may not necessarily be
indicative of the final reported changes in AUM for the full
first quarter of 2009, which will depend on the additional
inflows and outflows of AUM we experience during the remainder
of the period.
71
December 31,
2008 Compared to December 31, 2007
Change in
AUM between December 31, 2008 and December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in millions)
|
|
|
Alternative strategy
|
|
$
|
6,590
|
|
|
$
|
18,833
|
|
|
$
|
(12,243
|
)
|
Long-only
|
|
|
1,766
|
|
|
|
4,774
|
|
|
|
(3,008
|
)
|
Internal FoHF
|
|
|
1,133
|
|
|
|
2,318
|
|
|
|
(1,185
|
)
|
External FoHF
|
|
|
506
|
|
|
|
598
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross fund-based AUM
|
|
|
9,995
|
|
|
|
26,523
|
|
|
|
(16,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed accounts
|
|
|
6,119
|
|
|
|
2,357
|
|
|
|
3,762
|
|
Cash and other holdings
|
|
|
430
|
|
|
|
206
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AUM
|
|
|
16,544
|
|
|
|
29,086
|
|
|
|
(12,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: alternative strategy investments in GLG Funds
|
|
|
(473
|
)
|
|
|
(2,090
|
)
|
|
|
1,617
|
|
Less: internal FoHF investments in GLG Funds
|
|
|
(998
|
)
|
|
|
(2,331
|
)
|
|
|
1,333
|
|
Less: external FoHF investments in GLG Funds
|
|
|
(32
|
)
|
|
|
(53
|
)
|
|
|
21
|
|
Less: other
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net AUM
|
|
$
|
15,039
|
|
|
$
|
24,612
|
|
|
$
|
(9,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Average gross AUM
|
|
$
|
24,763
|
|
|
$
|
22,090
|
|
Average net AUM
|
|
|
21,049
|
|
|
|
18,981
|
|
|
|
|
|
|
|
|
|
|
Opening net AUM
|
|
$
|
24,612
|
|
|
$
|
15,154
|
|
|
|
|
|
|
|
|
|
|
Inflows
|
|
|
13,608
|
|
|
|
12,191
|
|
Outflows
|
|
|
(14,881
|
)
|
|
|
(6,114
|
)
|
|
|
|
|
|
|
|
|
|
Inflows (net of redemptions)
|
|
|
(1,273
|
)
|
|
|
6,077
|
|
Performance (gains net of losses and fees)
|
|
|
(7,605
|
)
|
|
|
2,383
|
|
Currency translation impact (non-USD AUM expressed in USD)
|
|
|
(695
|
)
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
Closing net AUM
|
|
$
|
15,039
|
|
|
$
|
24,612
|
|
|
|
|
|
|
|
|
|
|
During 2008, our net AUM decreased by 38.9% to
$15.0 billion and gross AUM decreased by 43.1% to
$16.5 billion. The decline in AUM was attributable to the
following:
|
|
|
|
|
Negative fund and managed account performance during 2008,
resulting in performance losses (net of gains) of approximately
$7.6 billion;
|
|
|
|
Net outflows of $1.3 billion of AUM for 2008 were driven by:
|
|
|
|
|
|
Net outflows from our alternative strategy funds of
approximately $6.0 billion, which was composed of
redemptions of $9.2 billion offset by subscriptions of
$3.2 billion in 2008. The largest component of the
redemptions relates to approximately $4.4 billion of
outflow from the GLG Emerging Market Fund and two other related
funds due to the departure of the related investment team;
|
|
|
|
Net inflows into our managed accounts of approximately
$5.0 billion, which was composed of subscriptions of
$6.3 billion offset by redemptions of $1.3 billion.
The largest components of the
|
72
|
|
|
|
|
inflows were $1.6 billion and $3.0 billion related to
investment mandates from Banca Fideuram and SGAM UK,
respectively; and
|
|
|
|
|
|
Net outflows from our long-only strategy funds of approximately
$670 million, which was composed of redemptions of
$4.2 billion offset by subscriptions of $3.6 billion
spread among various long-only strategy funds.
|
|
|
|
|
|
Continued strengthening of the U.S. dollar against other
currencies in which a portion of our funds and managed accounts
are denominated, resulting in a negative foreign exchange impact
on AUM of $695 million during the year ended
December 31, 2008; and
|
|
|
|
Overall pause in fund inflows given the volatile market
conditions present in 2008, particularly in the fourth quarter
of 2008.
|
The ratio between net and gross AUM increased slightly
during 2008, reflecting generally smaller relative levels of
fund-in-fund
investments, with respect to both investments by our FoHF
products in certain funds managed by us and investments by
certain single-manager alternative strategy funds managed by us
in other single-manager alternative strategy funds managed by us.
As of December 31, 2008, approximately $1.5 billion of
AUM were in GLG Funds for which the related fund boards of
directors had suspended redemptions. The funds included: The GLG
Market Neutral Fund, GLG Credit Fund, GLG MMI Enhanced II
Fund and GLG Multi-Strategy Fund. We continue to receive full
management and administration fees related to these funds.
Also as of December 31, 2008, we managed special assets
funds which principally comprise private placement and other not
readily realizable investments that have been transferred from
other GLG funds totaling approximately $1.1 billion. These
special assets funds included GLG Emerging Markets (Special
Assets) Fund, GLG Emerging Markets (Special Assets) Fund 2,
GLG Euro Long-Short (Special Assets) Fund and GLG North American
Opportunity (Special Assets) Fund. The purpose of the special
assets funds is to permit the orderly sale of these investments.
As investments held by the special assets funds are sold,
proceeds will be used to redeem investors from those funds.
Other than GLG Emerging Markets (Special Assets) Fund, which has
a management fee of 2.0%, all of the above funds have reduced
management fees of 0.50%.
On September 15, 2008, Lehman Brothers Holdings Inc. (the
ultimate parent company of the UK Lehman Brothers firms) filed
for Chapter 11 bankruptcy in the United States and LBIE,
the principal European broker-dealer for the Lehman Brothers
group, was placed into administration by order of the English
court. Lehman Brothers prime brokerage unit in the United
Kingdom was one of the business groups forming part of LBIE.
Other Lehman Brothers entities have also filed for or commenced
insolvency-related proceedings, including Lehman Brothers Inc.
(LBI), Lehman Brothers U.S. broker-dealer.
Nearly all of the GLG Funds and several of the GLG institutional
managed accounts at that time utilized LBIE as a prime broker.
All of the GLG Funds and managed accounts at that time had LBIE,
and a small number of GLG Funds and managed accounts had LBI, as
a trading counterparty. In addition, all of GLGs private
client managed accounts at that time used LBIE, and a small
number of GLGs private clients additionally used LBI, as a
custodian and broker for their accounts.
As a consequence of LBIE being in administration, the GLG Funds
and, to the best of our knowledge, the managed accounts which
used LBIE as a prime broker, have been unable to access their
assets, including all securities and cash, deposited with LBIE.
In addition, the appointment of the joint administrators in
respect of LBIE triggered defaults under certain agreements
between each GLG Fund and LBIE, including certain trading
agreements, resulting in either (i) automatic termination
of these agreements or (ii) the entitlement of the relevant
GLG Fund to terminate the relevant agreement. The GLG Funds have
in general elected to terminate their agreements with LBIE to
quantify amounts owing to and from LBIE under trading
agreements, reduce market risks, reduce exposure to a net
amount, limit LBIEs rights
and/or
crystallize rights and obligations between the parties with a
view to allowing LBIE to release assets, among other factors.
We currently estimate that the combined net direct exposure of
the GLG Funds to LBIE and other entities in the Lehman Brothers
group amounts to approximately $95.0 million. Our
assessment of this exposure is
73
based upon a number of assumptions which we believe to be
reasonable based upon information which is currently available
to us, including that:
|
|
|
|
|
amounts which LBIE was required to treat as client money under
the rules of the U.K. Financial Services Authority and not use
in the course of its business were and are, in fact, so held,
and that there will be no material under-segregation or
shortfall in recoveries of client monies (although we note that
the joint administrators of LBIE have indicated that the
insolvencies of affiliates of LBIE in multiple jurisdictions and
other factors may result in under-segregation or shortfalls
which could negatively impact recovery of client money deposits
materially);
|
|
|
|
even though LBIE or its affiliates may be entitled to withhold
assets to satisfy any net indebtedness owed to them, there will
be no material shortfall in the recovery of assets held on trust
by LBIE as a custodian, or by LBI as a sub-custodian for LBIE,
or by any other sub-custodian appointed by LBIE with regard to
the assets of a GLG Fund;
|
|
|
|
the information we have received to date from the administrators
of LBIE in relation to the re-hypothecation of GLG Fund assets
by LBIE is true and accurate;
|
|
|
|
unsettled transactions between GLG Funds and LBIE at the time
LBIE entered into administration proceedings will be determined
on the basis of a cash settlement of those trades, in accordance
with contractual agreements between the affected GLG Fund and
LBIE, or cancelled, in each case, as determined by us;
|
|
|
|
the cash settlement amounts for terminated over-the-counter
derivatives and other transactions will be as determined by us;
|
|
|
|
the recovery on amounts estimated to be unsecured claims against
LBIE is valued at zero; and
|
|
|
|
there are no other facts or factors, which if known to us, would
lead us to conclude that the business of LBIE was conducted
otherwise than in accordance with the contractual documentation
or that any of our assumptions is incorrect.
|
Our exposure estimate is based upon legal and professional
opinion obtained for the purpose of determining the rights and
obligations of the GLG Funds. The current NAVs of the GLG Funds
reflect these assumptions, including that the recovery on
amounts estimated to be unsecured claims will be valued at zero
and that assets, which based on our records are held in custody
by LBIE, should be marked to market.
It has not been possible, thus far, to obtain any meaningful
visibility or transparency from Lehman Brothers or the
PricewaterhouseCoopers administrators appointed in respect of
LBIE in relation to the actual location and status of custody
assets. It is not possible to say with certainty if or when
these assets will be returned to the GLG Funds, whether the
above assumptions will be validated, or whether the size of the
GLG Funds apparent entitlement should be adjusted upwards
or downwards. It is possible that, in respect of some or all of
the long positions, the GLG Funds will not receive the return of
assets from Lehman Brothers and may instead be exposed as a
general creditor of one or more of the insolvent Lehman Brothers
entities. Accordingly, until we are able to fully reconcile our
information and assumptions with the administrators of LBIE
and/or
resolve any outstanding commercial and legal disagreement or
uncertainties with LBIE, these estimates could change or the
assumptions may prove to be incorrect, and the estimated
exposure of the GLG Funds could be materially greater or lesser.
We are unable to estimate the exposure our institutional managed
accounts have to LBIE as a prime broker because the clients in
these cases maintain the relationships with their third party
service providers, such as prime brokers, custodians and
administrators, nor do we have access to the terms of their
agreements with LBIE or know the extent of exposure these
clients may have to LBIE outside of our managed account.
As a consequence of the administration of LBIE and the
liquidation proceedings under the Securities Investor Protection
Act of 1970, as amended, of LBI, our private clients have been
unable to access their assets, including all securities and
cash, in their respective accounts with LBIE or LBI managed by
us. To the extent our private clients assets constitute
securities held in custody by LBIE or LBI, we believe the
clients
74
should recover these securities to the extent these securities
do not collateralize amounts owing by our clients to LBIE or
LBI. To the extent our private clients assets constitute
cash held by LBIE as client money, we believe the clients should
recover in the same proportion as all LBIE clients recover
client money, with any shortfall possibly (but we cannot say
with certainty) resulting in an unsecured claim against the LBIE
estate. To the extent private clients are owed amounts under
trading contracts with LBIE or LBI, we believe such amounts will
constitute unsecured claims against LBIE or LBI, as the case may
be. Notwithstanding the foregoing, the position of any
individual private client will depend on the facts and
circumstances surrounding such private clients claims, as
well as their particular legal rights and obligations pursuant
to their agreements with LBIE or LBI.
December 31,
2007 Compared to December 31, 2006
Change in
AUM between December 31, 2007 and December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in millions)
|
|
|
Alternative strategy
|
|
$
|
18,833
|
|
|
$
|
10,410
|
|
|
$
|
8,423
|
|
Long-only
|
|
|
4,774
|
|
|
|
3,815
|
|
|
|
959
|
|
Internal FoHF
|
|
|
2,318
|
|
|
|
1,261
|
|
|
|
1,057
|
|
External FoHF
|
|
|
598
|
|
|
|
568
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross fund-based AUM
|
|
|
26,523
|
|
|
|
16,053
|
|
|
|
10,470
|
|
Managed accounts
|
|
|
2,357
|
|
|
|
1,233
|
|
|
|
1,124
|
|
Cash and other holdings
|
|
|
206
|
|
|
|
310
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AUM
|
|
|
29,086
|
|
|
|
17,596
|
|
|
|
11,490
|
|
Less: internal FoHF investments in GLG funds
|
|
|
(2,331
|
)
|
|
|
(1,268
|
)
|
|
|
(1,063
|
)
|
Less: external FoHF investments in GLG funds
|
|
|
(53
|
)
|
|
|
(49
|
)
|
|
|
(4
|
)
|
Less: alternatives
fund-in-fund
investments
|
|
|
(2,090
|
)
|
|
|
(1,125
|
)
|
|
|
(965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net AUM
|
|
$
|
24,612
|
|
|
$
|
15,154
|
|
|
$
|
9,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Average gross AUM
|
|
$
|
22,090
|
|
|
$
|
15,007
|
|
Average net AUM
|
|
|
18,981
|
|
|
|
12,890
|
|
|
|
|
|
|
|
|
|
|
Opening net AUM
|
|
$
|
15,154
|
|
|
$
|
10,300
|
|
Inflows
|
|
|
12,191
|
|
|
|
7,363
|
|
Outflows
|
|
|
(6,114
|
)
|
|
|
(4,742
|
)
|
|
|
|
|
|
|
|
|
|
Inflows (net of redemptions)
|
|
|
6,077
|
|
|
|
2,621
|
|
Net performance (gains net of losses and fees)
|
|
|
2,383
|
|
|
|
1,541
|
|
Currency translation impact (non-USD AUM expressed in USD)
|
|
|
997
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
Closing net AUM
|
|
$
|
24,612
|
|
|
$
|
15,154
|
|
|
|
|
|
|
|
|
|
|
75
During 2007, our net AUM increased by $9.5 billion to
$24.6 billion and gross AUM increased by
$11.5 billion to $29.1 billion. Such growth in AUM was
attributable to the following factors:
|
|
|
|
|
A general increase in demand for our fund and managed account
products, which resulted in gross inflows of $6.1 billion,
which were responsible for 64.3% of net AUM growth in 2007.
This growth was primarily attributable to:
|
|
|
|
|
|
Continued interest in our established investment fund
products; and
|
|
|
|
Investor demand for our new investment funds launched during
2007;
|
|
|
|
Positive fund and managed account performance during 2007,
resulting in performance gains (net of losses) of
$2.4 billion, which were responsible for 25.2% of
net AUM growth in 2007; and
|
|
|
|
Weakening of the U.S. dollar against other currencies in
which a portion of our fund classes and accounts are
denominated, resulting in a positive foreign exchange impact of
$1.0 billion, which were responsible for 10.5% of
net AUM growth in 2007.
|
The specific flows which drove the net increase of
$6.1 billion of AUM was composed of:
|
|
|
|
|
Net inflows from our alternative strategy funds of approximately
$5.0 billion, which was composed of subscriptions of
$6.9 billion offset by redemptions of $1.9 billion in
2007;
|
|
|
|
Net inflows into our managed accounts of approximately
$900 million, which was composed of subscriptions of
$2.1 billion offset by redemptions of
$1.2 billion; and
|
|
|
|
Net inflows from our long-only strategy funds of approximately
$400 million, which was composed of subscriptions of
$3.2 billion offset by redemptions of $2.8 billion
spread among various long-only strategy funds.
|
The ratio between net and gross AUM remained generally
unchanged between the two dates, due to generally stable and
consistent relative levels of
fund-in-fund
investments, with respect to both investments by our FoHF
products in certain funds managed by us and investments by
certain single-manager alternative strategy funds managed by us
in other single-manager alternative strategy funds managed by us.
76
Results
of Operations
Condensed
Combined and Consolidated GAAP Statement of Operations
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
317,787
|
|
|
$
|
287,152
|
|
|
$
|
186,273
|
|
Performance fees, net
|
|
|
107,517
|
|
|
|
678,662
|
|
|
|
394,740
|
|
Administration fees, net
|
|
|
69,145
|
|
|
|
64,224
|
|
|
|
34,814
|
|
Other
|
|
|
542
|
|
|
|
10,080
|
|
|
|
5,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
$
|
494,991
|
|
|
$
|
1,040,118
|
|
|
$
|
620,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
(874,937
|
)
|
|
$
|
(810,212
|
)
|
|
$
|
(168,386
|
)
|
Limited partner profit share
|
|
|
(77,979
|
)
|
|
|
(401,000
|
)
|
|
|
(201,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and profit share
|
|
|
(952,916
|
)
|
|
|
(1,211,212
|
)
|
|
|
(369,836
|
)
|
General, administrative and other
|
|
|
(121,749
|
)
|
|
|
(108,926
|
)
|
|
|
(68,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(1,074,665
|
)
|
|
|
(1,320,138
|
)
|
|
|
(438,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(579,674
|
)
|
|
|
(280,020
|
)
|
|
|
182,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
(16,613
|
)
|
|
|
2,350
|
|
|
|
4,657
|
|
Income (loss) before income taxes
|
|
|
(596,287
|
)
|
|
|
(277,670
|
)
|
|
|
187,283
|
|
Income taxes
|
|
|
(14,231
|
)
|
|
|
(64,000
|
)
|
|
|
(29,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests
|
|
|
(610,518
|
)
|
|
|
(341,670
|
)
|
|
|
158,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable Shares Dividends
|
|
|
(4,418
|
)
|
|
|
|
|
|
|
|
|
Share of losses/(income)
|
|
|
|
|
|
|
33,885
|
|
|
|
(182
|
)
|
Cumulative dividends on Exchangeable Shares
|
|
|
(14,761
|
)
|
|
|
(2,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(629,697
|
)
|
|
$
|
(310,508
|
)
|
|
$
|
157,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Net
Revenues and Other Income
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Change in
GAAP Net Revenues and Other Income between
Years Ended December 31, 2008 and December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
317,787
|
|
|
$
|
287,152
|
|
|
$
|
30,635
|
|
Performance fees, net
|
|
|
107,517
|
|
|
|
678,662
|
|
|
|
(571,145
|
)
|
Administration fees, net
|
|
|
69,145
|
|
|
|
64,224
|
|
|
|
4,921
|
|
Other
|
|
|
542
|
|
|
|
10,080
|
|
|
|
(9,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
$
|
494,991
|
|
|
$
|
1,040,118
|
|
|
$
|
(545,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income/average net AUM*
|
|
|
2.43
|
%
|
|
|
5.48
|
%
|
|
|
(3.05
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees/average net AUM*
|
|
|
1.56
|
%
|
|
|
1.51
|
%
|
|
|
0.05
|
%
|
Administration fees/average net AUM*
|
|
|
0.34
|
%
|
|
|
0.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Ratios calculated using 2008 average net AUM exclude the
approximately $3.0 billion Société
Générale Asset Management UK mandate. |
Total net revenues and other income decreased by
$545.1 million, or 52.4%, to $495.0 million. This
decrease was driven primarily by significantly lower net
performance fee revenue offset by slightly higher net management
and administration fees in 2008.
For management and administration fee revenues, we use net fee
yield as a measure of our fees generated for every dollar of our
net AUM. The net management and administration fee yield is
equal to the management fees and administration fees,
respectively, divided by average net AUM for the applicable
period.
Net management fees increased by $30.6 million, or 10.7%,
to $317.8 million. This growth was mainly driven by two
main factors:
|
|
|
|
|
a 7.3% higher average net AUM balance between the periods
which, at constant net management fee yield, resulted in an
increase in management fees of $20.9 million; and
|
|
|
|
an increase in the net management fee yield from 1.51% to 1.56%,
reflecting increased management fees per unit of AUM, which,
when applied to the increased net AUM base, resulted in an
increase in management fees of $10.2 million.
|
Net performance fees decreased by $571.1 million, or 84.2%,
to $107.5 million. This decline was mainly driven by:
|
|
|
|
|
fewer of the GLG Funds and managed accounts generating
significant positive performance in 2008 as compared to 2007;
|
|
|
|
GLG Funds that generated performance fees in 2008 generally
having lower AUM when compared to those GLG Funds that generated
performance fees in 2007;
|
|
|
|
GLG Funds that generated performance fees having lower absolute
performance in 2008 when compared to 2007; and
|
|
|
|
a higher percentage of the GLG Funds unable to meet their
respective performance hurdle rates or high water marks since
performance fees last crystallized, even if they generated
positive performance during the year.
|
78
Net administration fees increased by $4.9 million, or 7.7%,
to $69.1 million. This growth was driven by two main
factors:
|
|
|
|
|
a 7.3% higher average net AUM balance between the periods
which, at constant administration fee yield, resulted in an
increase in administration fees of $4.7 million; and
|
|
|
|
lower yields due to the impact of net flows in the second half
of 2008 on our mix of AUM.
|
Other income decreased by $9.5 million, or 94.6%, to
$0.5 million. This decrease was due to the following:
|
|
|
|
|
during 2007 we benefited from our exposure to significant assets
being held in
non-U.S. dollar
currencies during a period of a weakening U.S. dollar,
while in 2008 we had greater exposure to U.S. dollar assets
which have no impact on other income; and
|
|
|
|
investment losses of $2.4 million on investments held
during 2008.
|
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Change in
GAAP Net Revenues and Other Income between
Years Ended December 31, 2007 and December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
287,152
|
|
|
$
|
186,273
|
|
|
$
|
100,879
|
|
Performance fees, net
|
|
|
678,662
|
|
|
|
394,740
|
|
|
|
283,922
|
|
Administration fees, net
|
|
|
64,224
|
|
|
|
34,814
|
|
|
|
29,410
|
|
Other
|
|
|
10,080
|
|
|
|
5,039
|
|
|
|
5,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
$
|
1,040,118
|
|
|
$
|
620,866
|
|
|
$
|
419,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income/average net AUM
|
|
|
5.48
|
%
|
|
|
4.82
|
%
|
|
|
0.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees/average net AUM
|
|
|
1.51
|
%
|
|
|
1.45
|
%
|
|
|
0.06
|
%
|
Administration fees / average net AUM
|
|
|
0.34
|
%
|
|
|
0.27
|
%
|
|
|
0.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income increased by
$419.3 million, or 67.5%, to $1.0 billion. This
increase was driven by growth in all categories of fee revenue,
especially in relation to management fees and performance fees.
For each type of fee revenue, we use net fee yield as a measure
of our fees generated for every dollar of our net AUM. The
net management, performance and administration fee yield is
equal to the management fees, performance fees or administration
fees, respectively, divided by average net AUM for the
applicable period.
Net management fees increased by $100.9 million, or 54.2%,
to $287.2 million. This growth was driven by two main
factors:
|
|
|
|
|
a 47.2% higher average net AUM balance between the periods
which, at constant net management fee yield, resulted in an
increase in management fees of $88.0 million, or 87.2% of
the total increase in management fees; and
|
|
|
|
an increase in the net management fee yield from 1.45% to 1.51%,
reflecting higher management fees per unit of AUM, which, when
applied to the increased net AUM base, resulted in an
increase in management fees of $12.9 million, or 12.8% of
the total increase in management fees. The higher net management
fee yield was attributable primarily to investors participating
in GLG Funds and managed accounts with higher management fee
rates.
|
79
Net performance fees increased by $283.9 million, or 71.9%,
to $678.7 million. This growth was driven by two main
factors:
|
|
|
|
|
a 47.2% higher average net AUM balance between the periods
which, at constant net performance fee yield, resulted in an
increase in performance fees of $186.5 million, or 65.7% of
the total increase in performance fees;
|
|
|
|
an increase in the annualized net performance fee yield from
3.06% to 3.58% which, when applied to the increased net AUM
base, resulted in an increase in performance fees of
$97.4 million, or 34.3% of the total increase in
performance fees. The higher net performance fee yield was
attributable to stronger performance delivering higher
performance fees per unit of AUM.
|
Net administration fees increased by $29.4 million, or
84.5%, to $64.2 million. This growth was driven by two main
factors:
|
|
|
|
|
a 47.2% higher average net AUM balance between the periods
which, at constant administration fee yield, resulted in an
increase in administration fees of $16.4 million, or 55.9%
of the total increase in administration fees; and
|
|
|
|
an increase in the net administration fee yield from 0.27% to
0.34% which, when applied to the increased net AUM base,
resulted in an increase in administration fees of
$13.0 million, or 44.1% of the total increase in
administration fees. The higher net administration fee yield was
attributable primarily to investors participating in GLG Funds
and managed accounts with higher net administration fee rates.
|
Other income increased by $5.0 million, or 100.0%, to
$10.1 million. This increase was primarily due to our
holding
non-U.S. dollar
cash balances which appreciated in value against the
U.S. dollar giving rise to certain foreign exchange gains
reflected in Other income.
Expenses
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Change in
GAAP Expenses between Years Ended
December 31, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
(874,937
|
)
|
|
$
|
(810,212
|
)
|
|
$
|
(64,725
|
)
|
Limited partner profit share
|
|
|
(77,979
|
)
|
|
|
(401,000
|
)
|
|
|
323,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and profit share
|
|
|
(952,916
|
)
|
|
|
(1,211,212
|
)
|
|
|
258,296
|
|
General, administrative and other
|
|
|
(121,749
|
)
|
|
|
(108,926
|
)
|
|
|
(12,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
(1,074,665
|
)
|
|
$
|
(1,320,138
|
)
|
|
$
|
245,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and profit share / total GAAP net
revenues and other income
|
|
|
192.51
|
%
|
|
|
116.45
|
%
|
|
|
76.06
|
%
|
General, administrative and other / total GAAP net revenues and
other income
|
|
|
24.60
|
%
|
|
|
10.47
|
%
|
|
|
14.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses / total GAAP net revenues and other income
|
|
|
217.11
|
%
|
|
|
126.92
|
%
|
|
|
90.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Compensation, benefits and profit share decreased by
$258.3 million, or 21.3%, to $952.9 million primarily
due to a decrease of $323.0 million, or 80.6%, in limited
partner profit share, offset by an increase in employee
compensation and benefits of $64.7 million, or 8.0%, mostly
related to the Acquisition-related compensation expense of
$117.6 million due to the effect of the accelerated method
of amortizing the fair value of the agreement among the
principals and trustees.
General, administrative and other expenses increased
$12.8 million due to a full-year of public company-related
expenses in 2008 and infrastructure costs that supported
net AUM of greater than $24 billion in the first half
of 2008.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Change in
GAAP Expenses between Years Ended
December 31, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
(810,212
|
)
|
|
$
|
(168,386
|
)
|
|
$
|
(641,826
|
)
|
Limited partner profit share
|
|
|
(401,000
|
)
|
|
|
(201,450
|
)
|
|
|
(199,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and profit share
|
|
|
(1,211,212
|
)
|
|
|
(369,836
|
)
|
|
|
(841,376
|
)
|
General, administrative and other
|
|
|
(108,926
|
)
|
|
|
(68,404
|
)
|
|
|
(40,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
(1,320,138
|
)
|
|
$
|
(438,240
|
)
|
|
$
|
(881,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and profit share / total GAAP net
revenues and other income
|
|
|
116.45
|
%
|
|
|
59.57
|
%
|
|
|
56.88
|
%
|
General, administrative and other / total GAAP net revenues and
other income
|
|
|
10.47
|
%
|
|
|
11.02
|
%
|
|
|
(0.55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses / total GAAP net revenues and other income
|
|
|
126.92
|
%
|
|
|
70.59
|
%
|
|
|
56.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits increased by
$641.8 million, or 381.2%, to $810.2 million,
primarily due to the Acquisition-related compensation expense of
$639.1 million and also an increase in discretionary
compensation and bonus of $17.7 million and an increase in
base compensation of $2.1 million, offset by a decrease of
$17.1 million in variable compensation attributable to
managements decision to reduce the number of personnel
with contractual entitlements to variable compensation and a
reduction in variable compensation pay out rates for those who
continue to have such entitlements. Limited partner profit share
increased $199.6 million, or 99.1%, to $401.0 million.
The increase was composed of a $181.5 million increase in
discretionary limited partner profit share, a $9.7 million
increase in base limited partner profit share priority drawings,
and a $8.4 million increase in variable limited partner
profit share priority drawings.
The factors contributing to the increases in total compensation,
benefits and profit share expense include:
|
|
|
|
|
the growth in our headcount as our operations grew; and
|
|
|
|
an increase in net revenues, primarily a 71.9% increase in
performance fees, which impacted performance-based discretionary
compensation and limited partner profit share.
|
General, administrative and other expenses increased by
$40.5 million, or 59.2%, to $108.9 million. This
increase was mainly attributable to the significant growth in
our business and scale of our operations, which led to an
increase in operational costs. In addition, we have incurred
one-time regulatory and legal costs.
81
Non-GAAP Expense
Measures
As discussed above under Assessing Business
Performance, we present a non-GAAP compensation, benefits,
and profit share measure. The table below reconciles GAAP
compensation, benefits and profit share to non-GAAP CBP for
the periods presented.
Change in
Non-GAAP Expenses between Years Ended
December 31, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Non-GAAP expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP compensation, benefits and profit share
|
|
$
|
(952,916
|
)
|
|
$
|
(1,211,212
|
)
|
|
$
|
258,296
|
|
Add back: Acquisition-related compensation expense and other
compensation costs
|
|
|
756,646
|
|
|
|
639,077
|
|
|
|
117,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP CBP
|
|
|
(196,270
|
)
|
|
|
(572,135
|
)
|
|
|
375,865
|
|
GAAP general, administrative and other
|
|
|
(121,749
|
)
|
|
|
(108,926
|
)
|
|
|
(12,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses
|
|
$
|
(318,019
|
)
|
|
$
|
(681,061
|
)
|
|
$
|
363,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios (based on non-GAAP measures)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP CBP / total GAAP net revenues and other income
|
|
|
39.65
|
%
|
|
|
55.01
|
%
|
|
|
(15.36
|
)%
|
General, administrative and other / total GAAP net revenues and
other income
|
|
|
24.60
|
%
|
|
|
10.47
|
%
|
|
|
14.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses / total GAAP net revenues and other
income
|
|
|
64.25
|
%
|
|
|
65.48
|
%
|
|
|
(1.23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP CBP decreased by $375.9 million, or 65.7%, to
$196.3 million. The decrease was attributable primarily to
lower discretionary bonus accruals and limited partner profit
share based on full year performance and an increase in
Acquisition-related stock compensation.
General, administrative and other expenses increased
$12.8 million due to a full-year of public company related
expenses in 2008 and infrastructure costs that supported
net AUM of greater than $24 billion in the first half
of 2008.
82
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Change in
Non-GAAP Expenses between Years Ended
December 31, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Non-GAAP expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP compensation, benefits and profit share
|
|
$
|
(1,211,212
|
)
|
|
$
|
(369,836
|
)
|
|
$
|
(841,376
|
)
|
Add back: Acquisition-related compensation expense and other
compensation costs
|
|
|
639,077
|
|
|
|
|
|
|
|
639,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP CBP
|
|
|
(572,135
|
)
|
|
|
(369,836
|
)
|
|
|
(202,299
|
)
|
GAAP general, administrative and other
|
|
|
(108,926
|
)
|
|
|
(68,404
|
)
|
|
|
(40,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses
|
|
$
|
(681,061
|
)
|
|
$
|
(438,240
|
)
|
|
$
|
(242,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios (based on non-GAAP measures)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP CBP / total GAAP net revenues and other income
|
|
|
55.01
|
%
|
|
|
59.57
|
%
|
|
|
(4.56
|
)%
|
General, administrative and other / total GAAP net revenues and
other income
|
|
|
10.47
|
%
|
|
|
11.02
|
%
|
|
|
(0.55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses / total GAAP net revenues and other
income
|
|
|
65.48
|
%
|
|
|
70.59
|
%
|
|
|
(5.11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP CBP increased by $202.3 million, or 54.7%, to
$572.1 million. The increase was attributable primarily to
a $199.6 million increase in limited partner profit share.
Net
Interest Income
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Change in
Net Interest Income / (Expense) between Years Ended
December 31, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Interest income
|
|
$
|
8,859
|
|
|
$
|
8,871
|
|
|
$
|
(12
|
)
|
Interest expense
|
|
|
(25,472
|
)
|
|
|
(6,521
|
)
|
|
|
(18,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(16,613
|
)
|
|
$
|
2,350
|
|
|
$
|
(18,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest expense increased by $19.0 million to
$25.5 million, driven primarily by the full-year impact of
the borrowing facilities put in place in connection with the
Acquisition. Gross interest income stayed constant at
$8.9 million, attributable primarily to similar average
cash balances held during 2008 and 2007.
83
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Change in
Net Interest Income between Years Ended
December 31, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Interest income
|
|
$
|
8,871
|
|
|
$
|
5,424
|
|
|
$
|
3,447
|
|
Interest expense
|
|
|
(6,521
|
)
|
|
|
(766
|
)
|
|
|
(5,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/(expense)
|
|
$
|
2,350
|
|
|
$
|
4,658
|
|
|
$
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest expense increased by $5.8 million to
$6.5 million, driven primarily by the new borrowing
facilities put in place in connection with the Acquisition.
Gross interest income increased by $3.4 million to
$8.9 million, attributable primarily to greater cash
balances held during 2007.
Income
Tax
Prior to the Acquisition, our effective income tax rate was
generally low since some of our business profits were not
subject to company-level income taxes.
Following the Acquisition our U.S. profits as well as our
repatriated profits are subject to U.S. taxation; however,
our U.S. tax expense on repatriated profits is effectively
reduced since we are amortizing over a
15-year
period and deducting for U.S. income tax purposes the tax
value of certain assets, such as intangibles, arising in
connection with the Acquisition.
Shown in the table below is a reconciliation of income taxes
computed at the standard U.K. corporation tax rate to the actual
income tax expense which reflect our effective income tax rate.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Change in
Income Taxes between Years Ended
December 31, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Income (loss) before income taxes
|
|
$
|
(596,287
|
)
|
|
$
|
(277,670
|
)
|
|
$
|
(318,617
|
)
|
Tax credit (charge) at U.K. corporation tax rate
|
|
|
169,942
|
|
|
|
83,301
|
|
|
|
86,641
|
|
(2008 28.5%, 2007: 30%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Factors affecting charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of overseas tax rate differences
|
|
|
33,713
|
|
|
|
53,415
|
|
|
|
(19,702
|
)
|
Effect of Acquisition-related compensation expense
|
|
|
(215,644
|
)
|
|
|
(191,723
|
)
|
|
|
(23,921
|
)
|
Effect of other disallowables and tax adjustments
|
|
|
(2,242
|
)
|
|
|
(8,993
|
)
|
|
|
6,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on profit
|
|
$
|
(14,231
|
)
|
|
$
|
(64,000
|
)
|
|
$
|
49,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(2%
|
)
|
|
|
(23%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax decreased by $49.8 million to
$14.2 million, predominantly driven by an increase in loss
before income taxes. We calculate our effective tax rate on
profit before tax and certain non-tax deductible compensation
expense. For the year ended December 31, 2008, we
recognized approximately $757 million of
Acquisition-related compensation expense, as compared to
approximately $639 million for the year ended
December 31, 2007. Our profit before tax and after
adjusting for certain non-tax deductible compensation
84
expenses was approximately $114 million and
$361 million for the years ended December 31, 2008 and
2007, respectively. Our effective tax rate based on this measure
was 12.5% and 17.7% for 2008 and 2007, respectively. This
decrease between 2007 and 2008 in the effective tax rate was
mainly due to a one time ability to carry back certain current
year tax losses against prior year taxable income and reclaim
tax paid. These rates are lower than the U.S. Federal rate
of tax of 35% as our profits are predominantly in the U.K. and
Cayman Islands which apply lower tax rates.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Change in
Income Taxes between Years Ended
December 31, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Income (loss) before income taxes
|
|
$
|
(277,670
|
)
|
|
$
|
187,283
|
|
|
$
|
(464,953
|
)
|
Tax credit (charge) at U.K. corporation tax rate
|
|
|
83,301
|
|
|
|
(56,185
|
)
|
|
|
139,486
|
|
(2007 and 2006: 30)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Factors affecting charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of overseas tax rate differences
|
|
|
53,415
|
|
|
|
27,557
|
|
|
|
25,858
|
|
Effect of Acquisition-related compensation expense
|
|
|
(191,723
|
)
|
|
|
|
|
|
|
(191,723
|
)
|
Effect of other disallowables and tax adjustments
|
|
|
(8,993
|
)
|
|
|
(597
|
)
|
|
|
(8,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on profit
|
|
$
|
(64,000
|
)
|
|
$
|
(29,225
|
)
|
|
$
|
(34,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(23%
|
)
|
|
|
16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax increased by $34.8 million to
$64.0 million, driven by a decrease in income before income
taxes and an increase in disallowed and non-taxable items,
partially offset by an increase in offsetting overseas tax rate
differences and offsetting pass through to limited partners.
The 2007 effective tax rate decreased significantly in
comparison to 2006 predominantly due to recognition of
approximately $639 million of non-cash Acquisition-related
compensation expense related to the Acquisition. This was
treated as disallowable and made up a significant component of
disallowed and non-taxable items for 2007.
Minority
Interests
Minority interest in 2008 was $19.2 million compared to a
credit of $31.2 million in 2007. The change for the twelve
months ended December 31, 2008 was due to:
|
|
|
|
|
A $34.2 million credit for share of losses in 2007
attributable to FA Sub 2 Exchangeable Shareholders. There was no
corresponding minority interest movement in 2008 as losses
applicable to the Exchangeable Shareholders exceeded their
interest in the equity capital of the subsidiary;
|
|
|
|
A $0.4 million charge for GLG Holdings, Inc and GLG Inc. at
December 31, 2007. GLG Holdings and GLG Inc. become wholly
owned subsidiaries of the Company in January 2008 and there was
no corresponding minority interest movement in 2008;
|
|
|
|
Cumulative dividends of $14.8 million paid to FA Sub 2
Exchangeable Shareholders reflecting a full year entitlement
compared to cumulative dividends of $2.7 million paid in
2007 reflecting the entitlement for the short period from the
date of the Acquisition on November 2, 2007 through to
December 31, 2007; and
|
|
|
|
Dividends of $4.4 million paid to FA Sub 2 Exchangeable
Shareholders reflecting an amount equivalent to dividends paid
to common stockholders.
|
For periods prior to the Acquisition, the minority interest only
related to GLG Holdings Inc. and GLG Inc.
85
Adjusted
Net Income
As discussed above under Assessing Business
Performance, we present a non-GAAP adjusted net income
measure. The table below reconciles net income to adjusted net
income for the periods presented.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Change in
Non-GAAP Adjusted Net Income between
Years Ended December 31, 2008 and December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Derivation of non-GAAP adjusted net income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Income (loss) before minority interest
|
|
$
|
(610,518
|
)
|
|
$
|
(341,670
|
)
|
|
$
|
(268,848
|
)
|
Add: Acquisition-related compensation expense
|
|
|
756,646
|
|
|
|
639,077
|
|
|
|
117,569
|
|
Deduct: tax effect of Acquisition-related compensation expense
|
|
|
(3,334
|
)
|
|
|
|
|
|
|
(3,334
|
)
|
Deduct: cumulative dividends
|
|
|
(14,761
|
)
|
|
|
(2,723
|
)
|
|
|
(12,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted net income
|
|
$
|
128,033
|
|
|
$
|
294,684
|
|
|
$
|
(166,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income decreased by $166.7 million, or 56.6%,
to $128.0 million. This decrease was driven by an increase
in the GAAP loss and was partially offset by an increase of
$117.6 million of Acquisition-related compensation expenses
recognized in 2008.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006
Change in
Non-GAAP Adjusted Net Income between
Years Ended December 31, 2007 and December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(U.S. dollars in thousands)
|
|
|
Derivation of non-GAAP adjusted net income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Income (Loss) before minority interest
|
|
$
|
(341,670
|
)
|
|
$
|
158,058
|
|
|
$
|
(499,728
|
)
|
Add: Acquisition-related compensation expense
|
|
|
639,077
|
|
|
|
|
|
|
|
639,077
|
|
Deduct: cumulative dividends
|
|
|
(2,723
|
)
|
|
|
|
|
|
|
(2,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted net income
|
|
$
|
294,684
|
|
|
$
|
158,058
|
|
|
$
|
136,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income increased by $136.6 million, or 86.4%,
to $294.7 million. This increase was driven by an increase
in revenue, partially offset by an increase in
non-GAAP CBP. The increase was partially offset by the
$639.1 million of Acquisition-related compensation expenses
recognized in 2007.
Liquidity
and Capital Resources
Liquidity is a measurement of our ability to meet potential cash
requirements, including ongoing commitments to repay borrowings,
pay compensation, and satisfy other general business needs. Our
primary sources of funds for liquidity consist of cash flows
provided by operating activities, primarily the management fees
and performance fees paid by the funds and accounts we manage.
We expect that our cash on hand and cash flows from operating
activities will satisfy our liquidity needs with respect to debt
obligations and operating expenses over the next twelve months.
We expect to meet our
86
long-term liquidity requirements, including the repayment of our
debt obligations, with net income, if any, and through the
issuance of debt and equity securities and loans.
We currently have $530 million dollars outstanding under a
5-year
amortizing term loan facility, of which the first principal
payment is due in the second half of 2011. We also have a
$40 million
5-year
amortizing revolving credit facility which is fully drawn with
the same syndicate of banks as the term loan facility. We are
current on all required payments related to these loan
facilities.
As part of these credit facilities, we have two primary
financial covenants to which we are required to adhere. The
financial covenants require that we have fee paying AUM (fee
paying AUM is approximately equal to our gross AUM) on
December 31, 2008 of at least $15 billion (which is
tested annually and increases $500 million per year until
2012) and that we maintain at the end of each fiscal
quarter a leverage ratio of not more than 4.5:1 calculated on
the basis of adjusted earnings before interest, taxes,
depreciation and amortization (as defined in our credit
agreement for the loan facilities) on a last twelve months
basis. As of December 31, 2008, we met or exceeded both
financial covenants of the loan facilities with fee paying AUM
of approximately $16 billion and a leverage ratio of 2.3:1.
Our leverage ratio calculated as of December 31, 2008 is
2.3:1, which is (i) total debt outstanding of
$570 million divided by (ii) the sum of
(a) adjusted net income of $128 million;
(b) Interest, taxes, depreciation, and cumulative dividends
of $49 million; and (c) Non-cash Equity Compensation
of $70 million.
Factors affecting our ability to comply with these covenants
include: the performance of the GLG Funds and managed accounts
prior to the end of each relevant measurement period, future net
redemptions and their related impact on fee revenue, currency
movements principally the Euro versus the
U.S. dollar and the level of our cash
compensation and general and administration expenses. In
addition, we believe that there are a number of options
available to us to maintain compliance with the above covenants,
should the risk of compliance increase, including: obtaining a
debt covenant waiver, strategic acquisitions that would increase
fee paying AUM
and/or
earnings, scaling down our cost infrastructure and reducing debt
levels through the use of free cash or from the proceeds of the
issuance of additional equity. Our credit agreement also
includes restrictive covenants which, among other things,
restrict our ability to incur additional indebtedness.
Due to decreases in AUM and changes in our AUM mix (resulting
from a decline in AUM in higher fee paying alternative funds and
an increase in 130/30 managed accounts), we expect that
management and administration fees will trend lower in future
quarters when compared to prior periods until AUM begins to
increase or the AUM mix tends more to alternative products.
Additionally, many of our funds have significant high water
marks. Until these funds either generate investment returns that
will overcome these high water marks, or these funds experience
net inflows that carry no high-water marks
and/or new
funds are launched without high-water marks, our ability to
generate performance fees in 2009 and beyond may be limited. We
believe that we will be able to scale down our cost
infrastructure, if required, in order to maintain positive
operating cash flow.
In December 2008, our Board of Directors approved the
discontinuance of a regular dividend with respect to the quarter
ended December 31, 2008. In addition, pursuant to the terms
of awards of restricted stock under our equity participation
plan, Restricted Stock Plan and LTIP, grantees are generally
entitled to receive cash dividends on unvested shares to the
extent dividends on common stock are declared. We have paid the
regular quarterly dividends in 2008 with cash generated from
operations and expect that future regular quarterly dividends,
if declared, will be paid with cash generated from operations.
Our ability to execute our business strategy, particularly our
ability to form new funds and increase our AUM, depends on our
ability to raise additional investor capital within such funds.
Decisions by investors to commit capital to the funds and
accounts managed by us will depend upon a number of factors
including, but not limited to, the financial performance of such
funds and accounts, industry and market trends and performance
and the relative attractiveness of alternative investment
opportunities.
Excess cash we hold on our balance sheet is either kept in
interest bearing accounts or invested in AA or better rated
money market funds. Currency hedging is undertaken to maintain
currency net assets at pre-determined ratios.
87
Operating
Activities
Our net cash provided by operating activities was
$77.3 million, $382.9 million and $200.6 million
during the years ended December 31, 2008, 2007 and 2006,
respectively. These amounts primarily reflect cash-based fee
income, less cash compensation, benefits and non-personnel costs
and tax payments and distributions to limited partners beginning
in 2006, resulting from certain key personnel becoming
participants in the limited partner profit share arrangement
beginning in mid-2006. We did not make quarterly distributions
of profit in 2006.
The $305.7 million decrease in net cash provided by
operating activities during 2008 was primarily attributable to
the following:
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|
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Performance Fees. Performance fees are
generally received every six months in the month following
crystallization (i.e., 2008 operating cash flows are the
result of receipts in June 2008 and December 2007 performance
fees). Decreased performance fees during 2008 contributed
$143.2 million to the decrease in operating cash flows
compared to 2007.
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Compensation, employee benefits and profit
share. The most significant component of
compensation, employee benefits and profit share is
discretionary compensation and limited partner profit share paid
during the year following the year in which the related business
performance is achieved (i.e., 2008 compensation cash
flows are largely influenced by discretionary compensation and
limited partner profit share paid in respect of 2007 business
performance). Compensation, employee benefits and profit share
contributed a decrease of $167.2 million during 2008 as a
result of an increase in share-based compensation as well as a
change in the amount of accrued compensation.
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General, Administrative and other. General,
administrative and other expenses contributed a decrease of
$26.0 million as a result of increased scale in our public
company operating costs over the course of 2008.
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Management and Administration Fees. Management
and administration fees are largely received monthly and are
driven by the average net AUM and fee rates in each fund
and managed account. Management and administration fees
contributed an increase of $93.5 million during 2008 due to
higher average net AUM in the first half of 2008.
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Net Interest Expense. Net interest expense
increased over the course of 2008 and contributed a decrease of
$18.7 million, driven by the full year impact of our credit
facilities that were put in place in late 2007.
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Exchangeable Share Dividends. Exchangeable
share dividends increased over the course of 2008 and
contributed a decrease of $21.9 million, compared to 2007,
where there was no dividend payment.
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Foreign Exchange. Movements in exchange rates
can affect our results. During 2008, changes in exchange rates
contributed a decrease of $21.0 million.
|
The $182.3 million increase in net cash provided by
operating activities from 2006 to 2007 was attributable the
following:
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|
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Management and Administration Fees. Management
and administration fees are largely received monthly and are
driven by the average net AUM and fee rates in each fund
and managed account. Management and administration fees
increased by $106 million from 2006 due to higher net
average AUM from net fund and managed account inflows,
performance gains and appreciation of Euro denominated AUM.
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Performance Fees. Performance fees are
generally received every six months in the month following
crystallization (i.e., 2007 operating cash flows arise
from the receipt of June 2007 and December 2006 performance
fees). Increased performance fees contributed $175 million
to the increase in operating cash flows from 2006.
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88
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Compensation, employee benefits and profit
share. The most significant component of
compensation, employee benefits and profit share is
discretionary compensation and limited partner profit share paid
during the year following the year in which the related business
performance is achieved (i.e., 2007 compensation cash
flows are largely influenced by discretionary compensation and
limited partner profit share paid in respect of 2006 business
performance). Compensation, employee benefits and profit share
increased by $65 million from 2006 as a result of higher
discretionary compensation and limited partner profit share
arising from higher revenues generated in 2006.
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General, administrative and other. General,
administrative and other outflows increased by $46 million
as a result of increased scale in our business and public
company operating costs in preparation for and following the
reverse acquisition transaction with Freedom.
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This mismatch in timing between receipt of largely semi-annual
performance fee revenues and the annual payment of associated
discretionary compensation costs, when combined with the
volatility of performance fee revenues can lead to substantial
volatility and differences between net income and cash flows
from operations.
Investing
Activities
Our net cash provided by investing activities was
$7.5 million for the year ended December 31, 2008 and
net cash used by investing activities was $124.9 million
and $4.7 million for the years ended December 31, 2007
and 2006, respectively.
The increase in net cash provided by investing activities from
2007 to 2008 of $132.4 million relates to an investment in
available for sale securities in two GLG Funds which were part
of the unvested portion of the cash proceeds of the Acquisition
allocable to participants in the equity participation plan which
contributed $102.8 million, as well as the change in the
amount of restricted cash which provided $34.8 million.
These amounts were primarily offset by the cash purchase of
fixed assets to support our expanding headcount and
infrastructure which provided for a decrease in cash of
$2.7 million and the purchase price for GLG Inc. which was
a decrease in our cash of $2.5 million.
The increase in 2007 relates primarily to a $95.6 million
investment in the unvested portion of the cash proceeds of the
Acquisition allocable to participants in the equity
participation plan by us in two GLG Funds. Other than this
amount, these amounts primarily reflect the cash purchase of
fixed assets to support our expanding headcount and
infrastructure.
We do not undertake material investing activities, and net cash
used in or provided by investing activities is generally not
significant in the context of the business. Additionally, the
amount of net cash used in investing activities on a
year-to-year basis may be strongly affected by the purchase of a
particular fixed asset, thereby giving rise to potentially
volatile year-to-year net cash usage.
Financing
Activities
Our net cash used in financing activities was
$177.4 million, $95.4 million and $164.8 million
for the years ended December 31, 2008, 2007 and 2006,
respectively.
The increase in net cash used in financing activities from 2007
to 2008 of $82.0 million was primarily attributable to the
payment of regular quarterly dividends of $16.2 million, as
well as cash used for share repurchases of $7.7 million, a
decrease in the amount of cash provided by the exercise of
warrants which amounted to $36.7 million and the absence of
any new proceeds from of our credit facilities in 2008.
The decrease in net cash used in financing activities during
2007 was primarily reflective of distributions made to the
Principals and Trustees and the net cash payment made in
connection with the Acquisition, offset by the proceeds from the
new credit facilities put in place in late 2007.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements.
89
Contractual
Obligations, Commitments and Contingencies
We have annual commitments under non-cancellable operating
leases for office space located in London, the Cayman Islands
and New York City which expire on various dates through 2018.
The minimum future rental expense under these leases is as
follows:
Future
Rental Expenses
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
$
|
10,489
|
|
|
$
|
10,518
|
|
|
$
|
10,259
|
|
|
$
|
10,259
|
|
|
$
|
10,285
|
|
|
$
|
46,131
|
|
|
$
|
97,941
|
|
Rent and associated expenses are recognized on a straight-line
basis during the years ended December 31, 2008 and 2007 and
2006 were $14.6 million, $10.8 million and
$7.5 million, respectively.
On October 30, 2007, we entered into a credit agreement
providing FA Sub 3 Limited, our wholly owned subsidiary, with:
(i) a
5-year
non-amortizing
revolving credit facility in a principal amount of up to
$40 million; and (ii) a
5-year
amortizing term loan facility in a principal amount of up to
$530 million. Proceeds of the loans were used to finance
the purchase price for the Acquisition, to pay transaction costs
and to repay our indebtedness and for working capital and other
general corporate purposes. Scheduled future principal payments
for long-term borrowings at December 31, 2008 are as
follows:
Future
Loan Principal Payments
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Year Ended December 31,
|
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|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
530,000
|
|
Scheduled future interest payments for long-term borrowings
based on the weighted-average interest rate of 1.55% at
December 31, 2008 are as follows:
Future
Loan Interest Payments
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
$
|
8,328
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|
|
$
|
8,328
|
|
|
$
|
6,576
|
|
|
$
|
2,065
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,297
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|
In the normal course of business, we enter into operating
contracts that contain a variety of representations and
warranties and that provide general indemnifications. Our
maximum exposure under these arrangements is unknown as this
would involve future claims that may be made against us that
have not yet occurred. However, based on experience, we expect
the risk of material loss to be remote.
As more fully disclosed in Note 13, Income
Taxes, in the notes to our consolidated and combined
financial statements included in this Annual Report on
Form 10-K,
we adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109 (FIN 48), on
January 1, 2007. As of December 31, 2008, we have
recognized approximately $10.5 million of liabilities for
unrecognized tax benefits, including $0.7 million related
to interest. The final outcome of these tax uncertainties is
dependent upon various matters including tax examinations, legal
proceedings, changes in regulatory tax laws, or interpretation
of those tax laws, or expiration of statutes of limitation.
However, based on the number of jurisdictions, the uncertainties
associated with litigation and examinations, there is a high
degree of uncertainty regarding the future cash outflows
associated with these tax uncertainties. As a result, we are not
able to provide a reasonable reliable estimate of the timing of
future payments relating to the FIN 48 obligations.
90
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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Our predominant exposure to market risk is related to our role
as investment manager for the GLG Funds and accounts we manage
for clients and the impact of movements in the fair value of
their underlying investments. Changes in value of assets managed
will impact the level of management, administration and
performance fee revenues.
The broad range of investment strategies that are employed
across the GLG Funds and the managed accounts mean that they are
subject to varying degrees and types of market risk. In
addition, as the GLG Funds and managed accounts are managed
independently of each other and risk is managed at a strategy
and fund level, it is unlikely that any market event would
impact all GLG Funds and managed accounts in the same manner or
to the same extent. Moreover, there is no netting of performance
fees across funds as these fees are calculated at the fund level.
The management of market risk on behalf of clients, and through
the impact on fees to us, is a significant focus for us and we
use a variety of risk measurement techniques to identify and
manage market risk. Such techniques include Monte Carlo Value at
Risk, stress testing, exposure management and sensitivities, and
limits are set on these measures to ensure the market risk taken
is commensurate with the publicized risk profile of each GLG
Fund and in compliance with risk limits.
In order to provide a quantitative indication of the possible
impact of market risk factors on our future performance, the
following sets forth the potential financial impact of scenarios
involving a 10% increase or decrease in the fair value of all
investments in the GLG Funds and managed accounts. While these
scenarios are for illustrative purposes only and do not reflect
our managements expectations regarding future performance
of the GLG Funds and managed accounts, they represent
hypothetical changes that illustrate the potential impact of
such events.
Impact on
Management Fees*
Our management fees are based on the AUM of the various GLG
Funds and accounts that we manage, and, as a result, are
impacted by changes in market risk factors. These management
fees will be increased or reduced in direct proportion to the
impact of changes in market risk factors on AUM in the related
GLG Funds and accounts managed by us. A 10% change in the fair
values of all of the investments held by the GLG Funds and
managed accounts as of December 31, 2008 would impact
future net management fees in the following four fiscal quarters
by an aggregate of $13.8 million, assuming that there is no
subsequent change to the investments held by the GLG Funds and
managed accounts in those four following fiscal quarters.
Impact on
Performance Fees
Our performance fees are generally based on a percentage of
profits of the various GLG Funds and accounts that we manage,
and, as a result, are impacted by changes in market risk
factors. Our performance fees will therefore generally increase
given an increase in the market value of the investments in the
relevant GLG Funds and managed accounts and decrease given a
decrease in the market value of the investments in the relevant
GLG Funds and managed accounts. However, it should be noted that
we are not required to refund historically crystallized
performance fees to the GLG Funds and managed accounts. The
calculation of the performance fee includes in certain cases
performance hurdles and high-water marks, and as a
result, the impact on performance fees of a 10% change in the
fair values of the investments in the GLG Funds and managed
accounts cannot be readily predicted or estimated.
Impact on
Administration Fees*
Our administration fees are generally based on the AUM of the
GLG Funds and managed accounts to which they relate and, as a
result, are impacted by changes in market risk factors. Our
administration fees will
* AUM used in impact calculations does not include
the approximately $3.0 billion Société
Générale Asset Management UK mandate.
91
generally increase given an increase in the market value of the
investments in the relevant GLG Funds and managed accounts and
decrease given a decrease in the market value of the investments
in the relevant GLG Funds and managed accounts. A 10%
increase/(decrease) in the fair values of all of the investments
held by the GLG Funds and managed accounts as of
December 31, 2008 would impact future net administration
fees in the following four fiscal quarters by an aggregate of
$4.1/($2.4) million, respectively, assuming there is no
subsequent change to the investments held by the GLG Funds and
managed accounts in those four following fiscal quarters.
Market
Risk
The GLG Funds and accounts managed by us hold investments that
are reported at fair value as of the reporting date. Our AUM is
a measure of the estimated fair values of the investments in the
GLG Funds and managed accounts. Our AUM will therefore increase
(or decrease) in direct proportion to changes in the market
value of the total investments across all of the GLG Funds and
managed accounts. A 10% change in the fair values of all of the
investments held by the GLG Funds and managed accounts as of
December 31, 2008 would impact our gross AUM by
$1.65 billion and net AUM by $1.50 billion as of
such date. This change will consequently affect our management
fees, performance fees and administration fees as described
above.
Exchange
Rate Risk
The GLG Funds and the accounts managed by us hold investments
that are denominated in foreign currencies. The GLG Funds and
the managed accounts may employ currency hedging to help
mitigate the risks of currency fluctuations.
Furthermore, share classes may be issued in the GLG Funds
denominated in foreign currencies, whose value against the
currency of the underlying investments, or against our reporting
currency, may fluctuate. As a result, the calculation of our
U.S. dollar AUM based on AUM denominated in foreign
currencies is affected by exchange rate movements. In addition,
foreign currency movements may impact the U.S. dollar value
of our management fees, performance fees and administration
fees. For example, management fee revenues derived from AUM
denominated in a foreign currency will accrue in that currency
and their value may increase or decline in U.S. dollar
terms if the value of the U.S. dollar changes against that
foreign currency.
We utilize derivative instruments in an effort to manage our
foreign currency exposures. Management and performance fees that
are calculated on share classes denominated in currencies other
than U.S. dollars are exposed to changes in the value of
the U.S. dollar versus those currencies as they are
translated back into U.S. dollars. The majority of our
foreign currency exposure related to management and performance
fees is to the Euro, with smaller exposures to the British Pound
and Japanese Yen. We have elected to utilize cash flow hedge
accounting to hedge a portion of our anticipated foreign
currency revenue. The effective portion of the hedge is recorded
as a component of other comprehensive income and is released
into management and performance fee income, respectively, when
the hedged revenues impact the income statement. The ineffective
portion of the hedge is recorded each period as derivative gain
or loss in other income or other expense. We carefully analyze
our hedging counterparties and only utilize those with credit
ratings of AA or better.
Interest
Rate Risk
The GLG Funds and accounts managed by us hold positions in debt
obligations and derivatives thereof, some of which accrue
interest at variable rates and whose value is impacted by
reference to changes in interest rates. Interest rate changes
may therefore directly impact the AUM valuation of these GLG
Funds and managed accounts, which may affect our management fees
and performance fees as described above. Our long-term debt
consists of our outstanding revolving and term loan credit
facilities. Interest on the outstanding principal amounts is
currently based on
1-month
LIBOR plus the applicable margin (currently 1.125%), which is
reset periodically and was 4.255% at December 31, 2008. A
10% change in the
1-month
LIBOR would impact our interest expense by approximately
$0.2 million for the
1-month
period.
92
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Item 8.
|
Financial
Statements and Supplementary Data
|
The combined and consolidated financial statements of GLG
Partners, Inc. and subsidiaries, including the notes thereto and
the report thereon, is presented beginning at
page F-1
of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Our disclosure controls and procedures are designed to ensure
that information required to be disclosed in the reports that we
file or submit under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission, and
that such information is accumulated and communicated to the
Companys management, including our Co-Chief Executive
Officers and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Our management,
with the participation of our Co-Chief Executive Officers and
Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2008,
as required by the
Rule 13a-15(b)
under the Exchange Act. Based on that evaluation, the Co-Chief
Executive Officers and Chief Financial Officer concluded that
the Companys disclosure controls and procedures were
effective as of December 31, 2008.
Managements
Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in
Rule 13a-15(f)
under the Exchange Act. Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of the Companys financial statements for
external reporting purposes in accordance with US generally
accepted accounting principles (GAAP). Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements.
Under the supervision and with the participation of the
Companys management, including the Companys Co-Chief
Executive Officers and Chief Financial Officer, the Company
conducted an evaluation of the effectiveness of the internal
control over financial reporting of the Company and its
subsidiaries as of December 31, 2008 as required by
Rule 13a-
15(c) under the Exchange Act. In making this assessment, the
Company used the criteria set forth in the framework in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
its evaluation under the framework in Internal
Control Integrated Framework, management concluded
that the Companys internal control over financial
reporting was effective as of December 31, 2008.
Ernst & Young LLP, an independent registered public
accounting firm, has audited the internal control over financial
reporting of the Company as of December 31, 2008, as stated
in their report appearing on page 94.
Changes
in Internal Control Over Financial Reporting
There have not been any changes in the Companys internal
control over financial reporting during the fourth quarter of
fiscal 2008 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control
over financial reporting.
Inherent
Limitations Over Controls
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
93
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
GLG Partners, Inc.
We have audited GLG Partners, Inc.s internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). GLG Partners,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, GLG Partners, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of GLG Partners, Inc. as of
December 31, 2008 and 2007 and the related combined and
consolidated statements of operations, changes in
stockholders (deficit)/equity and cash flows for each of
the three years in the period ended December 31, 2008 of
GLG Partners, Inc. and our report dated March 2, 2009
expressed an unqualified opinion thereon.
Ernst & Young LLP
London, England
March 2, 2009
94
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Item 9B.
|
Other
Information
|
Not applicable.
PART III
Certain information required by Part III is omitted from
this Annual Report in that the registrant will file its
definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 11, 2009 pursuant to
Regulation 14A of the Exchange Act (the Proxy Statement)
not later than 120 days after the end of the fiscal year
covered by this Annual Report, and certain information included
in the Proxy Statement is incorporated herein by reference.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
(a) Directors The information required by this
Item is incorporated herein by reference to the section entitled
Election of Directors in the Proxy Statement, and
except as described therein, no nominee for director was
selected pursuant to any arrangement or understanding between
the nominee and any person other than the Company pursuant to
which such person is or was to be selected as a director or
nominee.
(b) Audit Committee Financial Expert The board
of directors has determined that Ian Ashken, Chairman of the
Audit Committee, is an audit committee financial
expert and independent as defined under
applicable SEC and NYSE rules. The boards affirmative
determination was based, among other things, upon his extensive
experience as Chief Financial Officer of Jarden Corporation
since September 2001.
(c) We adopted our Code of Ethics that applies
to all employees, including our executive officers. A copy of
our Code of Ethics is posted on our Internet site at
www.glgpartners.com. In the event that we make any amendment to,
or grant any waivers of, a provision of the Code of Ethics that
applies to the principal executive officer, principal financial
officer, or principal accounting officer that requires
disclosure under applicable SEC rules, we intend to disclose
such amendment or waiver and the reasons therefor on our
Internet site at www.glgpartners.com.
(d) Section 16(a) Beneficial Ownership Reporting
Compliance The information required by this Item is
incorporated herein by reference to the section entitled
Other Matters Section 16(a) Beneficial
Ownership Reporting Compliance in the Proxy Statement.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated herein by
reference to the sections entitled Compensation of
Executive Officers and Director Compensation
in the Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item is incorporated herein by
reference to the sections entitled Security Ownership of
Certain Beneficial Owners and Management and Equity
Compensation Plan Information in the Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is incorporated herein by
reference to the sections entitled Board of Directors and
Committees and Certain Relationships and
Transactions with Related Persons in the Proxy Statement.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated herein by
reference to the section entitled Proposal to Ratify the
Appointment of Independent Registered Public Accounting Firm
(Proposal 2) in the Proxy Statement.
95
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
(a)(1)
|
Financial
Statements
|
See Index to Financial Statements appearing on
page F-1.
|
|
(2)
|
Supplemental
Schedules
|
Schedule I Condensed Financial Information of
Registrant. See Index to Financial Statements appearing on
page F-1.
All other schedules have been omitted since the required
information is not present in amounts sufficient to require
submission of the schedule, or because the required information
is included in the combined and consolidated financial
statements or notes thereto.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Purchase Agreement dated June 22, 2007 by and among the
Company, FA Sub 1 Limited, FA Sub 2 Limited and FA Sub 3
Limited, Jared Bluestein, as Buyers Representative, Noam
Gottesman, as Sellers Representative, and the GLG equity
holders party thereto, filed as Annex A to the
Companys Proxy Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
2
|
.2
|
|
Amendment No. 1, dated as of March 4, 2008, to the
Purchase Agreement, dated as of June 22, 2007, among the
Company, Noam Gottesman (as Sellers Representative) and
Jared Bluestein (as Buyers Representative), filed as
Exhibit 2.2 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (File
No. 001-33217),
is incorporated herein by reference.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Company, filed as
Exhibit 3.1 to the Companys Current Report on
Form 8-K
(File
No. 001-33217),
is incorporated herein by reference.
|
|
3
|
.2
|
|
Amended Bylaws of the Company, filed as Exhibit 3.5 to the
Companys amended Registration Statement on
Form 8-A/A
(File
No. 001-33217),
is incorporated herein by reference.
|
|
4
|
.1
|
|
Specimen Certificate for Common Stock, par value $0.0001 per
share, of the Company, filed as Exhibit 4.1 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.2
|
|
Specimen Certificate for Series A Preferred Stock, par
value $0.0001 per share, of the Company, filed as
Exhibit 4.2 to the Companys Post-Effective Amendment
on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.3
|
|
Specimen Certificate for Public Warrants to Purchase Common
Stock of the Company, filed as Exhibit 4.3 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.4
|
|
Specimen Certificate for Private Warrants to Purchase Common
Stock of the Company, filed as Exhibit 4.4 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.5
|
|
Specimen Certificate for Units, each consisting of one share of
Common Stock and one Warrant, of the Company, filed as
Exhibit 4.5 to the Companys Post-Effective Amendment
on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.6
|
|
Amended and Restated Warrant Agreement dated as of
December 21, 2006 between Continental Stock
Transfer & Trust Company and the Company, filed
as Exhibit 4.8 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-136248),
is incorporated herein by reference.
|
96
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
4
|
.7
|
|
Amendment No. 1 to Amended and Restated Warrant Agreement,
dated as of December 19, 2007, between Continental Stock
Transfer & Trust Company and the Company, filed
as Exhibit 4.7 to the Companys Post-Effective
Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.1
|
|
Credit Agreement dated as of October 31, 2007 among the
Company, FA Sub 1 Limited, FA Sub 2 Limited and FA Sub 3
Limited, each a wholly owned subsidiary of the Company,
Citigroup Global Markets, Inc., as book manager and arranger,
Citicorp USA, Inc., as administrative agent, and the other
lenders party thereto, filed as Exhibit 10.1 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.2
|
|
Registration Rights Agreement dated as of December 21, 2006
among the Company and the Founders, filed as Exhibit 10.1
to the Companys Registration Statement on
Form S-1
(Registration
No. 333-136248),
is incorporated herein by reference.
|
|
10
|
.3
|
|
Support Agreement dated November 2, 2007 between the
Company and FA Sub 2 Limited, filed as Annex B to the
Companys Proxy Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.4
|
|
GLG Shareholders Agreement dated as of June 22, 2007 among
the Company and the Persons set forth on the signature page
thereto, filed as Annex D to the Companys Proxy
Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.5
|
|
Founders Agreement dated June 22, 2007 among Noam
Gottesman, as Sellerss Representative, the Principals, the
Trustees, Berggruen Freedom Holdings Ltd. and Marlin Equities
II, LLC, filed as Annex E to the Companys Proxy
Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.6
|
|
Voting Agreement dated June 22, 2007 among the Principals,
the Trustees, Lavender Heights Capital LP, Sage Summit LP, Point
Pleasant Ventures Ltd., Jackson Holding Services Inc and the
Company, filed as Annex F to the Companys Proxy
Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.7.1*
|
|
Form of Indemnification Agreement between the Company and its
directors, officers, employees and agents, filed as
Exhibit 10.1.1 to the Companys Current Report on
Form 8-K
(File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.7.2*
|
|
Schedule identifying agreements substantially identical to the
Form of Indemnification Agreement constituting
Exhibit 10.7.1 to this Annual Report on
Form 10-K.
|
|
10
|
.8.1*
|
|
2007 Long-Term Incentive Plan, filed as Annex J to the
Companys Proxy Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.8.2*
|
|
Form of Restricted Stock Award Agreement for US Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.4 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.3*
|
|
Form of Restricted Stock Award Agreement for US Non-Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.5 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.4*
|
|
Form of Restricted Stock Award Agreement for UK Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.6 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.5*
|
|
Form of Restricted Stock Award Agreement for UK Non-Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.7 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.6*
|
|
Form of Restricted Stock Award Agreement for UK Limited Partners
under the Companys 2007 Long-Term Incentive Plan, filed as
Exhibit 4.8 to the Companys Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
97
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.8.7.1*
|
|
Restricted Stock Agreement dated November 5, 2007 between
the Company and Alejandro San Miguel under the
Companys 2007 Long-Term Incentive Plan, filed as
Exhibit 10.2.1 to the Companys Current Report on
Form 8-K
(File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.8.7.2*
|
|
Letter Agreement dated as of January 29, 2008 between the
Company and Alejandro San Miguel with respect to the
Restricted Stock Award Agreement dated November 5, 2007
between the Company and Mr. San Miguel filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.9.1*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Noam Gottesman, filed as Exhibit 10.9.1 to the
Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.9.2*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners LP and Noam Gottesman, filed as Exhibit 10.9.2 to
the Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.9.3*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners Services LP and Noam Gottesman, filed as
Exhibit 10.9.3 to the Companys Post-Effective
Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.10.1*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Emmanuel Roman, filed as Exhibit 10.10.1 to the
Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.10.2*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners LP and Emmanuel Roman, filed as Exhibit 10.10.2 to
the Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.10.3*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners Services LP and Emmanuel Roman, filed as
Exhibit 10.10.3 to the Companys Post-Effective
Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.11*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Simon White, filed as Exhibit 10.11 to the
Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.12*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Alejandro San Miguel, filed as
Exhibit 10.12 to the Companys Post-Effective
Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.13.1*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners LP and Pierre Lagrange.
|
|
10
|
.13.2*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners Services Limited and Pierre Lagrange.
|
|
10
|
.14*
|
|
Employment Agreement dated March 18, 2008 between the
Company and Jeffrey M. Rojek, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (File
No. 001-33217),
is incorporated herein by reference.
|
|
21
|
|
|
Subsidiaries of the Company.
|
|
23
|
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
24
|
|
|
Power of Attorney authorizing certain persons to sign this
Annual Report on
Form 10-K
on behalf of certain directors and executive officers of the
Company.
|
|
31
|
.1
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to
Rule 13a-
14(a) of the Securities Exchange Act of 1934.
|
|
31
|
.2
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to
Rule 13a-
14(a) of the Securities Exchange Act of 1934.
|
|
31
|
.3
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934
|
98
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
32
|
.1
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.2
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to Section 906 of the Sarbanes- Oxley Act
of 2002.
|
|
32
|
.3
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
|
|
|
Portions of this exhibit have been omitted and filed separately
with the Office of the Secretary of the Securities and Exchange
Commission pursuant to a confidential treatment request. |
(b) Exhibits
See subsection (a) (3) above.
(c) Financial
Statement Schedules
See subsections (a) (1) and (2) above.
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York,
State of New York, on March 2, 2009.
GLG PARTNERS, INC.
Noam Gottesman
Chairman and Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed on March 2,
2009 by the following persons on behalf of the registrant and in
the capacities indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Noam
Gottesman
Noam
Gottesman
|
|
Chairman of the Board and Co-Chief Executive
Officer(Co-Principal Executive Officer)
|
|
|
|
Emmanuel
Roman*
Emmanuel
Roman
|
|
Co-Chief Executive Officer and Director
(Co-Principal Executive Officer)
|
|
|
|
/s/ Jeffrey
M. Rojek
Jeffrey
M. Rojek
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
Ian
G. H. Ashken*
Ian
G. H. Ashken
|
|
Director
|
|
|
|
Martin
E. Franklin*
Martin
E. Franklin
|
|
Director
|
|
|
|
James
N. Hauslein*
James
N. Hauslein
|
|
Director
|
|
|
|
Pierre
Lagrange*
Pierre
Lagrange
|
|
Director
|
|
|
|
William
P. Lauder*
William
P. Lauder
|
|
Director
|
|
|
|
Peter
A. Weinberg*
Peter
A. Weinberg
|
|
Director
|
|
|
|
|
|
*By:
|
|
/s/ Alejandro
R.
San Miguel Alejandro
R. San Miguel**
|
|
|
|
|
|
** |
|
By authority of the power of attorney filed as Exhibit 24
hereto. |
100
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
GLG Partners, Inc.
We have audited the accompanying consolidated balance sheets of
GLG Partners, Inc. and subsidiaries as of December 31, 2008
and 2007, and the related combined and consolidated statements
of operations, changes in stockholders (deficit)/equity,
and cash flows for each of the three years in the period ended
December 31, 2008. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and schedule are the responsibility of the
management of GLG Partners, Inc. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of GLG Partners, Inc. and subsidiaries at
December 31, 2008 and 2007, and the combined and
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
As discussed in note 2 to the accompanying combined and
consolidated financial statements, effective January 1,
2007, GLG Partners, Inc. adopted Financial Accounting Standards
Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, and effective January 1, 2006,
GLG Partners, Inc. adopted FASB Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), GLG
Partners, Inc.s internal control over financial reporting
as of December 31, 2008, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 2, 2009, expressed an unqualified
opinion thereon.
Ernst & Young LLP
London, England
March 2, 2009
F-2
GLG
PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(US Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
316,195
|
|
|
$
|
429,422
|
|
Restricted cash
|
|
|
13,315
|
|
|
|
24,066
|
|
Fees receivable
|
|
|
42,106
|
|
|
|
389,777
|
|
Prepaid expenses and other assets
|
|
|
34,051
|
|
|
|
30,417
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
405,667
|
|
|
|
873,682
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
|
65,484
|
|
|
|
96,108
|
|
Goodwill
|
|
|
587
|
|
|
|
|
|
Property and equipment (net of accumulated depreciation and
amortization of $11,505 and $12,374 respectively)
|
|
|
14,076
|
|
|
|
9,079
|
|
Other non-current assets
|
|
|
3,868
|
|
|
|
5,268
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Assets
|
|
|
84,015
|
|
|
|
110,455
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
489,682
|
|
|
$
|
984,137
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT)/EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Rebates and sub-administration fees payable
|
|
$
|
26,234
|
|
|
$
|
21,207
|
|
Accrued compensation, benefits and profit share
|
|
|
148,531
|
|
|
|
467,887
|
|
Income taxes payable
|
|
|
15,633
|
|
|
|
37,464
|
|
Distributions payable
|
|
|
7,592
|
|
|
|
78,093
|
|
Accounts payable and other accruals
|
|
|
47,176
|
|
|
|
37,624
|
|
Revolving credit facility
|
|
|
40,000
|
|
|
|
40,000
|
|
Other liabilities
|
|
|
50,765
|
|
|
|
16,092
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
335,931
|
|
|
|
698,367
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
Loan payable
|
|
|
530,000
|
|
|
|
530,000
|
|
Minority interest
|
|
|
|
|
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Liabilities
|
|
|
530,000
|
|
|
|
531,911
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
865,931
|
|
|
|
1,230,278
|
|
Stockholders Deficit:
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 1,000,000,000 authorized,
2008: 245,784,390 issued and outstanding (2007: 244,730,988
issued and outstanding)
|
|
|
24
|
|
|
|
24
|
|
Series A voting preferred stock, $.0001 par value;
150,000,000 authorized, 2008: 58,904,993 issued and outstanding
(2007: 58,904,993 issued and outstanding)
|
|
|
6
|
|
|
|
6
|
|
Additional paid in capital
|
|
|
1,176,054
|
|
|
|
575,589
|
|
Treasury stock 21,418,568 shares of common stock (2007:
25,382,500 shares)
|
|
|
(293,434
|
)
|
|
|
(347,740
|
)
|
Accumulated other comprehensive income
|
|
|
(17,141
|
)
|
|
|
3,477
|
|
Accumulated deficit
|
|
|
(1,241,758
|
)
|
|
|
(477,497
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit
|
|
|
(376,249
|
)
|
|
|
(246,141
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Deficit
|
|
$
|
489,682
|
|
|
$
|
984,137
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
and consolidated financial statements.
F-3
GLG
PARTNERS, INC. AND SUBSIDIARIES
(US Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
317,787
|
|
|
$
|
287,152
|
|
|
$
|
186,273
|
|
Performance fees, net
|
|
|
107,517
|
|
|
|
678,662
|
|
|
|
394,740
|
|
Administration fees, net
|
|
|
69,145
|
|
|
|
64,224
|
|
|
|
34,814
|
|
Other
|
|
|
542
|
|
|
|
10,080
|
|
|
|
5,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
|
494,991
|
|
|
|
1,040,118
|
|
|
|
620,866
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
(874,937
|
)
|
|
|
(810,212
|
)
|
|
|
(168,386
|
)
|
Limited partner profit share
|
|
|
(77,979
|
)
|
|
|
(401,000
|
)
|
|
|
(201,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and profit share
|
|
|
(952,916
|
)
|
|
|
(1,211,212
|
)
|
|
|
(369,836
|
)
|
General, administrative and other
|
|
|
(121,749
|
)
|
|
|
(108,926
|
)
|
|
|
(68,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(1,074,665
|
)
|
|
|
(1,320,138
|
)
|
|
|
(438,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/ income from operations
|
|
|
(579,674
|
)
|
|
|
(280,020
|
)
|
|
|
182,626
|
|
Interest income
|
|
|
8,859
|
|
|
|
8,871
|
|
|
|
5,423
|
|
Interest expense
|
|
|
(25,472
|
)
|
|
|
(6,521
|
)
|
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/ income before income taxes
|
|
|
(596,287
|
)
|
|
|
(277,670
|
)
|
|
|
187,283
|
|
Income taxes
|
|
|
(14,231
|
)
|
|
|
(64,000
|
)
|
|
|
(29,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/ income before minority interests
|
|
|
(610,518
|
)
|
|
|
(341,670
|
)
|
|
|
158,058
|
|
Minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchangeable shares dividends
|
|
|
(4,418
|
)
|
|
|
|
|
|
|
|
|
Share of losses/(income)
|
|
|
|
|
|
|
33,885
|
|
|
|
(182
|
)
|
Cumulative dividends on exchangeable shares
|
|
|
(14,761
|
)
|
|
|
(2,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/ income attributable to common stockholders
|
|
$
|
(629,697
|
)
|
|
$
|
(310,508
|
)
|
|
$
|
157,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per share basic
|
|
$
|
(2.97
|
)
|
|
$
|
(2.11
|
)
|
|
$
|
1.16
|
|
Weighted average common stock outstanding basic (in
thousands)
|
|
|
212,225
|
|
|
|
147,048
|
|
|
|
135,712
|
|
Net (loss)/income per share diluted
|
|
$
|
(2.97
|
)
|
|
$
|
(2.11
|
)
|
|
$
|
0.81
|
|
Weighted average common stock outstanding diluted
(in thousands)
|
|
|
212,225
|
|
|
|
147,048
|
|
|
|
194,617
|
|
The accompanying notes are an integral part of these combined
and consolidated financial statements.
F-4
GLG
PARTNERS, INC. AND SUBSIDIARIES
(US Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid in
|
|
|
Comprehensive
|
|
|
Income/
|
|
|
Equity/
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income/(Deficit)
|
|
|
(Deficit)
|
|
|
(Deficit)
|
|
|
Balance as of January 1, 2006
|
|
|
6
|
|
|
|
17
|
|
|
|
(347,740
|
)
|
|
|
354,073
|
|
|
|
1,062
|
|
|
|
172,811
|
|
|
|
180,229
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,876
|
|
|
|
157,876
|
|
Foreign currency translation (nil tax applicable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,844
|
|
|
|
|
|
|
|
1,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,844
|
|
|
|
157,876
|
|
|
|
159,720
|
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914
|
|
|
|
914
|
|
Distributions to principals and trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,705
|
)
|
|
|
(165,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
6
|
|
|
|
17
|
|
|
|
(347,740
|
)
|
|
|
354,073
|
|
|
|
2,906
|
|
|
|
165,896
|
|
|
|
175,158
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310,508
|
)
|
|
|
(310,508
|
)
|
Unrealized gains on available-for-sale equity investments (nil
tax applicable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
244
|
|
Foreign currency translation (nil tax applicable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327
|
|
|
|
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571
|
|
|
|
(310,508
|
)
|
|
|
(309,937
|
)
|
Issuance of common stock and recapitalization on Acquisition
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
(267,660
|
)
|
|
|
|
|
|
|
(1,913
|
)
|
|
|
(269,566
|
)
|
Share-based compensation (net of minority interest)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495,698
|
|
|
|
|
|
|
|
|
|
|
|
495,698
|
|
Warrant exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,035
|
|
|
|
|
|
|
|
|
|
|
|
39,035
|
|
Warrants repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,557
|
)
|
|
|
|
|
|
|
|
|
|
|
(45,557
|
)
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to principals and trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330,972
|
)
|
|
|
(330,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
6
|
|
|
$
|
24
|
|
|
$
|
(347,740
|
)
|
|
$
|
575,589
|
|
|
$
|
3,477
|
|
|
$
|
(477,497
|
)
|
|
$
|
(246,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(629,697
|
)
|
|
|
(629,697
|
)
|
Unrealized loss on available-for-sale equity investments (nil
tax applicable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,039
|
)
|
|
|
|
|
|
|
(21,039
|
)
|
Foreign currency translation (nil tax applicable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421
|
|
|
|
|
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,618
|
)
|
|
|
(629,697
|
)
|
|
|
(650,315
|
)
|
Contingent acquisition consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
(308
|
)
|
Share-based compensation (net of minority interest)
|
|
|
|
|
|
|
|
|
|
|
54,306
|
|
|
|
643,307
|
|
|
|
|
|
|
|
|
|
|
|
697,613
|
|
Warrant exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
2,335
|
|
Warrants repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,350
|
)
|
|
|
|
|
|
|
|
|
|
|
(37,350
|
)
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
Shares repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,697
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,697
|
)
|
Distributions to principals and trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,354
|
)
|
|
|
(118,354
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,210
|
)
|
|
|
(16,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
6
|
|
|
$
|
24
|
|
|
$
|
(293,434
|
)
|
|
$
|
1,176,054
|
|
|
$
|
(17,141
|
)
|
|
$
|
(1,241,758
|
)
|
|
$
|
(376,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
and consolidated financial statements.
F-5
GLG
PARTNERS, INC. AND SUBSIDIARIES
COMBINED
AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(US Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/ income
|
|
$
|
(629,697
|
)
|
|
$
|
(310,508
|
)
|
|
$
|
157,876
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,907
|
|
|
|
2,257
|
|
|
|
1,874
|
|
Share based compensation
|
|
|
697,613
|
|
|
|
591,901
|
|
|
|
|
|
FX movements on cash held in foreign currency bank accounts
|
|
|
21,072
|
|
|
|
6,667
|
|
|
|
(3,950
|
)
|
Loss on disposal of investments
|
|
|
2,383
|
|
|
|
|
|
|
|
24
|
|
Minority interests
|
|
|
|
|
|
|
(31,162
|
)
|
|
|
182
|
|
Cash flows due to changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees receivable
|
|
|
347,671
|
|
|
|
(137,814
|
)
|
|
|
(5,784
|
)
|
Prepaid expenses and other assets
|
|
|
(2,234
|
)
|
|
|
(6,661
|
)
|
|
|
(16,559
|
)
|
Rebates and sub-administration fees payable
|
|
|
5,027
|
|
|
|
1,911
|
|
|
|
3,710
|
|
Accrued compensation, benefits and profit share
|
|
|
(319,356
|
)
|
|
|
178,586
|
|
|
|
41,556
|
|
Income taxes payable
|
|
|
(21,831
|
)
|
|
|
12,372
|
|
|
|
3,382
|
|
Distributions payable
|
|
|
(70,501
|
)
|
|
|
66,059
|
|
|
|
8,185
|
|
Accounts payable and other accruals
|
|
|
9,552
|
|
|
|
(1,661
|
)
|
|
|
4,993
|
|
Other liabilities
|
|
|
34,673
|
|
|
|
10,992
|
|
|
|
5,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
77,279
|
|
|
|
382,939
|
|
|
|
200,589
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of /(investment in) available-for-sale securities
|
|
|
7,204
|
|
|
|
(95,607
|
)
|
|
|
|
|
Purchase of subsidiary
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Transfer from/(to) restricted cash
|
|
|
10,751
|
|
|
|
(24,066
|
)
|
|
|
|
|
Purchase of property and equipment
|
|
|
(7,906
|
)
|
|
|
(5,215
|
)
|
|
|
(4,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
|
7,549
|
|
|
|
(124,888
|
)
|
|
|
(4,704
|
)
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(16,210
|
)
|
|
|
|
|
|
|
|
|
Repayment of loan
|
|
|
|
|
|
|
(13,000
|
)
|
|
|
|
|
Proceeds from loans
|
|
|
|
|
|
|
570,000
|
|
|
|
|
|
Net cash outflow from Freedom acquisition
|
|
|
(308
|
)
|
|
|
(314,943
|
)
|
|
|
|
|
Warrant exercises
|
|
|
2,335
|
|
|
|
39,035
|
|
|
|
|
|
Warrant repurchases
|
|
|
(37,350
|
)
|
|
|
(45,557
|
)
|
|
|
|
|
Share repurchases
|
|
|
(7,697
|
)
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
178
|
|
|
|
|
|
|
|
914
|
|
Distributions to principals and trustees
|
|
|
(118,354
|
)
|
|
|
(330,972
|
)
|
|
|
(165,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(177,406
|
)
|
|
|
(95,437
|
)
|
|
|
(164,792
|
)
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(92,578
|
)
|
|
|
162,614
|
|
|
|
31,093
|
|
Effect of foreign currency translation on cash
|
|
|
(20,649
|
)
|
|
|
(6,340
|
)
|
|
|
5,794
|
|
Cash and cash equivalents at beginning of period
|
|
|
429,422
|
|
|
|
273,148
|
|
|
|
236,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
316,195
|
|
|
$
|
429,422
|
|
|
$
|
273,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
(25,224
|
)
|
|
$
|
(6,521
|
)
|
|
$
|
(766
|
)
|
Income taxes paid
|
|
$
|
(36,062
|
)
|
|
$
|
(51,628
|
)
|
|
$
|
(22,754
|
)
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash net assets/ liabilities of acquired subsidiaries
|
|
$
|
|
|
|
$
|
16,979
|
|
|
$
|
|
|
The accompanying notes are an integral part of these combined
and consolidated financial statements.
F-6
GLG
PARTNERS, INC. AND SUBSIDIARIES
(US Dollars in thousands, except per share amounts)
|
|
1.
|
ORGANIZATION
AND BASIS OF PRESENTATION
|
GLG Partners, Inc. (the Company) was incorporated in
the state of Delaware on June 8, 2006 under the name
Freedom Acquisition Holdings, Inc (Freedom). The
Company was formed to acquire an operating business through a
merger, capital stock exchange, asset acquisition, stock
purchase or other similar business combination. As described
further under Recent Corporate History, on
November 2, 2007 the Company completed the acquisition of
GLG Partners LP and its affiliated entities (the
Acquisition).
The Company is a
U.S.-listed
asset management company based in London which offers its
clients a broad range of alternative and traditional investment
products and account management services. The Companys
primary business is to provide investment management advisory
services for various investment funds and companies (the
GLG Funds). The Company derives revenue primarily
from management fees and administration fees charged to the GLG
Funds and accounts it manages based on the value of assets in
these funds and accounts, and performance fees charged to the
GLG Funds and accounts it manages based on the performance of
these funds and accounts.
The Company operates in one business segment, the management of
global funds and accounts. The Company uses a multi-strategy
approach, offering over forty funds across, among other things,
equity, credit convertible and emerging markets products. The
Company does not own a substantive controlling interest in any
of the GLG Funds it manages and as a result none of the GLG
Funds are combined or consolidated by the Company.
Recent
Corporate History
In June 2007, the Company entered into a Purchase Agreement with
the shareowners of GLG Partners LP and certain of its affiliated
entities (collectively, GLG) under which the Company
agreed to purchase all of the ownership interests in GLG for
cash and stock. The Acquisition closed on November 2, 2007
and on that date the Company changed its name to GLG Partners,
Inc. GLG shareowners received 77% of the issued share capital of
the Company. As the Acquisition is considered a reverse
acquisition and recapitalization for accounting purposes, the
combined historical financial statements of GLG became the
Companys historical financial statements. Accordingly, the
Acquisition has been treated as the equivalent of GLG issuing
stock for the net monetary assets of the Company, accompanied by
a recapitalization of GLG. The net monetary assets of the
Company, primarily cash, have been stated at their carrying
value, and accordingly no goodwill or other intangible assets
were recorded.
Prior to the Acquisition, GLG comprised all of the entities (the
GLG Entities) engaged in the provision of investment
management advisory services under the common control or
management of the three managing directors of GLG, Noam
Gottesman, Pierre Lagrange and Emmanuel Roman (the
Principals) and the respective trustees of trusts
established by the Principals, being Leslie J. Schreyer in his
capacity as trustee of the Gottesman GLG Trust, G&S
Trustees Limited, in its capacity as trustee of the Lagrange GLG
Trust and Jeffrey A. Robins, in his capacity as trustee of the
Roman GLG Trust (the Trustees). In particular, the
GLG Entities combined up until the date of the Acquisition for
the year ended December 31,2007 and, for the year ended
December 31, 2006,, and consolidated from the date of the
Acquisition in the financial statements are GLG Partners LP, GLG
Partners Limited, GLG Holdings Limited, GLG Partners Asset
Management Limited, GLG Partners Services LP, GLG Partners
Services Limited, GLG Partners (Cayman) Limited, GLG Partners
Corporation, GLG Partners International (Cayman) Limited, Laurel
Heights LLP, Lavender Heights LLP, Mount Granite Limited, Mount
Garnet Limited, GLG Holdings Inc., GLG Inc., Albacrest
Corporation, Betapoint Corporation, Sage Summit Ltd., Knox Pines
Ltd. and Liberty Peak Ltd.
F-7
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Unless the context indicates otherwise below, the terms
the Company, we, us and
our refer to the combined and consolidated company,
which has been renamed GLG Partners, Inc., in connection with
the Acquisition.
These combined and consolidated financial statements are
presented in US Dollars ($) prepared under US generally
accepted accounting principles (US GAAP). In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair
presentation of the financial position, results of operations
and cash flows of the Company have been included. The combined
and consolidated financial statements include the accounts of
GLG Partners, Inc. and its subsidiaries. All intercompany
balances and transactions have been eliminated.
Limited
Liability Partnerships
Beginning in mid-2006, certain of the GLG Entities entered into
partnership with a number of its key personnel in recognition of
their importance in creating and maintaining long-term value.
These individuals ceased to be employees and either became
holders of direct or indirect limited partnership interests or
formed two limited liability partnerships (LLPs)
through which they provide services to GLG. Through these
partnership interests and under the terms of service agreements
between certain of the GLG Entities and the LLPs, these
individuals are entitled to a priority drawing and an additional
share of the profits earned by the Company. These profit shares
are recorded as operating expense matching the period in which
the related revenues are accrued and services provided.
In March and June 2007, Laurel Heights LLP and Lavender Heights
LLP issued equity interests to two limited partnerships, Sage
Summit LP and Lavender Heights Capital LP, respectively, in
which certain key personnel of GLG became holders of indirect
limited partnership interests in GLG. Pursuant to a Sharing
Agreement among certain equity holders of the GLG Entities (the
Equity Participation Plan), Sage Summit LP and
Lavender Heights Capital LP through their equity interests in
Laurel Heights LLP and Lavender Heights LLP became entitled to
15% collectively of the proceeds derived from the Acquisition.
Reclassifications
The company has retrospectively adjusted the presentation of its
long term loan on the face of the balance sheet. The Company has
a $530,000 liability under a
5-year
amortizing term loan facility and a $40,000
5-year
amortizing revolving credit facility which is fully drawn with
the same syndicate of banks as the term loan facility. The
revolving credit facility has been retrospectively disclosed as
a current liability. The change has no effect on the statement
of operations for periods disclosed. The Company has also
reclassified related capitalized deferred finance charges of
$5,268 from current to non-current assets in 2007.
In addition, the Company has also reclassified $6,667 in 2007
and $3,950 in 2006 from cash flows of operations to the effect
of re-measurement of foreign currency denominated cash and
equivalents in its Statement of Cash Flows.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of combination and consolidation
Upon consummation of the Acquisition, the GLG Entities became
wholly owned subsidiaries of the Company and from that date the
financial statements have been prepared on a consolidated basis
and consolidate those entities over which the legal parent, the
Company, has control over significant operating, financial or
investing decisions. Prior to the Acquisition and for all
comparative periods, the combined financial statements presented
are those of the accounting acquirer, GLG. The combined
financial statements of GLG combine those entities in which the
Principals and Trustees had control over significant operating,
F-8
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
financial or investing decisions. Equity balances have been
retroactively restated to conform to the capital structure of
the legal acquirer, the Company.
The Company consolidates certain entities it controls through a
majority voting interest or otherwise in which the Company is
presumed to have control pursuant to Financial Accounting
Standards Board (FASB) Emerging Issues Task Force
(EITF) Issue
No. 04-5,
Determining Whether a General Partner, or the General Partners
as a Group, Controls a Limited Partnership or Similar Entity
When the Limited Partners Have Certain Rights
(EITF 04-5).
All intercompany transactions and balances have been eliminated.
The Company has determined that the GLG Funds that it manages
are Variable Interest Entities per the guidance of FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46(R)) in that the management
contract cannot be terminated by a simple majority of unrelated
investors. The Company has determined that it is not the Primary
Beneficiary and so does not consolidate any of the GLG Funds.
The Company earns substantially all of its revenue from the GLG
Funds and managed accounts, as disclosed in Note 12. In
addition, the Acquisition related cash compensation has been
invested in two GLG Funds, and the Companys results are
exposed to changes in the fair value of these funds as disclosed
in Note 7.
Minority
Interests in Consolidated Subsidiaries
Minority interests are recorded in respect of the following
interests in the following GLG Entities:
GLG
Holdings Inc. and GLG Inc.
On January 24, 2008 GLG Holdings Inc. was acquired by the
Company for $2,500 in cash and GLG Holdings Inc. and GLG Inc.
became wholly owned subsidiaries of the Company. Prior to
January 24, 2008, GLG Holdings Inc. was independently owned.
Prior to this acquisition, the Company consolidated GLG Holdings
Inc. and GLG Inc. pursuant to the requirements of FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities, since they were variable interest entities and the
Company was the Primary Beneficiary. GLG Holdings Inc. is the
holding company (and acts solely as a holding company) for GLG
Inc., a dedicated research and administrative services provider
based in New York. GLG Inc. provides dedicated research and
administrative services to GLG Partners LP with respect to
GLGs U.S. focused investment strategies. The
consolidated and combined total assets of GLG Holdings Inc. and
GLG Inc. were $11,774 at December 31, 2007.
GLG Holdings Inc. funded the acquisition of GLG Inc. with
promissory notes now held by GLG Partners Services LP. GLG Inc.
issued additional promissory notes now held by GLG Partners
Services LP to fund its operations. The promissory notes issued
by GLG Holdings Inc. are secured by the pledge of 100% of the
issued and outstanding share capital of GLG Inc. in favor of GLG
Partner Services LP pursuant to a pledge agreement. Creditors of
GLG Holdings Inc. and GLG Inc. do not have any recourse against
other GLG entities.
Minority interest in respect of these entities at
December 31, 2007 relates to their entire equity and
retained earnings, in which GLG does not hold any economic
interest.
FA Sub
2 Limited Exchangeable Shares
Upon consummation of the Acquisition, Noam Gottesman and the
Gottesman GLG Trust received, in exchange for their interests in
GLG Entities, 58,904,993 exchangeable Class B ordinary
shares of FA Sub 2 Limited (the Exchangeable Shares)
and 58,904,993 shares of the Companys Series A
voting preferred stock (the Series A preferred
stock), in addition to their proportionate share of the
cash consideration.
F-9
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
The Exchangeable Shares are exchangeable for an equal number of
shares of the Companys common stock at any time for no
cash consideration at the holders option. Upon exchange of
the Exchangeable Shares, an equivalent number of shares of the
Companys Series A preferred stock will be
concurrently redeemed. The shares of Series A preferred
stock are entitled to one vote per share and to vote with the
common stockholders as a single class but have no economic
rights. The Exchangeable Shares carry dividend rights but no
voting rights except with respect to certain limited matters
which will require the majority vote or written consent of the
holders of Exchangeable Shares. The combined ownership of the
Exchangeable Shares and the Series A preferred stock
provides the holders of these shares with voting rights that are
equivalent to those of the Companys common stockholders.
Exchangeable Shares dividends of $0.025 per share in the
aggregate amount of $1,473 were also declared payable on each of
April 21, 2008, July 21, 2008 and October 21,
2008, to holders of the FA Sub 2 Limited Exchangeable Shares,
who are entitled to dividends based on the number of shares of
common stock of the Company into which the Exchangeable Shares
are exchangeable (58,904,993). These Exchangeable Shares
dividends are recorded as an expense within minority interest in
the statements of operations.
In addition, the holders of the Exchangeable Shares will receive
a cumulative dividend based on the Companys estimate of
the net taxable income of FA Sub 2 Limited allocable to such
holders multiplied by an assumed tax rate of 42.803%. The
cumulative dividend rights of the holders of the Exchangeable
Shares are in excess of those of the Companys common
stockholders, and these rights are presented as an expense
within minority interest in the condensed consolidated and
combined statements of operations. The amount recorded in
respect of the cumulative dividends for the years ended
December 31, 2008 and 2007 were $414,761 and $2,723,
respectively.
At the FA Sub 2 Limited level, the Exchangeable Shares have the
same liquidation and income rights as other ordinary
shareholders of FA Sub 2 Limited, and consequently the minority
interest is calculated as the Exchangeable Shareholders
proportionate share of net assets. The share of losses not borne
by the holders of the Exchangeable Shares was 83,995 and $49,393
for the years ended December 31, 2008 and 2007,
respectively, representing the excess of the share of losses
over the minority book interest in the subsidiary.
Use of
Estimates
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the combined and consolidated financial statements and the
reported amounts of revenues, expenses and other income during
the reporting periods. Actual results could differ materially
from those estimates.
Revenue
Recognition
Management fees are calculated as a percentage of net assets
under management based upon the contractual terms of investment
advisory and related agreements and recognized as earned as the
related services are performed. These fees are generally payable
monthly in arrears.
Performance fees are calculated as a percentage of investment
gains (which includes both realized and unrealized gains) less
management and administration fees, subject in certain cases to
performance hurdles, over a measurement period, generally six
months. The Company has elected to adopt the preferred method of
recording performance fee income, Method 1 of EITF Topic D-96,
Accounting for Management Fees Based on a Formula (Method
1).
The majority of the investment funds and accounts managed by the
Company have contractual measurement periods that end on each of
June 30 and December 31. As a result, the performance fee
revenues
F-10
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
for the first and third fiscal quarters do not reflect revenues
from uncrystallized performance fees during these three-month
periods and will be reflected instead at the end of the fiscal
quarter in which such fees crystallize.
In certain cases, the Company may rebate a portion of its gross
management and performance fees in order to compensate
third-party institutional distributors for marketing its
products and, in a limited number of cases, in order to
incentivize clients to invest in funds managed by the Company.
Such arrangements are generally priced at a portion of the
Companys management and performance fees paid by the fund.
The Company accounts for rebates in accordance with EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent
(EITF 99-19),
and has recorded its revenues net of rebates. In addition, most
funds managed by the Company have share classes with
distribution fees that are paid to third party institutional
distributors.
Administration fees are calculated on a similar basis as
management fees and are recognized as the related services are
performed. From its gross administration fees, the Company pays
sub-administration fees to third-party administrators and
custodians. In accordance with
EITF 99-19,
administration fees are recognized net of sub-administration
fees.
Rebates and sub-administration fees on the balance sheet
represent amounts payable under the rebate and
sub-administration fee arrangements described above.
Where a single-manager alternative strategy fund or internal
Fund of Hedge Funds (FoHF) managed by the Company
invests in an underlying single-manager alternative strategy
fund managed by the Company, the investing fund is
the top-level GLG Fund into which a client invests and the
investee fund is the underlying GLG Fund into which
the investing fund allocates funds for investment. When one of
the single-manager alternative strategy funds or internal FoHFs
managed by the Company invests in an underlying single-manager
alternative strategy fund managed by the Company:
|
|
|
|
|
management fees are charged at the investee fund level, except
in the case of the GLG Multi Strategy Fund where fees are
charged at both the investee and investing fund levels;
|
|
|
|
performance fees are charged at the investee fund level, except
in the case of the GLG Global Aggressive Fund where fees are
charged at both the investee and investing fund levels, to the
extent, if any, that the performance fee charged at the
investing fund is greater than the performance fee charged at
the investee fund level; and
|
|
|
|
administration fees are charged at both the investing and
investee fund levels.
|
Due to the impact of foreign currency exposures on management
and performance fees, the Company has elected to utilize cash
flow hedge accounting to hedge a portion of its anticipated
foreign currency denominated revenue. The effective portion of
the hedge is recorded as a component of other comprehensive
income and is released into management or performance fee
income, respectively, when the hedged revenues impact the income
statement. The ineffective portion of the hedge is recorded each
period as derivative gain or loss in other income or other
expense, respectively. See Derivatives and
Hedging for a further discussion of the Companys
foreign exchange hedging activities.
Employee
Compensation and Benefits
The components of employee compensation and benefits are:
|
|
|
|
|
Base compensation contractual compensation
paid to employees in the form of base salary, which is expensed
as incurred.
|
|
|
|
Variable compensation payments that arise
from the contractual entitlements of personnel to a fixed
percentage of certain variable fee revenues attributable to such
personnel with respect to GLG Funds
|
F-11
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
|
|
|
|
|
and managed accounts. The liability for variable compensation is
a formulaic obligation calculated by reference to and payable
following the crystallization of fee revenues at the end of each
fee period, which may be monthly or semi-annually (on June 30
and December 31), depending on the fee revenue source.
|
|
|
|
|
|
Discretionary compensation payments that are
determined by the Companys management in its sole
discretion and are generally linked to performance. In
determining such payments, the Companys management
considers, among other factors, the ratio of total discretionary
compensation to total revenues; however, this ratio may vary
between periods and, in particular, significant discretionary
bonuses may still be paid in a period of low performance for
retention and incentivization purposes. This discretionary
compensation is paid to employees in the form of a discretionary
bonus. Discretionary compensation is generally declared and paid
following the end of each calendar year. However, the estimated
discretionary compensation liability charge is adjusted monthly
based on the year-to-date profitability and revenues recognized
on a year-to-date basis. As the majority of funds crystallize
their performance fees at June 30 and December 31, the
majority of discretionary compensation expense crystallizes at
year end and is typically paid in January following year end.
|
Limited
Partner Profit Share
The key personnel who are participants in the limited partner
profit share arrangement provide services to the Company through
two limited liability partnerships, Laurel Heights LLP and
Lavender Heights LLP (the LLPs), which are limited
partners in GLG Partners LP and GLG Partners Services LP,
respectively. The amount of profits (or limited partner profit
share) attributable to each of the LLPs is determined at the
Companys discretion based upon the profitability of the
Companys business and the Companys view of the
contribution to revenues and profitability from the services
provided by each limited partnership during that period. These
profit shares are recorded as operating expenses matching the
period in which the related revenues are accrued and services
are provided. A portion of the partnership distribution is
advanced monthly as a draw against final determination of profit
share. Once the final profit allocation is determined, typically
in January following each year end, it is paid to the LLPs, as
limited partners, less any amounts paid as advance drawings
during the year. Other limited partners of GLG Partners Services
LP who receive profit allocations include two investment
professionals, who are not members of Lavender Heights LLP, but
whose profit distributions from GLG Partners Services LP are
determined in the same manner as the allocation of profit shares
to individual members of the LLP described below and included in
the limited partner profit share measure, as described below.
Profit allocations made to the LLPs by GLG Partners LP and GLG
Partners Services LP make up substantially all of the LLPs
net profits for each period. Members are entitled to a base
limited partner profit share priority drawing, which is a fixed
amount and paid as a partnership draw. Certain members are also
entitled to a variable limited partner profit share priority
drawing based on a fixed percentage of certain variable fee
revenues attributable to such personnel with respect to GLG
Funds and managed accounts, which are paid as a partnership
draw. After year end, the managing members of the LLPs will
declare discretionary allocations to the key personnel who
participate in the limited partner profit share arrangement and
who are LLP members from the remaining balance of the LLPs
net profits, after taking into account the base and variable
limited partnership profit share priority drawings, based on
their view of those individuals contribution to the
generation of these profits. These three components make up the
limited partner profit share. This process will typically take
into account the nature of the services provided to the Company
by each key personnel, his or her seniority and the performance
of the individual during the period. Profit allocations, net of
any amounts paid during the year as priority partnership
drawings, will typically be paid to the members in January and
February following each year end.
F-12
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Cash and
Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits
and highly liquid investments including money market accounts
with original maturities of three months or less. Due to the
short term nature of these deposits and investments, their
carrying values approximate their fair values.
Restricted
Cash
Restricted cash represents cash held in escrow for the repayment
of notes issued by one of the Companys subsidiaries to pay
a portion of the purchase price for the Acquisition. These notes
are held by certain participants in the equity participation
plan and are callable by the note holders on or after
May 2, 2008 and consequently the restricted cash is held as
current assets. While the loan note asset held by certain
participants in the equity participation plan (subject to
vesting) and the loan note liability of the subsidiary are held
as current assets and liabilities, respectively, in the books
and records of the entities, they are eliminated as intercompany
balances on consolidation in the Companys consolidated
financial statements.
Investments
Investments represent available-for-sale investments in GLG
Funds. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, such
investment securities are classified as available-for-sale and
are carried at fair value. Under SFAS No. 115,
unrealized gains and losses, net of applicable tax, are reported
in a separate component of stockholders equity until
realized. Amortization, accretion, interest and dividends,
realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are
included in other income. For the purpose of computing realized
gains and losses, the cost of securities sold is based on the
specific-identification method. Investments in securities with
maturities of less than one year or which management intends to
use to fund current operations are classified as short-term
investments.
The Company evaluates whether an investment is
other-than-temporarily impaired. This evaluation is dependent
upon the specific facts and circumstances. Factors that are
considered in determining whether an other-than-temporary
decline in value has occurred include: the market value of the
security in relation to its cost basis; the financial condition
of the issuer; and the intent and ability to retain the
investment for a sufficient period of time to allow for recovery
in the market value of the investment.
In connection with the Acquisition, consideration of
$150,000 in cash and 33 million shares of the
Companys common stock was paid to two consolidated limited
partnerships under the equity participation plan to be
paid/delivered to their members on the completion of the
requisite vesting period, generally over 3 or 4 years. The
first vested portion consisting of $30,000 of cash and
7,617,500 shares was paid or delivered to members on
November 2, 2007 and recorded as compensation expense.
Of the remaining $120,000 of cash proceeds, $24,000 was
awarded to certain members of the two limited partnerships in
the form of loan notes from another subsidiary of the Company
(and against which that subsidiary holds restricted cash in an
escrow account, refer to restricted cash note), and
$96,000 was invested by the two limited partnerships in two
GLG Funds. As the partnerships are consolidated in the
Companys financial statements, changes in the fair value
of the investments in the GLG Funds are recorded in other
comprehensive income until such time as the investments are
redeemed, when the portion of accumulated gains and loss
attributable to the redeemed investments will be recorded as
other income/(loss). During the year ended December 31,
2008, $10,751 was redeemed from the escrow account and $7,204
was redeemed from the investments in GLG Funds to meet vesting
requirements.
The remaining 25,382,500 shares of common stock held by the
limited partnerships (21,418,568 shares at balance sheet
date following vesting during 2008 of 3,963,932 shares) are
treated for accounting purposes as
F-13
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
treasury stock at the acquisition date fair value of $13.70
against additional paid in capital, which are expected to reduce
to zero over 4 years as the shares are delivered to members
as they complete the requisite service period for vesting. The
Company records compensation expense for these shares in
accordance with
EITF 96-18,
as the members have been determined by the Company to be
non-employees.
The Company also records compensation expense for the
$150,000 cash portion of the award over the vesting period
adopting the same recognition method as for the share based
awards. Additional compensation (or reduction in compensation as
appropriate) is also recognized for changes in fair value of the
investments and interest earned on the loan notes to the extent
that compensation has also been earned on the underlying
principal amount, irrespective of whether the unrealized gain or
loss has been recorded in other comprehensive income in the
Companys statements of operations.
As the investments are equity investments that are marketable
securities and are not held for trading purposes, the Company
has classified the investments as available for sale securities
in accordance with SFAS 115.
Property
and Equipment
Property and equipment consists of furniture, fixtures,
equipment, computer hardware and software, and leasehold
improvements and are recorded at historic cost less accumulated
depreciation and amortization. Depreciation is recognized on a
straight-line basis over the estimated useful lives as follows:
|
|
|
|
|
Useful Lives
|
|
Furniture and equipment
|
|
5 years
|
Leasehold Improvements
|
|
10 years or remaining lease term, whichever is shorter
|
Internally developed software
|
|
Estimated period of expected benefit
|
The Company has capitalized certain internally developed
software in accordance with
SOP 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Capitalized costs include direct
external costs, payroll and payroll related costs.
The carrying value of all long-lived assets are reviewed
periodically for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets
may not be recoverable, in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. If the expected future
undiscounted cash flows are less than the carrying amount of the
asset group, an impairment loss is recognized to the extent the
carrying value of such asset exceeds its fair value.
Foreign
Currency Transactions and Translations
Transactions denominated in currencies other than the functional
currency of the related entity are recorded by remeasuring into
the functional currency of the related entity using the exchange
rate on the date of the transaction. At the dates of the
combined and consolidated balance sheets, monetary assets and
liabilities, such as receivables and payables, are reported
using the period-end spot foreign exchange rates. Foreign
exchange rate differences are recorded in the combined and
consolidated statements of operations within other income.
For the purpose of consolidation, the assets and liabilities of
the GLG Entities with functional currencies other than
US Dollars are translated into US Dollar equivalents
using period-end exchange rates, whereas revenues and expenses
are translated using the weighted-average exchange rate for the
period. Translation adjustments arising from consolidation are
included in accumulated other comprehensive income within total
stockholders equity.
F-14
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Comprehensive
Income
Comprehensive Income consists of Net income and Other
comprehensive income. The Companys Other comprehensive
income is comprised of cumulative translation adjustments,
changes in fair value of available-for-sale investments and the
effects of foreign currency cash flow hedges.
Interest
Income, net
Interest income and expense are recognized on an accrual basis.
Equity-Based
Compensation
Effective January 1, 2006, the Company, adopted
SFAS No. 123(R), Share-Based Payment
(SFAS 123(R)) using the modified prospective
method. Under SFAS 123(R), the fair value of equity-based
compensation must be recognized as an expense in the statements
of operations over the requisite service period of each award.
The Company uses the accelerated graded vesting attribution
method to amortize such compensation. There were no equity-based
awards prior to the Acquisition on November 2, 2007 and
therefore the adoption of SFAS 123(R) did not have a
material impact on the combined financial statements prior to
the Acquisition.
In accordance with SFAS 123(R), for awards with performance
conditions, the Company makes an evaluation at the grant date
and future periods as to the likelihood of the performance
targets being met. Compensation expense is adjusted in future
periods for subsequent changes in the expected outcome of the
performance conditions until the vesting date. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
Awards to limited partners and service providers are accounted
for under the EITF Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or In Conjunction with Selling, Goods
or Services, which requires that such equity instruments are
recorded at their fair value on the measurement date, which is
typically upon the inception of the services that will be
performed, re-measured at subsequent dates to the extent the
awards are unvested, and expensed over the vesting period using
the accelerated graded vesting attribution method.
While under reverse acquisition accounting share capital and
earnings per share information is retrospectively restated for
all prior periods (i.e., shares paid to GLG shareowners on
consummation of the Acquisition are regarded as having been
issued from the beginning of the first comparative period
presented), for SFAS 123(R) purposes compensation expense
is recorded from the date of the Acquisition.
The participants in the limited partner profit arrangements in
each instance either (1) provide services as partners of
Laurel Heights LLP, an English limited liability partnership,
(2) provide services as partners of Lavender Heights LLP, a
Delaware limited liability partnership, (3) are partners of
GLG Partners Services LP, a Cayman Islands limited partnership,
but do not provide services to such limited partnership, or
(4) a combination of the above. In all of the above
circumstances, as partners, the individuals have capital
interests and profit interests in a partnership and are
partners, not employees, under the applicable partnership laws
of the relevant jurisdiction.
For accounting purposes the Company has determined:
|
|
|
|
|
that the individuals do not meet the definition of employee as
described in Appendix E of SFAS 123(R) and, therefore,
the awards must be accounted for under the provisions of
EITF 96-18.
|
F-15
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
|
|
|
|
|
that the individuals are treated for UK tax purposes as being
self-employed rather than employees under the applicable UK
standard, which is substantially equivalent to IRS Revenue
Ruling
87-41, and
consequently the partners have been determined to be
non-employees for the purposes of SFAS 123(R).
|
The non-Principal senior management and other key personnel who
participate in the limited partner profit share arrangement
include Simon White, the Companys Chief Operating Officer,
and Steven Roth, a senior investment professional. The
Principals and the other Named Executive Officers of the Company
(other than Mr. White) do not participate in the limited
partner profit share arrangement.
Income
Taxes
The Company is subject to UK, Irish and US income taxes. The
Company accounts for these taxes using the asset and liability
method in accordance with SFAS No. 109
(SFAS 109), Accounting for Income Taxes, under
which deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. A
valuation allowance is established when management believes it
is more likely than not that some or all of the deferred tax
asset will not be realized.
The Company accounts for uncertain tax positions in accordance
with the provision of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109,
(FIN 48). FIN 48 prescribes a
comprehensive model for how a company should recognize, measure,
present and disclose uncertain tax positions that the company
has taken or expects to take on a tax return. Accordingly, the
Company reports a liability for unrecognized tax benefits
resulting from tax positions taken or expected to be taken in a
tax return. The Company recognizes interest and penalties, if
any, related to unrecognized tax benefits in income tax expense.
The Company considers many factors when evaluating and
estimating its tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate
actual outcomes. The adoption on January 1, 2007 of
FIN 48 did not have a material impact on our combined and
consolidated financial statements.
Distributions
Distributions by the Company to Principals and Trustees are
recognized as declared.
For periods prior to the Acquisition, distributions were made to
the Principals and, during their time with GLG, certain former
principals, Jonathan Green and Philippe Jabre, who, together
with Lehman Brothers, collectively at various times during the
prior five year period were the owners of the GLG business. The
distributions to the Principals and former principals included
distributions to the Trustees and trustees of their related
trusts established for the benefit of each Principal or former
principal and his family. These distributions were recorded in
accordance with the Companys accounting policies as
distributions to owners and not compensation. During 2006 and
2007, each of the Principals and former principals had annual
salaries and benefits of approximately $4,100 to $4,700 each
pursuant to employment agreements with GLG entities, which were
treated as compensation. The distributions related to their
ownership interests in certain GLG entities and were amounts in
excess of salaries and benefits received pursuant to employment
agreements. Pursuant to an agreement with Lehman Brothers, a
minority GLG shareowner, any amounts paid to the Principals,
Trustees, and the former principals and their respective
trustees (as a group) in excess of the compensation under the
employment agreements were treated as distributions to owners.
In addition, in the event of a departure from GLG, a former
principal and his related trustee received a declining
percentage of profits distributions consistent with his reduced
retained ownership percentage, notwithstanding that he would no
longer be providing services to the GLG business. Once paid, the
distributions were not subject to recapture or forfeiture.
F-16
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Distributions to Principals and Trustees also include certain
formulaic distributions paid as part of the Acquisition close as
described in Note 3.
Recent
Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 states that
accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a
component of equity. SFAS 160 applies to all entities that
prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries
or that deconsolidate a subsidiary. SFAS 160 is effective
prospectively, except for certain retrospective disclosure
requirements, for fiscal years beginning after December 15,
2008. This statement will be effective for the Company beginning
in 2009. As described above, the primary impact of the statement
will be the reclassification of minority interests from
liabilities to stockholders equity and their re-labeling
as non-controlling interests. In addition, presently
under ARB No. 51, non-controlling interests only share in
losses to the extent that they have available equity to absorb
losses. Under SFAS 160 the non-controlling interests will
prospectively fully share in losses as well as profits, even if
there is no contractual obligation to fund losses. Prior period
statements of operations will be retrospectively re-presented to
conform to the disclosure requirements of the standard.
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
No. 141R, Business Combinations (FAS 141R)
which replaces FAS No. 141 and establishes principles
and requirements for how the acquirer of a business recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling
interest in the acquiree. FAS 141R also provides guidance
for recognizing and measuring the goodwill acquired in the
business combination and determines what information to disclose
to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This
Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
December 15, 2008. Early adoption of FAS 141R is
prohibited. As at December 31, 2008 the Company had
capitalized $1,300 for acquisition costs arising from in
progress acquisitions. On transition to FAS 141R, these
costs will be retrospectively taken to the statement of
operations. The company will additionally assess the impact of
FAS 141R in the event it enters into a business combination
for which the expected acquisition date is subsequent to the
required effective date.
SFAS No. 157, Fair Value Measurements
(SFAS No. 157), which became effective for
the Company on January 1, 2008, established a framework for
measuring fair value, while expanding fair value measurement
disclosures. SFAS No. 157 established a fair value
hierarchy that distinguishes between independent observable
inputs and unobservable inputs based on the best information
available. SFAS No. 157 expands disclosures about the
use of fair value to measure assets and liabilities, the effect
of these measurements on earnings for the period, and the inputs
used to measure fair value. In February 2008, the FASB issued
FASB Staff Position (FSP)
FAS 157-1
to exclude SFAS No. 13, Accounting for Leases,
and its related interpretive accounting pronouncements that
address leasing transactions, from the scope of
SFAS No. 157. In February 2008, the FASB also issued
FSP
FAS 157-2
to allow entities the option to defer the effective date of
SFAS No. 157 for non-financial assets and liabilities,
except for those items recognized or disclosed at fair value on
an annual or more frequently recurring basis, until
January 1, 2009. The Company will apply the fair value
measurement provisions of SFAS No. 157 to its
non-financial assets and liabilities effective January 1,
2009. The January 1, 2008 adoption of the other provisions
of SFAS No. 157 had no impact on retained earnings and
is not expected to have a material impact on the Companys
results of operations and financial condition. On
October 10, 2008, the FASB issued FSP
FAS 157-3,
Determining Fair Value in a Market That Is Not Active (FSP
FAS 157-3),
which is effective upon issuance and which clarifies the
application of
F-17
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
SFAS No. 157 in an inactive market without changing
its existing principles, to help constituents measure fair value
in markets that are not active. The Company adoption of FSP
FAS 157-3
did not have a material impact on the Companys results of
operations or financial condition.
On March 19, 2008 the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities
an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS No. 161
changes the disclosure requirements for derivative instruments
and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under
SFAS No. 133 and its related interpretations, and
(c) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance, and cash flows. The Company has elected to adopt
SFAS No. 161 early effective as of January 1,
2008. Adoption of SFAS No. 161 has not had a material
impact on the Companys results of operations and financial
condition.
In June 2008, the FASB issued FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities (FSP
EITF 03-6-1).
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per
Share. Under the guidance in FSP
EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. FSP
EITF 03-6-1
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. All
prior-period earnings per share data presented shall be adjusted
retrospectively. Early application is not permitted. The
adoption of FSP
EITF 03-6-1
is not expected to have a material impact on the Companys
results of operations or financial condition.
In December 2008, the FASB issued FSP
No. FAS 140-4
and FIN 46(R)-8, Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities. FSP
No. FAS 140-4
and FIN 46(R)-8 requires enhanced disclosures about
transfers of financial assets and interests in variable interest
entities. The FSP is effective for interim and annual periods
ending after December 15, 2008. Since the FSP requires only
additional disclosures concerning transfers of financial assets
and interests in variable interest entities, adoption of the FSP
will not affect the Companys financial condition, results
of operations or cash flows.
Net
(Loss)/ Income per share of Common Stock
The Company calculates net income per common stock in accordance
with SFAS No. 128, Earnings Per Share.
The Company calculated diluted earnings per share for all
periods using the if-converted method for all participating
securities. For the years ended December 31, 2007 and 2008
the Exchangeable Shares were excluded from the calculation of
diluted earnings per share as they were anti-dilutive.
The Company applied the two-class method for determining basic
earnings per share for the post acquisition period. The
Exchangeable Shares, which are participating securities, were
excluded from the calculation as their inclusion would be
anti-dilutive. In addition, the holders of the Exchangeable
Shares participate equally with ordinary shareholders in the
liquidation preferences of FA Sub 2 Limited, but have neither a
liquidation interest in GLG Partners, Inc. nor any obligation to
fund losses in either FA Sub 2 Limited or GLG Partners, Inc.
Consequently, the Company believes it is appropriate to apply
the guidance in Issue 5 of
EITF 03-6
in respect of the post-Acquisition period and exclude the
Exchangeable Shares from the calculation of basic earnings per
share.
F-18
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net (loss)/income applicable to common stockholders
|
|
$
|
(629,697
|
)
|
|
$
|
(310,508
|
)
|
|
$
|
157,876
|
|
Weighted-average common stock outstanding (in thousands), basic
|
|
|
212,225
|
|
|
|
147,048
|
|
|
|
135,712
|
|
Net income per share applicable to common
stockholders basic
|
|
$
|
(2.97
|
)
|
|
$
|
(2.11
|
)
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net (loss)/income applicable to common stockholders
|
|
$
|
(629,697
|
)
|
|
$
|
(310,508
|
)
|
|
$
|
157,876
|
|
Weighted-average common stock outstanding (in thousands), basic
|
|
|
212,225
|
|
|
|
147,048
|
|
|
|
135,712
|
|
Inclusion of Exchangeable Shares using if-converted method
|
|
|
|
|
|
|
|
|
|
|
57,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding (in thousands), diluted
|
|
|
212,225
|
|
|
|
147,048
|
|
|
|
194,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share applicable to common
stockholders diluted
|
|
$
|
(2.97
|
)
|
|
$
|
(2.11
|
)
|
|
$
|
0.81
|
|
The following common stock equivalents have been excluded from
the computation of weighted-average stock outstanding used for
computing diluted earnings per share as of December 31,
2008, 2007 and 2006 as they would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Common stock held in Treasury (See Note 9)
|
|
|
21,418,568
|
|
|
|
25,382,500
|
|
|
|
25,382,500
|
|
FA Sub 2 Limited Exchangeable Shares
|
|
|
58,904,993
|
|
|
|
58,904,993
|
|
|
|
|
|
Common stock awarded in connection with share-based compensation
arrangements
|
|
|
7,659,833
|
|
|
|
6,397,000
|
|
|
|
6,397,000
|
|
Sponsors Warrants
|
|
|
4,500,000
|
|
|
|
4,500,000
|
|
|
|
|
|
Co-investment Warrants
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
|
|
Public Warrants
|
|
|
32,984,674
|
|
|
|
42,132,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,468,068
|
|
|
|
142,317,106
|
|
|
|
31,779,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above, there were 12,000,003 Founders
Warrants that are only exercisable if and when the last sales
price of the Companys common stock exceeds $14.25 per
share for any 20 trading days within a 30-trading day period
beginning 90 days after November 2, 2007.
On November 2, 2007, the Company completed the Acquisition
of GLG and changed its name to GLG Partners, Inc. GLG
shareowners received 77% of the issued share capital of the
Company upon consummation of the Acquisition and consequently
the transaction has been accounted for as a reverse acquisition
and recapitalization and GLG is considered the acquiring company
for accounting purposes. Accordingly the Acquisition has been
treated as the equivalent of GLG issuing stock for the net
monetary assets of the Company, accompanied by a
recapitalization of GLG. The net monetary assets of the Company,
primarily
F-19
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
cash, have been stated at their carrying value, and accordingly
no goodwill or other intangible assets have been recorded.
The Company acquired $505,698 of net current assets from Freedom
Acquisition Holdings, Inc. (Freedom) in the
Acquisition. In addition, the founders of Freedom made a further
$50,000 co-investment in the Company concurrent with the closing
of the Acquisition and the Company incurred $38,277 of
Acquisition-related expenses. These amounts were recognized
within additional paid-in capital on the Companys balance
sheets. The cash consideration paid to the former GLG
shareowners in the Acquisition, other than $150,000 allocated to
participants in the equity participation plan, was accounted for
as an $850,000 decrease in additional paid-in capital on the
Companys balance sheet. The effect of these amounts, net
of allocations to minority interest holders was an adjustment of
$(267,660) to additional paid in capital.
The assets and liabilities of the Company on the Acquisition
date are shown below:
|
|
|
|
|
Cash
|
|
$
|
522,677
|
|
Deferred underwriter fees
|
|
|
(17,952
|
)
|
Other net current assets
|
|
|
973
|
|
|
|
|
|
|
|
|
$
|
505,698
|
|
|
|
|
|
|
Consideration for the Acquisition was:
|
|
|
|
|
$1,000,000 to be allocated between cash and loan notes if
certain GLG equity holders elected to receive such notes in lieu
of all or a portion of the cash consideration to such person;
|
|
|
|
230,000,000 shares of common stock and common stock
equivalents, which include:
|
|
|
|
|
|
138,095,007 shares of common stock;
|
|
|
|
58,904,993 Exchangeable Shares of its subsidiary, FA Sub 2
Limited, which are exchangeable for 58,904,993 shares of
common stock; and
|
|
|
|
33,000,000 ordinary shares of its subsidiary, FA Sub 1 Limited,
which were subject to certain put rights to the Company and call
rights by the Company, payable upon exercise by delivery of
33,000,000 shares of common stock; and
|
|
|
|
|
|
58,904,993 shares of the Companys Series A
preferred stock, which carry only voting rights and nominal
economic rights.
|
On each of the following adjustment dates after the closing:
(1) 10 business days after the closing,
(2) January 31, 2008, and (3) 10 business days
after receipt by the Buyers Representative under the
Purchase Agreement of the audited financial statements of the
Company for fiscal year 2007, the aggregate purchase price paid
for GLG was subject to a possible adjustment on a
dollar-for-dollar basis, to the extent the net cash amount of
GLG as of the closing date was higher or lower than a specified
baseline amount. GLG authorized pre-Acquisition distributions
(formulaic distributions) in the aggregate amount
that represents the purchase price adjustment that would have
been attributable to the GLG shareowners but for the declaration
of such distributions. In aggregate, $118,354 was distributed
during 2008 in respect of such formulaic distributions.
F-20
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
|
|
4.
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net consists of the following assets,
net of related depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Furniture and Fixtures, net
|
|
$
|
570
|
|
|
$
|
778
|
|
Computer and Equipment, net
|
|
|
3,914
|
|
|
|
2,572
|
|
Capitalized computer software costs, net
|
|
|
4,025
|
|
|
|
|
|
Leasehold Improvements, net
|
|
|
3,362
|
|
|
|
3,674
|
|
Other assets, net
|
|
|
2,205
|
|
|
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,076
|
|
|
$
|
9,079
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization totaled $11,505, and
$12,374 as of December 31, 2008 and 2007, respectively.
Depreciation and amortization expenses totaled $2,907, $2,257
and $1,874, for the years ended December 31, 2008, 2007 and
2006, respectively. During 2008 the company amortized $167 in
respect of capitalized computer software costs.
The Company had $530,000 outstanding at December 31, 2008
under a
5-year
amortizing term loan facility, of which the first principal
payment is due in the second half of 2011. The Company also had
a $40,000
5-year
revolving credit facility which is fully drawn with the same
syndicate of banks as the term loan facility. The Company is
current on all required payments related to these two loan
facilities and is in compliance with all financial and other
covenants as of December 31, 2008.
The financial covenants require that the Company has fee paying
AUM (approximately equal to disclosed gross AUM) on
December 31, 2008 of $15,000,000 (which is tested annually
and increases $500,000 per year until 2012) and that it
maintains at the end of each fiscal quarter a leverage ratio of
not more than 4.5:1 calculated on the basis of adjusted earnings
before interest, taxes, depreciation and amortization (as
defined in the Companys credit agreement for the loan
facilities) on a last twelve months basis. The Company is in
compliance with these financial covenants as of
December 31, 2008 with a leverage ratio of 2.3:1 and fee
paying AUM of approximately $16,000,000. Factors affecting the
Companys ability to comply with these covenants include:
the performance of the GLG Funds prior to the end of each
relevant measurement period, future net redemptions, currency
movements principally Euro versus the
U.S. dollar and the level of compensation and
general and administration expenses. In addition, the Company
believes that there are a number of options available to it to
maintain compliance with the above covenants, should the risk of
compliance increase, including: obtaining a debt covenant
waiver, strategic acquisitions that would increase fee paying
AUM and/or
earnings, scaling down its cost infrastructure and reducing debt
levels through the use of free cash or from the proceeds of the
issuance of additional equity. The credit agreement also
includes restrictive covenants which, among other things,
restrict the Companys ability to incur additional
indebtedness.
The term loans and revolving loans are guaranteed by the Company
and certain of its subsidiaries (including FA Sub 1 Limited, FA
Sub 2 Limited and certain GLG Entities, but excluding certain
regulated GLG Entities) and are secured by a first priority
pledge of all notes and capital stock directly owned by FA
F-21
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Sub 3 Limited and the guarantors and a first priority security
interest in all or substantially all other assets owned by FA
Sub 3 Limited and the guarantors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Interest
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Average interest rate for the period
|
|
|
|
|
|
|
|
|
|
|
4.25
|
%
|
Interest rate of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
1.55
|
%
|
Scheduled principal payments for long-term borrowings at
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,328
|
|
2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,328
|
|
2011
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
|
$
|
6,576
|
|
2012
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
|
$
|
2,065
|
|
Thereafter
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
530,000
|
|
|
$
|
530,000
|
|
|
$
|
25,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs represent costs incurred in connection
with the credit facilities and are amortized into interest
expense over the term of the related credit facility. These are
reported within prepayments and other assets. Unamortized
amounts at December 31, 2008 and December 31, 2007
were $5,239 and $6,599, respectively. Deferred financing fees
amortized to interest expense for fiscal years 2008, 2007 and
2006 were $1,400, $228, and $0, respectively.
|
|
6.
|
COMMITMENTS
AND CONTINGENCIES
|
The Company, in the ordinary course, responds to a variety of
regulatory inquiries. The Company and its subsidiaries are
involved in the following regulatory investigations:
On January 25, 2008, the Autorité des Marchés
Financiers (AMF) notified the Company of proceedings
relating to GLGs trading in the shares of Infogrames
Entertainment (Infogrames) on February 8 and 9,
2006, prior to the issuance by Infogrames on February 9,
2006 of a press release announcing poor financial results. The
AMFs decision to initiate an investigation into GLGs
trades in Infogrames was based on a November 19, 2007
report prepared by the AMFs Department of Market
Investigation and Supervision (the Infogrames
Report). According to the Infogrames Report, the trades
challenged by the AMF generated an unrealized capital gain for
GLG as of the opening on February 10, 2006 of
179,000. The AMF investigation relates solely to the
conduct of a former employee; however, the Company was named as
the respondent. If sustained, the charge against the Company
could give rise to an administrative fine under French
securities laws. The Company filed its response to the
Infogrames Report on May 23, 2008.
The Company has provided for the above within accounts payable
and other accruals within Current Liabilities.
In
Progress Acquisition
On December 19, 2008 the Company entered into an agreement
with Société Générale Asset Management to
acquire Société Générale Asset Management UK
(SGAM UK), Société
Générales UK long only asset
management business, for £4,500,000 ($6,469) cash. The
transaction is expected to close at the end of March 2009.
F-22
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Indemnifications
In the normal course of business, the Company enters into
operating contracts that contain a variety of representations
and warranties and that provide general indemnifications. The
Companys maximum exposure under these arrangements is
unknown as this would involve future claims that may be made
against the Company that have not yet occurred. However, based
on experience, the Company expects the risk of material loss to
be remote.
Operating
Leases
The Company has annual commitments under non-cancellable
operating leases for office space located in London, UK, George
Town, Cayman Islands, Geneva, Switzerland and New York, US which
expire on various dates through 2018. The minimum future rental
expense under these leases is as follows:
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2009
|
|
$
|
10,489
|
|
2010
|
|
$
|
10,518
|
|
2011
|
|
$
|
10,259
|
|
2012
|
|
$
|
10,259
|
|
2013
|
|
$
|
10,285
|
|
Thereafter
|
|
$
|
46,131
|
|
|
|
|
|
|
|
|
$
|
97,941
|
|
|
|
|
|
|
Rent and associated expenses are recognized on a straight-line
basis during the years ended December 31, 2008, 2007 and
2006 were $14,556, $10,799, and $7,485, respectively.
|
|
7.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. SFAS No. 157 establishes a
fair value hierarchy that prioritizes the use of inputs used in
valuation methodologies into the following three levels:
|
|
|
|
|
Level 1: Inputs to the valuation methodology are quoted
prices, unadjusted, for identical assets or liabilities in
active markets. A quoted price in an active market provides the
most reliable evidence of fair value and shall be used to
measure fair value whenever available.
|
|
|
|
Level 2: Inputs to the valuation methodology include quoted
prices for similar assets or liabilities in active markets;
inputs to the valuation methodology include quoted prices for
identical or similar assets or liabilities in markets that are
not active; or inputs to the valuation methodology that are
derived principally from or can be corroborated by observable
market data by correlation or other means.
|
|
|
|
Level 3: Inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
Level 3 assets and liabilities include financial
instruments whose value is determined using discounted cash flow
methodologies, as well as instruments for which the
determination of fair value requires significant management
judgment or estimation.
|
Investments at fair value include available for sale investments
in listed GLG Funds, both of which are Funds of Hedge Funds.
These investments are valued at the final Net Asset Value
(NAV) as calculated by the funds administrator
and published by the relevant exchange. During 2008, gates and
suspensions were
F-23
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
imposed on a number of GLG Funds representing approximately 17%
of the Fund of Funds holdings, and the GLG MultiStrategy Fund
was suspended. Consequently no published NAV is available for
this fund. Due to the unavailability of a publicly quoted NAV,
the Company has determined to reclassify its investments in GLG
Funds as level 3 until such time as gates are removed and
suspensions lifted. The funds continue to be valued at the NAV
as calculated by the Funds administrators. The funds
administrators continue to calculate the NAV using the same
methodology for determining the fair value of the funds. This
NAV, and the associated fair values of underlying investments,
have been reviewed by the Funds Independent Pricing
Committee.
Other assets include the fair value of foreign exchange
derivatives, which are valued at quoted forward prices from
foreign exchange counterparties and discounted to present value
using prevailing risk free rates for the Companys
functional currency.
In accordance with the fair value hierarchy described above, the
following table shows the fair value of the Companys
financial assets and liabilities that are required to be
measured at fair value as of December 31, 2008, which are
classified as Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
Balance
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments
|
|
$
|
65,484
|
|
|
|
|
|
|
|
|
|
|
$
|
65,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets (financial derivatives)
|
|
$
|
42
|
|
|
|
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance January 1, 2007
|
|
|
|
|
|
|
|
|
|
$
|
201
|
|
|
|
|
|
Gain recorded in other income
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
Purchase of investments in GLG Funds
|
|
|
|
|
|
|
|
|
|
|
95,607
|
|
|
|
|
|
Unrealized Gains recorded in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Balance December 31, 2007
|
|
|
|
|
|
|
|
|
|
$
|
96,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Balance January 1, 2008
|
|
|
|
|
|
|
|
|
|
$
|
96,108
|
|
|
|
|
|
Change in unrealized losses recorded in other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
(21,039
|
)
|
|
|
|
|
Redemption proceeds
|
|
|
|
|
|
|
|
|
|
|
(7,204
|
)
|
|
|
|
|
Realized loss on redemption recorded in other income
|
|
|
|
|
|
|
|
|
|
|
(2,383
|
)
|
|
|
|
|
Transfer to Level 3
|
|
|
|
|
|
|
|
|
|
|
(65,484
|
)
|
|
$
|
65,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Balance December 31, 2008
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
65,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains in investments 2007
|
|
|
|
|
|
|
|
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses in investments 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(20,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
The fair values of financial instruments (cash and other short
term payables and receivables) is approximated by the carrying
amount due to the short maturity of those instruments.
Unrealized losses in GLG Funds at December 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG
|
|
|
GLG Global
|
|
|
Other Seed
|
|
|
|
|
|
|
Multi-Strategy
|
|
|
Opportunities
|
|
|
Capital
|
|
|
|
|
|
|
Fund
|
|
|
Fund
|
|
|
Investments
|
|
|
Total
|
|
|
Investment at cost
|
|
$
|
16,539
|
|
|
$
|
69,563
|
|
|
$
|
177
|
|
|
$
|
86,279
|
|
Unrealized loss
|
|
|
(4,994
|
)
|
|
|
(15,794
|
)
|
|
|
(7
|
)
|
|
|
(20,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,545
|
|
|
$
|
53,769
|
|
|
$
|
170
|
|
|
$
|
65,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The GLG Multi-Strategy Fund and GLG Global Opportunity Fund have
been in a continuous loss making position for less then
12 months.
Management believes that the above impairments in value are
temporary due to: the duration of the impairment is less than
12 months and a majority of the impairment was caused in
the last 6 months of 2008 in relation to the deterioration
of the global equity markets, the investments are in internal
fund of hedge funds products of which the underlying investments
are within a number of GLG Funds thereby significantly
diversifying the investment risk related to a single name,
region or industry, and the investment performance of the GLG
Multi-Strategy Fund and GLG Global Opportunity Fund has been
consistently positive since inception.
|
|
8.
|
DERIVATIVES
AND HEDGING
|
The Company is exposed to foreign exchange risks relating to
performance and management fees denominated in foreign
currencies. Forward foreign exchange contracts on various
foreign currencies are entered into to manage those risks. These
contracts are designated as cash flow hedges under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, with changes in fair value attributable
to changes in the relevant spot rates recorded in other
comprehensive income and reclassified into earnings in the same
period or periods during which the hedged forecasted transaction
affects earnings. Changes in the fair value of the hedge
attributable to the spot-forward differential are recorded
directly in the income statement.
For those derivatives that are designated as hedges and for
which hedge accounting is desired, the hedging relationship is
formally designated and documented at its inception. The
document identifies the risk management objective and strategy
for undertaking the hedge, the hedging instrument, the hedged
item or transaction, the nature of risk being hedged and how
effectiveness will be measured throughout its duration. Such
hedges are expected at inception to be highly effective in
offsetting changes in cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective
throughout the reporting period for which they were designated.
F-25
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
The Company hedged 35,000,000 of monthly management fee
receivables from June to November 2008 with a final settlement
date of December 10, 2008. For the year ended
December 31, 2008, the fair value of financial instruments
has been recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
Fair Value of Derivative Financial Instruments
designated in a cash flow hedge relationship at end of period
(included in Other Assets)
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value of Derivative Financial Instruments
(included in Other Assets)
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values are allocated as follows:
|
|
|
|
|
|
|
|
|
Statement of Changes in Equity:
|
|
|
|
|
|
|
|
|
Gain recorded in other comprehensive income in
period cash flow hedges
|
|
|
3,905
|
|
|
|
|
|
Gain reclassified from other comprehensive income to other income
|
|
|
(3,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain carried forward in Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Statement of Operations:
|
|
|
|
|
|
|
|
|
Decrease in Performance Fees effective portion of
hedge reclassified from other comprehensive income
|
|
|
(178
|
)
|
|
|
|
|
Increase in Management Fees effective portion of
hedge reclassified from other comprehensive income
|
|
|
4,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount reclassified from other comprehensive income
|
|
|
3,905
|
|
|
|
|
|
Decrease in Other income (ineffective portion of hedge and
excluded from effectiveness assessment)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impact on Statement of Operations
|
|
|
3,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impact on Comprehensive Income
|
|
$
|
3,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
STOCKHOLDERS
(DEFICIT)/ EQUITY
|
Common
Stock
The Companys authorized capital stock consists of
1,000,000,000 shares of common stock, par value $0.0001 per
share, and 150,000,000 shares of preferred stock, par value
$0.0001 per share, of which 58,904,993 shares are
designated and issued as Series A voting preferred stock.
On November 2, 2007, the Company in connection with the
Acquisition issued 171,083,976 shares of common stock
including:
|
|
|
|
|
9,989,000 shares of common stock to be issued for the
benefit of the Companys employees, service providers and
certain key personnel under the Restricted Stock Plan;
|
|
|
|
25,382,500 shares of common stock held by subsidiaries of
the Company to be issued in connection with the Equity
Participation Plan (see Note 11).
|
As the Acquisition was treated as a reverse acquisition, the
shares issued to GLG shareowners are accounted for as having
been issued for all periods prior to the Acquisition. At the
date of the Acquisition, the Company had issued
69,799,003 shares (including 5,000,000 shares issued
in the founders co-investment coincident with the
Acquisition). Under reverse acquisition accounting this is
regarded as having been issued on the date of the Acquisition.
F-26
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
The following transactions occurred in the common stock of the
Company during 2008:
|
|
|
|
|
|
|
Number of Shares
|
|
|
Common stock outstanding at December 31, 2007
|
|
|
244,730,988
|
|
Warrants exercised
|
|
|
2,147,939
|
|
Shares repurchased
|
|
|
(1,498,494
|
)
|
Shares issued under share plan awards
|
|
|
3,206,075
|
|
Cancellation and replacement of stock previously issued under
share-based compensation arrangements with equivalent restricted
stock obligations
|
|
|
(1,545,500
|
)
|
Stock forfeited and cancelled under share-based compensation
arrangements
|
|
|
(1,256,618
|
)
|
|
|
|
|
|
Common Stock outstanding at December 31, 2008
|
|
|
245,784,390
|
|
|
|
|
|
|
At December 31, 2008 the Company had
245,784,390 shares of common stock issued, including
21,418,568 shares of treasury stock held by subsidiaries to
be issued to limited partners under the Equity Participation
Plan (see Note 11). During the year the Company cancelled
1,545,500 shares that had been awarded to certain service
providers the awards will continue to vest according
to the original grant schedule but shares will not be issued
until the vesting conditions are satisfied. On November 2,
2008, 315,625 shares were issued in order to satisfy
vesting grant obligations. During the course of the year a
further 410,500 of these awards were forfeited, resulting in a
year end reserve of 819,375 unissued non-vested stock
obligations in addition to the issued and outstanding common
stock.
On February 25, June 16 and September 26, 2008
dividends of $0.025 per share of common stock was declared to
holders of record. Total dividends of $16,210 were recognized in
2008 after charging dividends on shares expected to be forfeited
to operating expense.
Series A
Preferred Stock
The holders of the Companys Series A preferred stock
have one vote per share and the right, together with the holders
of common stock voting as a single class, to vote on the
election of directors and all other matters requiring
stockholder action. In addition, the holders of Series A
preferred stock have a separate right to vote as a single class
on (1) amendments to the certificate of incorporation that
effect a division or combination of common stock unless such
amendment proportionately divides or combines the Series A
preferred stock, (2) the declaration of any dividend or
distribution on common stock (other than in connection with a
dissolution and liquidation) in shares of common stock unless a
proportionate dividend or distribution is declared on the
Series A preferred stock, and (3) a division or
subdivision of Series A preferred stock into a greater
number of shares of Series A preferred stock or a
combination or consolidation of Series A preferred stock.
The Series A preferred stock is not entitled to receive
dividends. In the event of the liquidation of the Company, the
holders of Series A preferred stock are only entitled to
receive, in preference to the common stock, $0.0001 per share,
and nothing more. The shares of Series A preferred stock
are subject to transfer restrictions intended to cause such
shares to be transferred only together with the Exchangeable
Shares. Each share of Series A preferred stock will be
issued with an Exchangeable Share of FA Sub 2 Limited. Each
Exchangeable Share is exchangeable at any time at the election
of the holder for one share of common stock. For each
Exchangeable Share that is exchanged for common stock, a
corresponding share of Series A preferred stock will
automatically be redeemed for its par value of $0.0001 per share
and become authorized but unissued preferred stock. Except in
connection with the exchange of the Exchangeable Shares, the
holders of Series A preferred stock will have no
conversion, pre-emptive or other subscription rights.
F-27
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Warrants
Public
Stockholders Warrants
In connection with its initial public offering, the Company
issued 52,800,000 warrants to purchase common stock to the
public as part of units (comprising one share of common stock
and one public stockholders warrant). As of
December 31, 2008, 32,984,674 public stockholders
warrants were outstanding. The warrants were exercisable
beginning December 21, 2007 and will expire on
December 28, 2011.
Each public stockholders warrant entitles the holder to
purchase one share of common stock at a price of $7.50 per
share, subject to adjustment upon certain events, including a
stock dividend, or the Companys recapitalization,
reorganization, merger or consolidation.
Beginning December 21, 2007, the Company may call the
warrants for redemption with at least 30 days prior
written notice at a price of $0.01 per warrant if, and only if,
the reported last sale price of the Companys common stock
equals or exceeds $14.25 per share for any 20 trading days
within a 30-trading day period ending on the third business day
prior to the notice of redemption to warrant holders.
During 2008, 2,147,939 warrants were exercised and 7,000,000
were repurchased.
Founders
Warrants
Prior to its initial public offering, the Company issued
12,000,003 warrants to purchase its common stock to its founders
as part of units (comprising one share of common stock and one
founders warrant), all of which were outstanding as of
December 31, 2008. The founders warrants are
substantially similar to the public stockholders warrants
discussed above, except that the founders warrants:
|
|
|
|
|
will become exercisable if and when the last sales price of the
Companys common stock exceeds $14.25 per share for any 20
trading days within a 30-trading day period beginning
90 days after November 2, 2007; and
|
|
|
|
are non-redeemable so long as they are held by the founders or
their permitted transferees.
|
Each founder has agreed, subject to certain exceptions, not to
sell or otherwise transfer any of its founders warrants
(including the common stock to be issued upon exercise of the
founders warrants) until November 2, 2008.
Sponsors
Warrants and Co-Investment Warrants
In connection with its initial public offering, the Company
issued 4,500,000 warrants to purchase common stock to the
Companys sponsors, all of which were outstanding as of
December 31, 2008. In addition, in connection with the
Acquisition, the sponsors acquired an additional 5,000,000
warrants to purchase common stock as part of the co-investment
of $50,000 for 5,000,000 units in a private placement. The
sponsors warrants and co-investment warrants have terms
and provisions that are substantially similar to the public
stockholders warrants, except that these warrants
(including the common stock to be issued upon exercise of these
warrants) are not transferable or salable by their holders or
their permitted warrant transferees until one year after the
closing of the Acquisition, except to certain permitted
transferees. In addition, the sponsors warrants are
non-redeemable so long as the sponsors or their permitted
warrant transferees hold such warrants, while the co-investment
warrants are subject to the same redemption provisions as those
to which the public stockholders warrants are subject.
F-28
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Units
Public
Stockholders Units
Each unit consists of one share of common stock and one public
stockholders warrant. Each warrant entitles the holder to
purchase one share of common stock. The common stock and
warrants comprising the units began trading separately on
January 29, 2007.
Founders
Units
On July 20, 2006, the founders purchased an aggregate of
12,000,003 units (after giving effect to the Companys
reverse stock split and stock dividends) for an aggregate
purchase price of $25,000. Each unit consisted of one share of
common stock and one founders warrant.
Each of the founders agreed, subject to certain exceptions
described below, not to sell or otherwise transfer any of its
founders units, founders common stock or
founders warrants (including the common stock to be issued
upon exercise of the founders warrants) until
November 2, 2008. Each of the founders was permitted to
transfer its founders units, founders common stock
or founders warrants (including the common stock to be
issued upon exercise of the founders warrants) to certain
permitted transferees.
The founders units, shares and warrants (1) held by
founders are subject to the terms of letter agreements between
each of the founders and Citigroup Global Market, Inc., as sole
book running manager of the Companys initial public
offering, and (2) those held by sponsors are subject to
certain restrictions on transfer pursuant to the terms of the
founders agreement entered into among Noam Gottesman, as
Sellers Representative, the Principals, Trustees and the
sponsors, each of which provided that subject to certain
exceptions, these shares and warrants could not be transferred
until November 2, 2008.
Co-Investment
Units
Immediately prior to the Acquisition, the sponsors and certain
of their affiliates purchased in equal amounts an aggregate of
5,000,000 of the Companys units at a price of $10.00 per
unit for an aggregate purchase price of $50,000. Each unit
consists of one share of common stock and one co-investment
warrant. The sponsors did not receive any additional carried
interest (in the form of additional units, common stock,
warrants or otherwise) in connection with the co-investment.
Each of the sponsors has agreed, subject to certain exceptions
described below, not to sell or otherwise transfer any of its
co-investment units, co-investment common stock or co-investment
warrants (including the common stock to be issued upon exercise
of the co-investment warrants) for a period of one year from the
date of the Acquisition. Each of the sponsors is permitted to
transfer its co-investment units, co-investment common stock or
co-investment warrants (including the common stock to be issued
upon exercise of the co-investment warrants) to certain
permitted transferees. The co-investment units, shares and
warrants held by the Companys sponsors and their permitted
transferees are subject to (1) the terms of letter
agreements between each of the sponsors and Citigroup Global
Market, Inc., as sole book running manager of the Companys
initial public offering, and (2) certain restrictions on
transfer pursuant to the terms of the founders agreement entered
into among Mr. Gottesman, as Sellers Representative,
the Principals, Trustees and the sponsors, each of which
provides that subject to certain exceptions, these units, shares
and warrants could not be transferred until November 2,
2008.
F-29
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
|
|
10.
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME
|
Accumulated other comprehensive income comprises the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Foreign currency translation
|
|
$
|
3,654
|
|
|
$
|
3,233
|
|
|
$
|
2,906
|
|
Unrealized (losses)/gains on available for sale securities
|
|
|
(20,795
|
)
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
(17,141
|
)
|
|
$
|
3,477
|
|
|
$
|
2,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
SHARE-BASED
COMPENSATION
|
For the year ended 31 December, 2008 the Company recorded
$694,284 (2007: $591,901) share based compensation expense after
recording related tax benefits of $3,334 (2007: nil) in respect
of the following awards.
Equity
Participation Plan
Prior to December 31, 2006, GLG had not granted any
equity-based awards. In March 2007, GLG established the Equity
Participation Plan to provide certain key individuals, through
their direct or indirect limited partnership interests in two
limited partnerships, Sage Summit LP and Lavender Heights
Capital LP, with the right to receive a percentage of the
proceeds derived from an initial public offering relating to GLG
or a third-party sale of GLG. Upon consummation of the
Acquisition, Sage Summit LP and Lavender Heights Capital LP
received collectively 15% of the total consideration of cash and
the Companys capital stock payable to the GLG shareowners
in the Acquisition, 99.9% of which was allocated to key
individuals who are limited partners of Sage Summit LP and
Lavender Heights Capital LP. The balance of the consideration
remains unallocated. Of the portion which has been allocated,
92.4% was allocated to limited partners who are referred to as
Equity Sub-Plan A members and 7.6% was allocated to limited
partners who are referred to as Equity Sub-Plan B members.
These limited partnerships distributed to the limited partners
in the Equity Sub-Plan A, 25% of the aggregate amount allocated
to the Equity Sub-Plan A members upon consummation of the
Acquisition, and the remaining 75% will be distributed to the
limited partners in three equal installments of 25% each upon
vesting over a three-year period on the first, second and third
anniversaries of the consummation of the Acquisition, subject to
the ability of the general partners of the limited partnerships,
to accelerate vesting. These limited partnerships will
distribute to the limited partners in Equity Sub-Plan B, the
aggregate amount allocated to the Equity Sub-Plan B members in
four equal installments of 25% each upon vesting over a
four-year period on the first, second, third and fourth
anniversaries of the consummation of the Acquisition, subject to
the ability of the general partners of the limited partnerships,
to accelerate vesting. The unvested portion of such amounts will
be subject to forfeiture in the event of termination of the
individual as a limited partner prior to each vesting date,
unless such termination is without cause after there has been a
change in control of the Company after completion of the
Acquisition or due to death or disability. Upon forfeiture,
these unvested amounts will not be returned to the Company but
instead to the limited partnerships, which may reallocate such
amounts to their existing or future limited partners.
The equity portion of this plan has been accounted for in
accordance with the provisions of EITF Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or In Conjunction with Selling,
Goods or Services
(EITF 96-18),
which require that such equity instruments are recorded at their
fair value on the measurement date, which date is typically upon
the inception of the services
F-30
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
that will be performed, re-measured at subsequent dates to the
extent the awards are unvested, and amortized into expense over
the vesting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
|
Equity Participation Plan
|
|
Value
|
|
|
2008
|
|
|
Value
|
|
|
2007
|
|
|
2006
|
|
|
Compensation cost recognized in relation to share-based
compensation
|
|
|
|
|
|
$
|
(10,254
|
)
|
|
|
|
|
|
$
|
138,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at January 1 (in thousands)
|
|
$
|
13.70
|
|
|
|
25,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
4.60
|
|
|
|
12,856
|
|
|
$
|
13.70
|
|
|
|
32,980
|
|
|
|
|
|
Vested
|
|
$
|
13.70
|
|
|
|
(3,963
|
)
|
|
$
|
13.70
|
|
|
|
(7,617
|
)
|
|
|
|
|
Forfeited
|
|
$
|
13.70
|
|
|
|
(13,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31
|
|
$
|
8.03
|
|
|
|
20,637
|
|
|
$
|
13.70
|
|
|
|
25,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Date fair value of shares vesting during year
|
|
|
|
|
|
$
|
12,685
|
|
|
|
|
|
|
$
|
104,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in compensation expense arising from changes in fair
value from grant date to reporting date
|
|
|
|
|
|
$
|
69,995
|
|
|
|
|
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation at period end over
weighted-average remaining life of 1 year 6 months
(2007: 1 year 11 months)
|
|
|
|
|
|
$
|
35,317
|
|
|
|
|
|
|
$
|
310,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Plan and Long-Term Incentive Plan
10,000,000 shares of common stock were authorized to be
issued as part of the purchase price for the Acquisition, of
which 8,119,000 have been allocated to employees, service
providers and certain key personnel, subject to vesting (net of
forfeitures), which may be accelerated under the Restricted
Stock Plan. Any unvested stock awards will be returned to the
Company.
The Company is also authorized to issue up to
40,000,000 shares under the 2007 Long-Term Incentive Plan,
or LTIP, which will provide for the grants of incentive and
non-qualified stock options, stock appreciation rights, common
stock, restricted stock, restricted stock units, performance
units and performance shares to employees, service providers,
non-employee directors and certain key personnel who hold direct
or indirect limited partnership interests in certain GLG
Entities.
F-31
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Disclosures in accordance with SFAS 123(R) and
EITF 96-18
are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
|
Restricted Stock Plan and LTIP-Awards to Employees
|
|
Value
|
|
|
2008
|
|
|
Value
|
|
|
2007
|
|
|
2006
|
|
|
Compensation cost recognized in relation to share-based
compensation
|
|
|
|
|
|
$
|
51,129
|
|
|
|
|
|
|
$
|
5,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at January 1 (in thousands)
|
|
$
|
13.72
|
|
|
|
8,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
8.13
|
|
|
|
1,306
|
|
|
$
|
13.72
|
|
|
|
8,067
|
|
|
|
|
|
Transfer to non-employee
|
|
$
|
13.70
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
$
|
13.53
|
|
|
|
(2,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
$
|
13.70
|
|
|
|
(1,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31
|
|
$
|
13.02
|
|
|
|
4,441
|
|
|
$
|
13.72
|
|
|
|
8,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date fair value of shares vesting during year
|
|
|
|
|
|
$
|
30,923
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation at period end over
weighted-average remaining life of 1 year 11 months
(2007: 2 years 2 months)
|
|
|
|
|
|
$
|
44,032
|
|
|
|
|
|
|
$
|
104,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
|
Restricted Stock Plan and LTIP-Awards to Non-Employees
|
|
Value
|
|
|
2008
|
|
|
Value
|
|
|
2007
|
|
|
2006
|
|
|
Compensation cost recognized in relation to share-based
compensation
|
|
|
|
|
|
$
|
3,575
|
|
|
|
|
|
|
$
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at January 1 (in thousands)
|
|
$
|
13.72
|
|
|
|
2,400
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
5.47
|
|
|
|
1,796
|
|
|
$
|
13.70
|
|
|
|
2,400
|
|
|
|
|
|
Transfer from employee
|
|
$
|
13.70
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
$
|
13.31
|
|
|
|
(924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
$
|
13.70
|
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31
|
|
$
|
9.04
|
|
|
|
3,796
|
|
|
$
|
13.70
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Date fair value of shares vesting during year
|
|
|
|
|
|
$
|
2,469
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in compensation expense arising from changes in fair
value from grant date to reporting date
|
|
|
|
|
|
$
|
20,994
|
|
|
|
|
|
|
$
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation at period end over
weighted-average remaining life of 1 year 2 months
(2007: 2 years 2 months)
|
|
|
|
|
|
$
|
4,422
|
|
|
|
|
|
|
$
|
30,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Agreement
Among Principals and Trustees
In addition, the Principals and the Trustees have entered into
an agreement among Principals and Trustees which will provide
that, in the event a Principal voluntarily terminates his
employment with the Company for any reason prior to the fifth
anniversary of the closing of the Acquisition, a portion of the
equity interests held by that Principal and his related Trustee
as of the closing of the Acquisition will be forfeited to the
Principals who are still employed by us and their related
Trustees. Disclosures in accordance with SFAS 123(R) are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
|
Agreement Among Principals and Trustees
|
|
Value
|
|
|
2008
|
|
|
Value
|
|
|
2007
|
|
|
2006
|
|
|
Compensation cost recognized in relation to share-based
compensation
|
|
|
|
|
|
$
|
653,163
|
|
|
|
|
|
|
$
|
444,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at January 1 (in thousands)
|
|
$
|
13.70
|
|
|
|
112,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
$
|
13.70
|
|
|
|
136,510
|
|
|
|
|
|
Vested
|
|
$
|
13.70
|
|
|
|
(22,524
|
)
|
|
$
|
13.70
|
|
|
|
(23,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31
|
|
$
|
13.70
|
|
|
|
90,097
|
|
|
$
|
13.70
|
|
|
|
112,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date fair value of shares vesting during year
|
|
$
|
13.70
|
|
|
$
|
308,581
|
|
|
$
|
13.70
|
|
|
$
|
327,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation at period end over
weighted-average remaining life of 2 years 7 months
(2007: 2 years 10 months)
|
|
|
|
|
|
$
|
772,309
|
|
|
|
|
|
|
$
|
1,425,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimation
of Fair Value of share based compensation
SFAS 123(R) requires a company to estimate the compensation
cost of share-based payment awards based on estimated fair
values. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite
service period. For awards with performance conditions, the
Company makes an evaluation at the grant date and future periods
as to the likelihood of the performance targets being met.
Compensation expense is adjusted in future periods for
subsequent changes in the expected outcome of the performance
conditions until the vesting date. SFAS 123(R) requires
forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ
from those estimates. After due consideration, the Company has
assumed a forfeiture rate of 12.5% for employees, service
providers and key certain personnel awarded less than
100,000 shares and a 7.5% forfeiture rate for employees,
service providers and key certain personnel awarded more than
100,000 shares. The Company amended this assumption from
April 1, 2008 to a forfeiture rate of 10% per annum for
restricted stock awards under the Restricted Stock Plan and the
LTIP and share awards under the equity participation plan and
from July 1, 2008 a forfeiture rate of 10% per annum for
cash awards under the equity participation plan. Shares subject
to the agreement among the principals and trustees continue to
carry a zero forfeiture rate estimate. The impact of the change
in forfeiture assumptions was to decrease compensation expense
for the year ended December 31, 2008 by $7,660. These rates
will continue to be regularly reviewed against actual forfeiture
rates and adjusted where necessary. There are no assumed
forfeitures for either the Equity Participation Plan or the
Agreement among Principals and Trustees.
F-33
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
Share-based compensation expenses have been calculated assuming
a fair value of the Companys common stock at grant date
for employees. For awards to service providers accounted under
EITF 96-18,
fair value is re-measured at period end to the period end
closing price of the Companys common stock.
Net management fees, net performance fees, net administration
fees are derived as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Gross management fees
|
|
$
|
366,503
|
|
|
$
|
337,395
|
|
|
$
|
224,548
|
|
Management fee rebates
|
|
|
(48,716
|
)
|
|
|
(50,243
|
)
|
|
|
(38,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net management fees
|
|
$
|
317,787
|
|
|
$
|
287,152
|
|
|
$
|
186,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross performance fees
|
|
$
|
109,817
|
|
|
$
|
690,977
|
|
|
$
|
402,512
|
|
Performance fee rebates
|
|
|
(2,300
|
)
|
|
|
(12,315
|
)
|
|
|
(7,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net performance fees
|
|
$
|
107,517
|
|
|
$
|
678,662
|
|
|
$
|
394,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross administration fees
|
|
$
|
91,891
|
|
|
$
|
75,169
|
|
|
$
|
42,532
|
|
Sub-administration fees
|
|
|
(22,746
|
)
|
|
|
(10,945
|
)
|
|
|
(7,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net administration fees
|
|
$
|
69,145
|
|
|
$
|
64,224
|
|
|
$
|
34,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is not able to collect comprehensive data on the
geographical location of investors and, therefore, it is
impracticable to provide a geographical analysis of revenues.
The Company earns substantially all its revenue from the
management of alternative strategy, long-only and multi-strategy
investment funds (the GLG Funds) and managed
accounts. For the years ended December 31, 2008, 2007 and
2006, revenues from the alternative strategy GLG Funds
represented 87%, 87% and 83% , respectively, of the
Companys consolidated revenues and revenues from the
long-only GLG Funds represented 10%, 11% and 15%, respectively,
of the Companys consolidated revenues.
Of the alternative strategy GLG Funds, the GLG Alpha Select Fund
and the GLG Emerging Market Fund in 2008 and GLG Market Neutral
Fund, the GLG European Long-Short Fund and the GLG Emerging
Markets Fund in 2007 and 2006 each represented 10% or more of
the Companys consolidated revenues. These GLG Funds
represented approximately $149,300, $599,200 and $356,700
of the Companys consolidated revenues for the years ended
December 31, 2008, 2007 and 2006, respectively
The Company is subject to income tax of the countries (UK,
Ireland and US) in which it conducts business. Since 2006, the
income taxes charged geographically are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
UK Income Taxes
|
|
$
|
16,626
|
|
|
$
|
62,659
|
|
|
$
|
28,767
|
|
Irish Income Taxes
|
|
|
190
|
|
|
|
465
|
|
|
|
313
|
|
US Income Taxes
|
|
|
(2,585
|
)
|
|
|
876
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,231
|
|
|
$
|
64,000
|
|
|
$
|
29,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
The following table is a reconciliation of income taxes computed
at the standard UK corporation tax rate to the income tax charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income (loss) before income taxes
|
|
$
|
(596,287)
|
|
|
$
|
(277,670)
|
|
|
$
|
187,283
|
|
Tax credit (charge) at U.K. corporation tax rate (2008: 28.5%,
2007 and 2006: 30)%
|
|
|
169,942
|
|
|
|
83,301
|
|
|
|
(56,185
|
)
|
Factors affecting charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of overseas tax rate differences
|
|
|
33,713
|
|
|
|
53,415
|
|
|
|
27,557
|
|
Effect of Acquisition-related compensation expense
|
|
|
(215,644)
|
|
|
|
(191,723)
|
|
|
|
|
|
Effect of other disallowables and tax adjustments
|
|
|
(2,242)
|
|
|
|
(8,993)
|
|
|
|
(597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on profit
|
|
$
|
(14,231)
|
|
|
$
|
(64,000)
|
|
|
$
|
(29,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
|
16,394
|
|
|
|
64,000
|
|
|
|
29,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit
|
|
|
(2,163)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Income Tax Rate
|
|
|
(2)%
|
|
|
|
(23)%
|
|
|
|
16%
|
|
Income tax decreased by $49,769 to $14,231 predominantly driven
by an increase in loss before income taxes. We calculate the
effective tax rate on profit before tax and certain non-tax
deductible compensation expenses. For the year ended
December 31, 2008, we recognized $756,646 of acquisition
related compensation expenses, as compared to $639,077 for the
year ended December 31, 2007. Our profit before tax and
after adjusting for certain non-tax deductible compensation
expenses was $113,769 and $361,408 for the 12 months ended
December 31, 2008 and 2007, respectively. Our effective tax
rate based on this measure was 12.5% and 17.7% for 2008 and
2007, respectively. This decrease between 2007 and 2008 in the
effective tax rate was mainly due to a one time ability to carry
back certain current year tax losses against prior year taxable
income and reclaim tax paid. These rates are lower than the
U.S. Federal rate of tax of 35% as our profits are
predominantly in the UK and Cayman Islands which apply lower
rates of tax.
The UK tax returns for certain GLG Entities for the year ended
December 31, 2005, 2006 and 2007, based upon which the
Company paid taxes of $24,551, $28,491, and $51,462 respectively
are still subject to examination by the UK tax authorities.
As a result of adopting FIN 48 on January 1, 2007,
unrecognized tax benefits at December 31, 2008 relate to
U.S., state and foreign jurisdictions.
A reconciliation of the opening and closing amounts of
unrecognized tax benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Unrecognized tax benefits at January 1
|
|
$
|
8,462
|
|
|
$
|
1,362
|
|
Overall increases to current period tax positions
|
|
|
1,371
|
|
|
|
7,100
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31
|
|
$
|
9,833
|
|
|
$
|
8,462
|
|
|
|
|
|
|
|
|
|
|
In addition, the Company recognizes interest and penalties
related to unrecognized tax benefits, in income tax expense. As
of December 31, 2008, the Company had accrued interest of
$699 related to these unrecognized tax benefits. No accrual has
been made for penalties related to income tax positions. The
unrecognized tax benefit is not expected to materially change
over the next 12 months.
F-35
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
In total for the year ended December 31, 2008, the Company
had accrued an additional $1,670 of amounts relating to
unrecognized tax benefits that, if recognized, would reduce the
effective tax rate by 0.3%.
The total deferred tax assets in respect of temporary
differences amounted to $10,869, against which the Company
recognized a valuation allowance of $8,676. This principally
arises from share based compensation.
The Company conducts business globally and as a result, the
Company and certain of its subsidiaries file income tax returns
in the UK, US and Ireland with varying statutes of limitation.
For the 2005 through to 2008 tax years, the Company and certain
of its subsidiaries generally remain subject to examination by
the respective taxing authorities in the relevant jurisdictions.
|
|
14.
|
EMPLOYEE
BENEFIT PLANS
|
The Company provides a defined contribution plan for eligible
employees in the UK. All UK employees are eligible to contribute
to the plan after three months of qualifying service. The
Company contributes a percentage of the employees annual
salary, subject to UK statutory restrictions, on a monthly
basis. For the years ended December 31, 2008, 2007 and
2006, the Company incurred expenses of $1,363, $1,361, and
$1,049, respectively in connection with this plan.
|
|
15.
|
CONCENTRATION
OF CREDIT RISK
|
The Companys receivables relate to investment management,
administration and performance fees receivable from GLG Funds
and managed accounts. These fees are due upon determination by
the administrator, and the fees are in preference to other
creditors in the event of liquidation. Consequently, the Company
does not have any material concentrations of credit risk.
Certain GLG Entities are registered with, and subject to the
capital requirements of, the UK Financial Services Authority,
Cayman Islands Monetary Authority and Irish Financial Services
Regulatory Authority. These entities have continuously operated
in excess of their regulated capital requirements.
These regulatory capital requirements may restrict the
Companys ability to withdraw capital from its entities. At
December 31, 2008, approximately $31,039 (2007: $65,500) of
net assets of consolidated entities may be restricted as to the
payment of distributions and advances.
Transactions
with Lehman Brothers
A subsidiary of Lehman Brothers Holdings Inc. owns 11.0% of the
Companys equity on a fully diluted basis.
Prior to October 30, 2007, the non-voting stock of a number
of GLG Entities combined and consolidated in these financial
statements were pledged to Lehman Brothers Bankhaus AG as
security on loans to current and prior GLG Principals. The loans
required that all dividends paid on the non-voting shares be
applied to the repayment of the loans.
Prior to declaring bankruptcy, Lehman Brothers Holdings Inc. and
its affiliates (collectively, Lehman Brothers) had
acted as a broker, prime broker, derivatives counterparty and
stock lending agent to certain of
F-36
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
the GLG Funds and managed accounts. The terms of these
arrangements were similar to those of arrangements with other
non-related parties.
Lehman Commercial Paper Inc. holds approximately $76,000 of the
Companys debt.
Lehman Brothers distributed GLG Funds through its private client
sales force, and the Company rebates to Lehman Brothers, certain
of the fees that it received from the GLG Funds in relation to
these investments. The annual charge to the Company was $3,393,
$5,456 and $3,842 in 2008, 2007 and 2006, respectively. The
terms of these arrangements were similar to those of
arrangements with other non-related parties.
Lehman Brothers also provided payroll services to the Company
and provided the Company with disaster recovery support, such as
office space. The annual charge to the Company was approximately
$284, $100, and $76 in 2008, 2007, and 2006, respectively.
Since declaring bankruptcy, Lehman Brothers has ceased
performing the above mentioned services.
Schreyer
Consulting Agreement
Leslie J. Schreyer, who in his capacity as Trustee of the
Gottesman GLG Trust is a member of the group of individuals that
exercise common control over the GLG Entities, served as the
general counsel and adviser of GLG Partners Services LP on a
part-time basis under a consulting agreement. The consulting
agreement was for a one year term, automatically renewed
annually for an additional one-year term, unless terminated. The
consulting agreement provided for an annual base salary of
$1,500, of which $500 was paid in monthly installments and the
balance was paid when bonuses are payable. Mr. Schreyer was
also eligible to receive a bonus and other benefits, such as
health insurance. Mr. Schreyer received total compensation
of $0, $2,700 and $3,200 for 2008, 2007, and 2006, respectively
from GLG Partners Services LP.
On November 2, 2007, the consulting agreement was
terminated and Mr. Schreyer entered into an employment
agreement with the Company.
Green
Consulting Fee
Jonathan Green, a shareholder in the Company and a former
principal of GLG, was paid a consulting fee of $0 for 2008, $0
for 2007 and $1,000 for 2006.
There were no reportable events subsequent to December 31,
2008.
F-37
GLG
PARTNERS, INC. AND SUBSIDIARIES
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (continued)
(US Dollars in thousands, except per share amounts)
|
|
19.
|
SELECTED
QUARTERLY INFORMATION (UNAUDITED)
|
The following unaudited quarterly information includes, in
managements opinion, all the normal and recurring
adjustments necessary to fairly state the results of operations
and related information for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Total net revenues and other income
|
|
$
|
131,380
|
|
|
$
|
188,810
|
|
|
$
|
102,095
|
|
|
$
|
72,706
|
|
Total expenses
|
|
|
(343,342
|
)
|
|
|
(266,933
|
)
|
|
|
(257,670
|
)
|
|
|
(206,720
|
)
|
Net loss applicable to common stockholders
|
|
|
(226,335
|
)
|
|
|
(93,615
|
)
|
|
|
(167,088
|
)
|
|
|
(142,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
|
(1.07
|
)
|
|
|
(0.44
|
)
|
|
|
(0.79
|
)
|
|
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Total net revenues and other income
|
|
$
|
73,007
|
|
|
$
|
418,010
|
|
|
$
|
102,572
|
|
|
$
|
446,529
|
|
Total expenses
|
|
|
(57,266
|
)
|
|
|
(268,544
|
)
|
|
|
(71,850
|
)
|
|
|
(922,478
|
)
|
Net income/(loss) applicable to common stockholders
|
|
|
13,962
|
|
|
|
124,606
|
|
|
|
29,035
|
|
|
|
(478,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share basic
|
|
$
|
0.10
|
|
|
$
|
0.92
|
|
|
$
|
0.21
|
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share diluted
|
|
$
|
0.07
|
|
|
$
|
0.64
|
|
|
$
|
0.15
|
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
322
|
|
|
$
|
39,334
|
|
Advances to subsidiaries
|
|
|
6,258
|
|
|
|
15,979
|
|
Prepaid expenses and other assets
|
|
|
6,882
|
|
|
|
5,497
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
13,462
|
|
|
|
60,810
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Property and equipment (net of accumulated depreciation and
amortization of $147)
|
|
|
528
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Assets
|
|
|
528
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
13,990
|
|
|
$
|
61,420
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Deficit of investments in subsidiaries, net
|
|
$
|
384,527
|
|
|
$
|
305,690
|
|
Accrued compensation and benefits
|
|
|
4,344
|
|
|
|
882
|
|
Income and franchise taxes payable
|
|
|
|
|
|
|
90
|
|
Accounts payable and other accruals
|
|
|
1,368
|
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
390,239
|
|
|
|
307,561
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
390,239
|
|
|
|
307,561
|
|
Stockholders Deficit
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 1,000,000,000 authorized,
245,784,988 issued and outstanding (2007: 244,730,988 issued and
outstanding)
|
|
|
24
|
|
|
|
24
|
|
Series A voting preferred stock, $.0001 par value;
150,000,000 authorized, 58,904,993 issued and outstanding (2007:
58,904,993 issued and outstanding)
|
|
|
6
|
|
|
|
6
|
|
Additional paid in capital
|
|
|
1,176,054
|
|
|
|
575,589
|
|
Treasury stock
|
|
|
(293,434
|
)
|
|
|
(347,740
|
)
|
Accumulated and other comprehensive income
|
|
|
(17,141
|
)
|
|
|
3,477
|
|
Accumulated deficit
|
|
|
(1,241,758
|
)
|
|
|
(477,497
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit
|
|
|
(376,249
|
)
|
|
|
(246,141
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Deficit
|
|
$
|
13,990
|
|
|
$
|
61,420
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this condensed
financial information.
F-39
GLG
PARTNERS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
(US Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest income, net
|
|
$
|
56
|
|
|
$
|
|
|
|
$
|
|
|
Intercompany Revenue transfers
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
(161,689
|
)
|
|
|
(103,598
|
)
|
|
|
|
|
General, administrative and other
|
|
|
(7,891
|
)
|
|
|
(238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169,579
|
)
|
|
|
(103,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit from operations
|
|
|
(160,472
|
)
|
|
|
(103,796
|
)
|
|
|
|
|
Deficit before income taxes
|
|
|
(160,472
|
)
|
|
|
(103,796
|
)
|
|
|
|
|
Income taxes
|
|
|
3,653
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit before deficit in net income of subsidiaries
|
|
|
(165,819
|
)
|
|
|
(103,139
|
)
|
|
|
|
|
(Deficit)/interest in net income of subsidiaries
|
|
|
(463,878
|
)
|
|
|
(207,369
|
)
|
|
|
157,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deficit
|
|
$
|
(629,697
|
)
|
|
$
|
(310,508
|
)
|
|
$
|
157,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this condensed
financial information.
F-40
GLG
PARTNERS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(US Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net cash used in operating activities
|
|
$
|
(3
|
)
|
|
$
|
(2,474
|
)
|
|
$
|
|
|
Cash Flows From Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
|
7,186
|
|
|
|
|
|
|
|
|
|
Acquisition of GLG Inc
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(65
|
)
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
4,621
|
|
|
|
(610
|
)
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from Freedom Acquisition
|
|
|
|
|
|
|
48,940
|
|
|
|
|
|
Warrant exercises
|
|
|
2,335
|
|
|
|
39,035
|
|
|
|
|
|
Dividends paid
|
|
|
(16,210
|
)
|
|
|
|
|
|
|
|
|
Share repurchases
|
|
|
(7,697
|
)
|
|
|
|
|
|
|
|
|
Share issuance recharges to subsidiaries
|
|
|
15,290
|
|
|
|
|
|
|
|
|
|
Warrant repurchases
|
|
|
(37,350
|
)
|
|
|
(45,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
(43,632
|
)
|
|
|
42,418
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
(39,013
|
)
|
|
|
39,334
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
39,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
322
|
|
|
$
|
39,334
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this condensed
financial information.
F-41
GLG
PARTNERS, INC.
NOTES TO
THE CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(US
Dollars in thousands)
The accompanying condensed financial statements, including the
notes thereto, should be read in conjunction with the combined
and consolidated financial statements of GLG Partners, Inc. and
subsidiaries (the Company) and the notes thereto.
Our share of net income of our subsidiaries is included in net
income using the equity method of accounting.
The condensed financial information is that of the legal parent,
GLG Partners, Inc. for the period post-Acquisition.
Reverse acquisition accounting requires that the condensed
financial information presented is that of the accounting
acquirer. As GLG represented the combination of entities under
common control, no parent entity can be identified. As such, the
condensed financial information presented for the
pre-Acquisition period represents the interest in the GLG
Entities of a notional GLG holding company. Stockholders
equity has also been retroactively restated to include shares
issued to the GLG Shareowners as consideration for the
Acquisition as the issued capital for all periods presented.
The deficit on subsidiaries represents the Companys share
of the deficit of its consolidated subsidiaries on an equity
accounted basis.
The condensed financial information for the years ended
December 31, 2008, 2007 and 2006 is prepared in accordance
with accounting principles generally accepted in the United
States of America, which require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and the disclosure of
contingencies in the condensed financial statements. Management
believes that the estimates utilized in the preparation of the
condensed financial information are reasonable and prudent.
Actual results could differ materially from these estimates.
FA Sub 3 Limited, a subsidiary of the Company, has entered into
a credit agreement providing it with: (i) a
5-year
non-amortizing
revolving credit facility in a principal amount of up to
$40,000; and (ii) a
5-year
amortizing term loan facility in a principal amount of up to
$530,000. Proceeds of the loans were used to finance the
purchase price for the Companys acquisition of GLG, to pay
transaction costs and to repay then-existing GLG indebtedness
and for working capital and other general corporate purposes.
The term loans and revolving loans are guaranteed by the Company
and certain of its subsidiaries (including FA Sub 1 Limited, FA
Sub 2 Limited and the GLG Entities, but excluding certain
regulated GLG Entities) and will be secured by a first priority
pledge of all notes and capital stock owned by FA Sub 3 Limited
and the guarantors and a first priority security interest in all
or substantially all other assets owned by FA Sub 3 Limited and
the guarantors. The repayment schedule on the loan is as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
2008
|
|
|
2007
|
|
|
Scheduled principal payments for long-term borrowings at
December 31, 2008 are
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
|
|
2010
|
|
$
|
|
|
|
$
|
|
|
2011
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
2012
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
Thereafter
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
530,000
|
|
|
$
|
530,000
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
ADVANCES
TO SUBSIDIARIES
|
As of December 31, 2008 and 2007, GLG Partners, Inc. had
receivables from subsidiaries of $6,258 (2007: $15,979) related
to the recovery of transaction costs incurred as part of the
Acquisition.
F-42
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Purchase Agreement dated June 22, 2007 by and among the
Company, FA Sub 1 Limited, FA Sub 2 Limited and FA Sub 3
Limited, Jared Bluestein, as Buyers Representative, Noam
Gottesman, as Sellers Representative, and the GLG equity
holders party thereto, filed as Annex A to the
Companys Proxy Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
2
|
.2
|
|
Amendment No. 1, dated as of March 4, 2008, to the
Purchase Agreement, dated as of June 22, 2007, among the
Company, Noam Gottesman (as Sellers Representative) and
Jared Bluestein (as Buyers Representative), filed as
Exhibit 2.2 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (File
No. 001-33217),
is incorporated herein by reference.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Company, filed as
Exhibit 3.1 to the Companys Current Report on
Form 8-K
(File
No. 001-33217),
is incorporated herein by reference.
|
|
3
|
.2
|
|
Amended Bylaws of the Company, filed as Exhibit 3.5 to the
Companys amended Registration Statement on
Form 8-A/A
(File
No. 001-33217),
is incorporated herein by reference.
|
|
4
|
.1
|
|
Specimen Certificate for Common Stock, par value $0.0001 per
share, of the Company, filed as Exhibit 4.1 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.2
|
|
Specimen Certificate for Series A Preferred Stock, par
value $0.0001 per share, of the Company, filed as
Exhibit 4.2 to the Companys Post-Effective Amendment
on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.3
|
|
Specimen Certificate for Public Warrants to Purchase Common
Stock of the Company, filed as Exhibit 4.3 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.4
|
|
Specimen Certificate for Private Warrants to Purchase Common
Stock of the Company, filed as Exhibit 4.4 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.5
|
|
Specimen Certificate for Units, each consisting of one share of
Common Stock and one Warrant, of the Company, filed as
Exhibit 4.5 to the Companys Post-Effective Amendment
on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
4
|
.6
|
|
Amended and Restated Warrant Agreement dated as of
December 21, 2006 between Continental Stock
Transfer & Trust Company and the Company, filed
as Exhibit 4.8 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-136248),
is incorporated herein by reference.
|
|
4
|
.7
|
|
Amendment No. 1 to Amended and Restated Warrant Agreement,
dated as of December 19, 2007, between Continental Stock
Transfer & Trust Company and the Company, filed
as Exhibit 4.7 to the Companys Post-Effective
Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.1
|
|
Credit Agreement dated as of October 31, 2007 among the
Company, FA Sub 1 Limited, FA Sub 2 Limited and FA Sub 3
Limited, each a wholly owned subsidiary of the Company,
Citigroup Global Markets, Inc., as book manager and arranger,
Citicorp USA, Inc., as administrative agent, and the other
lenders party thereto, filed as Exhibit 10.1 to the
Companys Post-Effective Amendment on
Form S-3
to Registration Statement on
Form S-1
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.2
|
|
Registration Rights Agreement dated as of December 21, 2006
among the Company and the Founders, filed as Exhibit 10.1
to the Companys Registration Statement on
Form S-1
(Registration
No. 333-136248),
is incorporated herein by reference.
|
|
10
|
.3
|
|
Support Agreement dated November 2, 2007 between the
Company and FA Sub 2 Limited, filed as Annex B to the
Companys Proxy Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.4
|
|
GLG Shareholders Agreement dated as of June 22, 2007 among
the Company and the Persons set forth on the signature page
thereto, filed as Annex D to the Companys Proxy
Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.5
|
|
Founders Agreement dated June 22, 2007 among Noam
Gottesman, as Sellerss Representative, the Principals, the
Trustees, Berggruen Freedom Holdings Ltd. and Marlin Equities
II, LLC, filed as Annex E to the Companys Proxy
Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.6
|
|
Voting Agreement dated June 22, 2007 among the Principals,
the Trustees, Lavender Heights Capital LP, Sage Summit LP, Point
Pleasant Ventures Ltd., Jackson Holding Services Inc and the
Company, filed as Annex F to the Companys Proxy
Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.7.1*
|
|
Form of Indemnification Agreement between the Company and its
directors, officers, employees and agents, filed as
Exhibit 10.1.1 to the Companys Current Report on
Form 8-K
(File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.7.2*
|
|
Schedule identifying agreements substantially identical to the
Form of Indemnification Agreement constituting
Exhibit 10.7.1 to this Annual Report on
Form 10-K.
|
|
10
|
.8.1*
|
|
2007 Long-Term Incentive Plan, filed as Annex J to the
Companys Proxy Statement dated October 12, 2007 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.8.2*
|
|
Form of Restricted Stock Award Agreement for US Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.4 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.3*
|
|
Form of Restricted Stock Award Agreement for US Non-Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.5 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.4*
|
|
Form of Restricted Stock Award Agreement for UK Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.6 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.5*
|
|
Form of Restricted Stock Award Agreement for UK Non-Employees
Directors under the Companys 2007 Long-Term Incentive
Plan, filed as Exhibit 4.7 to the Companys
Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.6*
|
|
Form of Restricted Stock Award Agreement for UK Limited Partners
under the Companys 2007 Long-Term Incentive Plan, filed as
Exhibit 4.8 to the Companys Registration Statement on
Form S-8
(Registration
No. 333-148877),
is incorporated herein by reference.
|
|
10
|
.8.7.1*
|
|
Restricted Stock Agreement dated November 5, 2007 between
the Company and Alejandro San Miguel under the
Companys 2007 Long-Term Incentive Plan, filed as
Exhibit 10.2.1 to the Companys Current Report on
Form 8-K
(File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.8.7.2*
|
|
Letter Agreement dated as of January 29, 2008 between the
Company and Alejandro San Miguel with respect to the
Restricted Stock Award Agreement dated November 5, 2007
between the Company and Mr. San Miguel filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (File
No. 001-33217),
is incorporated herein by reference.
|
|
10
|
.9.1*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Noam Gottesman, filed as Exhibit 10.9.1 to the
Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.9.2*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners LP and Noam Gottesman, filed as Exhibit 10.9.2 to
the Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.9.3*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners Services LP and Noam Gottesman, filed as
Exhibit 10.9.3 to the Companys Post-Effective
Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
. 10.1*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Emmanuel Roman, filed as Exhibit 10.10.1 to the
Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.10.2*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners LP and Emmanuel Roman, filed as Exhibit 10.10.2 to
the Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.10.3*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners Services LP and Emmanuel Roman, filed as
Exhibit 10.10.3 to the Companys Post-Effective
Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.11*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Simon White, filed as Exhibit 10.11 to the
Companys Post-Effective Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.12*
|
|
Employment Agreement dated November 2, 2007 between the
Company and Alejandro San Miguel, filed as
Exhibit 10.12 to the Companys Post-Effective
Amendment on
Form S-3
(Registration
No. 333-147865),
is incorporated herein by reference.
|
|
10
|
.13.1*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners LP and Pierre Lagrange.
|
|
10
|
.13.2*
|
|
Employment Agreement dated November 2, 2007 between GLG
Partners Services Limited and Pierre Lagrange.
|
|
10
|
.14*
|
|
Employment Agreement dated March 18, 2008 between the
Company and Jeffrey M. Rojek, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008 (File
No. 001-33217),
is incorporated herein by reference.
|
|
21
|
|
|
Subsidiaries of the Company.
|
|
23
|
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
24
|
|
|
Power of Attorney authorizing certain persons to sign this
Annual Report on
Form 10-K
on behalf of certain directors and executive officers of the
Company.
|
|
31
|
.1
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to
Rule 13a-
14(a) of the Securities Exchange Act of 1934.
|
|
31
|
.2
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to
Rule 13a-
14(a) of the Securities Exchange Act of 1934.
|
|
31
|
.3
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934.
|
|
32
|
.1
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.2
|
|
Certification of Periodic Report by the Co-Chief Executive
Officer pursuant to Section 906 of the Sarbanes- Oxley Act
of 2002.
|
|
32
|
.3
|
|
Certification of Periodic Report by the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
|
|
|
Portions of this exhibit have been omitted and filed separately
with the Office of the Secretary of the Securities and Exchange
Commission pursuant to a confidential treatment request. |