424B3
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-147865
GLG
Partners, Inc.
84,150,406 Shares
of Common Stock, par value $0.0001 per share
21,500,003 Warrants to
purchase Common Stock
This prospectus relates to the issuance by us of
67,150,403 shares of our common stock, par value $0.0001
per share, of which:
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45,650,400 shares are issuable upon the exercise of
outstanding warrants originally issued in our initial public
offering pursuant to a prospectus dated December 21, 2006;
and
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21,500,003 shares are issuable upon the exercise of
outstanding warrants issued in private placements to our
founders and sponsors.
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This prospectus also relates to the resale by selling
stockholders of up to (1) 17,000,003 shares of our common
stock and 17,000,003 warrants underlying outstanding units
and an additional 4,500,000 warrants, in each case issued in
private placements to our founders and sponsors, and (2)
21,500,003 shares of our common stock issued on exercise by
selling stockholders of such privately placed warrants.
Each warrant entitles the holder to purchase one share of our
common stock. In order to obtain the shares, the holders of the
warrants must pay an exercise price of $7.50 per share. We will
receive proceeds from the exercise of the warrants but not from
the sale of the underlying common stock.
Each unit consists of one share of our common stock and one
warrant. We will not receive any proceeds from the resale of any
shares of common stock or warrants sold by selling stockholders.
Our common stock, warrants and units are listed on the New York
Stock Exchange and trade under the symbols GLG,
GLG WS and GLG.U, respectively. On
December 19, 2007, the closing sale prices of the common
stock, warrants and units were $13.59 per share,
$6.05 per warrant and $20.09 per unit, respectively.
Investing in our securities involves a high degree of risk.
See Risk Factors beginning on page 7 of this
prospectus for a discussion of information that should be
considered before buying shares of our common stock or our
warrants.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information that is different.
The information contained in this prospectus is correct as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of shares of our common stock.
You should be aware that some of this information may have
changed by the time this document is delivered to you.
The date of this prospectus is December 20, 2007.
TABLE OF
CONTENTS
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1
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4
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7
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27
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28
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29
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31
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31
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32
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33
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34
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36
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37
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67
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78
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82
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85
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105
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110
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114
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118
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122
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125
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127
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132
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137
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137
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138
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138
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F-1
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This summary highlights selected information contained
elsewhere in this prospectus summary. Unless the context
indicates otherwise, the terms the Company,
we, us and our refer to the
combined company, which has been renamed GLG Partners, Inc., in
connection with 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, and its subsidiaries.
Our
Company
We are the largest independent alternative asset manager in
Europe and the eleventh largest globally, offering our base of
long-standing prestigious clients a diverse range of investment
products and account management services. Our focus is on
preserving clients capital and achieving consistent,
superior absolute returns with low volatility and low
correlations to both the equity and fixed income markets. Since
our inception in 1995, we have built on the roots of our
founders in the private wealth management industry to develop
into one of the worlds largest and most recognized
alternative investment managers, while maintaining our tradition
of client-focused product development and customer service.
We use a multi-strategy approach across the funds we manage,
offering approximately 40 funds across equity, credit,
convertible and emerging markets products. We refer to these
funds as the GLG Funds. As of September 30, 2007, our gross
assets under management, or AUM, (including assets invested from
other GLG Funds) were approximately $23.6 billion, up from
approximately $3.9 billion as of December 31, 2001,
representing a compound annual growth rate, or CAGR, of 37%. As
of September 30, 2007, our net AUM (net of assets
invested from other GLG Funds) were approximately
$20.5 billion, up from approximately $3.9 billion as
of December 31, 2001, representing a CAGR of 33%. During
the three months ended September 30, 2007, on a
dollar-weighted basis, the net returns of the GLG Funds
decreased less than 0.5% and managed account inflows and gross
fund-based inflows of AUM (net of redemptions) exceeded
$1.7 billion.
We derive revenues by charging performance fees based on the
performance of the funds and accounts we manage and management
and administration fees as a percentage of the AUM of the funds
and accounts we manage. Unlike other typical alternative asset
managers, we do not hold any ownership interests, investments or
carried interests in the GLG Funds, other than a de minimis
amount of subscriber and management shares. 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. As a result, we
do not receive any income by reason of investment on our own
account in the GLG Funds.
In addition, our principals, their related trustees and our key
personnel do not have any carried interests in the GLG Funds.
However, they have their own direct investments in the GLG
Funds. Currently, they have invested, including certain cash
proceeds from the sale of GLG, approximately $776 million
of additional net AUM in the GLG Funds. Altogether, the
former GLG shareowners described below (including our
principals, their trustees and our key personnel) invested from
their cash proceeds from the sale of GLG and from other funds
approximately $877 million of additional net AUM in the GLG
Funds.
We have built an experienced and highly-regarded investment
management team of 95 investment professionals and supporting
staff of 205 personnel, based primarily in London,
representing decades of experience in the alternative asset
management industry. In addition, we receive dedicated research
and administrative services with respect to our
U.S.-focused
investment strategies from GLG Inc., an independently owned
dedicated service provider based in New York with
27 personnel. In June 2007, GLG Partners LP agreed to
acquire GLG Inc. subject to certain conditions, including
registration by GLG Inc. and GLG Partners LP (to the extent
required by applicable law) as investment advisers under the
U.S. Investment Advisers Act of 1940. On December 3,
2007, GLG Inc. filed a registration statement under the
Investment Advisers Act with the SEC. We have been designated by
GLG Partners LP as the purchaser of GLG Inc., and we expect to
complete the acquisition of GLG Inc. in 2008.
1
Our principal executive office is located at 390 Park Avenue,
20th Floor, New York, New York 10022. Our telephone number
is
(212) 224-7200.
Recent
Developments
On November 2, 2007, we completed 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 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, Lehman (Cayman Islands) Ltd, Noam Gottesman,
Pierre Lagrange, Emmanuel Roman, Jonathan Green, 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, Jeffrey A. Robins, in his capacity as
trustee of the Roman GLG Trust, Abacus (C.I.) Limited, in its
capacity as trustee of the Green GLG Trust, Lavender Heights
Capital LP, Ogier Fiduciary Services (Cayman) Limited, in its
capacity as trustee of the Green Hill Trust, Sage Summit LP and
Ogier Fiduciary Services (Cayman) Limited, in its capacity as
trustee of the Blue Hill Trust (each, a GLG
Shareowner and collectively, the GLG
Shareowners). We refer to Messrs. Gottesman, Lagrange
and Roman collectively as the Principals, and the trustees of
the Gottesman GLG Trust, the Lagrange GLG Trust and the Roman
GLG Trust collectively as the Trustees.
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 from Freedom
Acquisition Holdings, Inc. to GLG Partners, Inc.
Because the acquisition was considered a reverse acquisition
recapitalization for accounting purposes, the combined
historical financial statements of GLG became our historical
financial statements.
On October 30, 2007, we and our wholly owned subsidiaries
entered into a credit agreement with a syndicate of banks
arranged and led by Citigroup Global Markets, Inc. providing our
subsidiary FA Sub 3 Limited, subject to customary conditions,
with: (i) a
5-year
non-amortizing
revolving credit facility in a principal amount of up to
$40.0 million; and (ii) a
5-year
amortizing term loan facility in a principal amount of up to
$530.0 million. On November 2, 2007, we borrowed
$530.0 million under the term loan facility to finance the
purchase price for our acquisition of the Acquired Companies,
including purchase price adjustments, to pay transaction costs
and to repay existing GLG indebtedness. The remaining
$40.0 million under the revolving credit facility was also
drawn down in November 2007.
On November 2, 2007, our board of directors approved a
warrant and stock repurchase plan authorizing us to repurchase
up to a total $100.0 million of warrants and common stock
in the open market or in negotiated block purchases over the
following six months. As of December 12, 2007, we have
repurchased 7,149,600 warrants.
Public
Stockholders Warrants
On December 28, 2006, we sold 48,000,000 units in our
initial public offering, and on January 24, 2006, the
underwriters for our initial public offering purchased an
additional 4,800,000 units pursuant to an over-allotment
option. Each unit consists of one share of common stock and one
warrant. Each warrant entitles the holder to purchase one share
of our common stock. In order to obtain the shares, the holders
of the warrants must pay an exercise price of $7.50 per share.
The warrants will not be exercisable until December 21,
2007 and will expire on December 28, 2011, unless earlier
redeemed. Beginning December 21, 2007, we may redeem the
warrants 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 sale 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.
2
Founders
Units and Warrants
Prior to our initial public offering, we issued an aggregate of
12,000,003 units, each consisting of one warrant and one
share of our common stock, to our sponsors, Berggruen Holdings
North America Ltd. and Marlin Equities II, LLC, and independent
directors, whom we refer to collectively as our founders, in a
private placement. The founders warrants are substantially
similar to the public stockholders warrants, except that
the founders warrants:
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will become exercisable if and when the last sales price of our
common stock exceeds $14.25 per share for any 20 trading days
within a 30-trading day period beginning January 31,
2008; and
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are non-redeemable so long as they are held by the founders or
their permitted transferees.
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The founders units, shares and warrants (1) held by
our founders are subject to certain restrictions on transfer
pursuant to the terms of letter agreements between each of the
founders and Citigroup Global Market, Inc., as sole book running
manager of our initial public offering, and (2) held by our
sponsors are subject to certain restriction on transfer pursuant
to the terms of the founders agreement entered into among Noam
Gottesmann, as Sellers Representative, the Principals, the
Trustees and our sponsors, each of which provides that subject
to certain exceptions, these units and the underlying shares and
warrants may not be transferred until November 2, 2008.
Sponsors
Warrants and Co-Investment Units and Warrants
In connection with our initial public offering, we issued
4,500,000 warrants to purchase common stock to our sponsors in a
private placement. In addition, immediately prior to the
consummation of our acquisition of GLG, we issued
5,000,000 units, each consisting of one warrant and one
share of common stock, as part of the co-investment by our
sponsors and certain affiliated persons, including Ian Ashken
and Martin Franklin, directors of ours, of $50.0 million in
a private placement. The sponsors warrants and the
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 November 2, 2008, except to permitted warrant
transferees.
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. Our sponsors have
agreed to exercise the sponsor warrants at the written demand of
Mr. Gottesman, as the GLG Shareowners representative,
any time after the redemption of the public warrants and
amendment to such sponsor warrants permitting a cashless
exercise. The sponsors warrants and the co-investment
units, shares and warrants held by our founders and sponsors are
also subject to the same restrictions on transfer applicable to
the founders units, shares and warrants pursuant to letter
agreements and the founders agreement described above under
Founders Units and Warrants.
3
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Shares Offered by the Company |
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67,150,403 shares of common stock, par value $0.0001 per
share, of which: |
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45,650,400 shares are issuable upon exercise of
outstanding warrants issued in connection with the
Companys initial public offering on December 21,
2006; and
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21,500,003 shares are issuable upon the
exercise of outstanding warrants issued in private placements to
our founders and sponsors.
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Shares and/or Warrants Offered by Selling Stockholders
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17,000,003 shares of our common stock and warrants
underlying units issued in private placements to our founders
and sponsors, whom we refer to collectively as the selling
stockholders, and the shares of our common stock issuable upon
exercise of such warrants |
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Additional Warrants Offered by Selling Stockholders
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4,500,000 warrants issued in private placements to the selling
stockholders, and the shares of our common stock issuable upon
exercise of such warrants |
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Warrant Exercise Price |
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$7.50 per share |
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Common Stock Outstanding as of November 30, 2007
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240,894,910 shares* |
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Common Stock to be Outstanding Assuming Exercise of All of
the Warrants
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308,045,313 shares* |
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Use of Proceeds |
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The Company will receive up to an aggregate of approximately
$503,628,023 from the exercise of the warrants, if they are
exercised in full. The Company expects that any net proceeds
from the exercise of the warrants will be used to fund
additional repurchases of warrants and shares of common stock,
for general corporate purposes and to fund working capital. |
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The selling stockholders will receive all of the proceeds from
the sale of any shares of common stock and/or warrants sold by
them pursuant to this prospectus. We will not receive any
proceeds from these sales. |
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NYSE Trading Symbols: |
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Common Stock |
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GLG |
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Warrants |
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GLG WS |
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Units |
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GLG.U |
* Does not include
58,904,993 shares of our common stock issuable in exchange
for 58,904,993 exchangeable Class B ordinary shares of FA
Sub 2 Limited and 58,904,993 associated shares of Series A
voting preferred stock of the Company beneficially owned by Noam
Gottesman and the Trustee of the Gottesman GLG Trust, which may
be exchanged by the holder thereof at any time and from time to
time.
4
SUMMARY
COMBINED HISTORICAL FINANCIAL INFORMATION OF GLG
Because the acquisition was considered a reverse acquisition
recapitalization for accounting purposes, the combined
historical financial statements of GLG became our historical
financial statements. The summary combined historical financial
information of GLG as of and for the nine months ended
September 30, 2007 and for the nine months ended
September 30, 2006 was derived from unaudited condensed
combined financial statements of GLG included in this
prospectus. The summary combined historical financial
information of GLG as of and for the years ended
December 31, 2006, 2005 and 2004 was derived from combined
financial statements of GLG audited by Ernst & Young
LLP, independent registered public accounting firm, included in
this prospectus. The summary combined historical financial
information of GLG as of September 30, 2006 and as of and
for the years ended December 31, 2003 and 2002 was derived
from unaudited combined financial statements of GLG not included
in this prospectus. This information should be read in
conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the financial
statements of GLG and the notes thereto included in this
prospectus.
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Nine Months Ended
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Years Ended December 31,
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September 30,
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2002
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2003
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2004
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2005
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2006
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2006
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2007
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(Unaudited)
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(US dollars in thousands)
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(Unaudited)
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Combined Statement of Operations Data:
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Net revenues and other income:
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Management fees, net
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$
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30,108
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$
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65,259
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$
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138,988
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$
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137,958
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$
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186,273
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$
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129,981
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$
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198,892
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Performance fees, net
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31,288
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206,685
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178,024
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279,405
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394,740
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177,047
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343,835
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Administration fees, net
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311
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34,814
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25,050
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42,986
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Transaction charges
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80,613
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115,945
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191,585
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184,252
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Other
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626
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6,497
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6,110
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1,476
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5,039
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1,883
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7,875
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Total net revenues and other income
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142,635
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394,386
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514,707
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603,402
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620,866
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333,961
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593,588
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Expenses:
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Employee compensation and benefits
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(88,994
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)
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(158,789
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)
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(196,784
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)
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(345,918
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)
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(168,386
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)
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(118,194
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)
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(110,526
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)
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General, administrative and other
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(22,052
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)
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(23,005
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)
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(42,002
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)
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(64,032
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)
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(68,404
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)
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(43,721
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)
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(79,634
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)
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Total expenses
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(111,046
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)
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(181,794
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)
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(238,786
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)
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(409,950
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)
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(236,790
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)
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(161,915
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)
|
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(190,160
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)
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Income from operations
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31,589
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212,592
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275,921
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193,452
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|
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384,076
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172,046
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|
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403,428
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Interest income, net
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|
882
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|
|
709
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|
|
519
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|
|
|
2,795
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|
|
|
4,657
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|
|
|
3,603
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|
|
|
4,694
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|
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Income before income taxes
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32,471
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|
|
213,301
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|
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276,440
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196,247
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|
|
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388,733
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|
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175,649
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408,122
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Income taxes
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(8,456
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)
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(49,966
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)
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(48,372
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)
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|
|
(25,345
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)
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|
(29,225
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)
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|
|
(14,803
|
)
|
|
|
(33,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,015
|
|
|
$
|
163,335
|
|
|
$
|
228,068
|
|
|
$
|
170,902
|
|
|
$
|
359,508
|
|
|
$
|
160,846
|
|
|
$
|
375,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Principals and Trustees
|
|
$
|
(33,895
|
)
|
|
$
|
(70,825
|
)
|
|
$
|
(222,074
|
)
|
|
$
|
(106,531
|
)
|
|
$
|
(165,705
|
)
|
|
$
|
(148,533
|
)
|
|
$
|
(254,331
|
)
|
Distributions to non-controlling interest holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,656
|
)
|
|
$
|
(6,718
|
)
|
|
$
|
(215,744
|
)
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(US dollars in thousands)
|
|
|
(Unaudited)
|
|
|
Combined Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,450
|
|
|
$
|
65,655
|
|
|
$
|
136,378
|
|
|
$
|
236,261
|
|
|
$
|
273,148
|
|
|
$
|
272,711
|
|
|
$
|
391,732
|
|
Fees receivable
|
|
|
34,826
|
|
|
|
139,103
|
|
|
|
163,235
|
|
|
|
246,179
|
|
|
|
251,963
|
|
|
|
23,229
|
|
|
|
40,687
|
|
Working capital
|
|
|
15,579
|
|
|
|
25,940
|
|
|
|
20,395
|
|
|
|
42,387
|
|
|
|
370,094
|
|
|
|
198,032
|
|
|
|
273,639
|
|
Property and equipment, net
|
|
|
4,102
|
|
|
|
3,801
|
|
|
|
4,342
|
|
|
|
3,290
|
|
|
|
6,121
|
|
|
|
3,847
|
|
|
|
8,966
|
|
Total assets
|
|
|
75,359
|
|
|
|
220,829
|
|
|
|
310,592
|
|
|
|
495,340
|
|
|
|
557,377
|
|
|
|
315,111
|
|
|
|
474,195
|
|
Accrued compensation and benefits
|
|
|
21,654
|
|
|
|
25,038
|
|
|
|
125,850
|
|
|
|
247,745
|
|
|
|
102,507
|
|
|
|
60,310
|
|
|
|
63,199
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,100
|
|
|
|
3,972
|
|
|
|
3,654
|
|
Loans payable
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
Total members equity
|
|
|
19,400
|
|
|
|
112,722
|
|
|
|
117,980
|
|
|
|
180,229
|
|
|
|
361,952
|
|
|
|
187,435
|
|
|
|
267,736
|
|
6
An investment in our securities involves a high degree of
risk. You should consider carefully all of the material risks
described below, together with the other information contained
in this prospectus before making a decision to invest in our
securities. If any of the following events occur, our business,
financial condition and operating results may be materially
adversely affected. In that event, the trading price of our
securities could decline, and you could lose all or part of your
investment.
Risks
Related to Our Business
Difficult
market conditions may 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). These
factors may affect the level and volatility of securities prices
and the liquidity and the value of investments, 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 scale back other costs within a time frame sufficient
to match any decreases in revenue relating to changes in market
and economic conditions.
A general market downturn, or a specific market dislocation, may
result in lower net inflows and lower returns for the GLG Funds,
which would adversely affect our revenues. Furthermore, such
conditions would also increase the risk of default with respect
to investments held by the GLG Funds that have significant debt
investments.
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 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.
The GLG Funds have 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 semi-annual period
exceeds the highest net asset value on the last date on which a
performance fee was earned. Certain of the GLG Funds 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, 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.
7
Periods
of underperformance could lead to disproportionate redemptions
in the GLG Funds or a decline in the rate at which we acquire
additional AUM.
If the GLG Funds underperform, existing clients may decide to
reduce or redeem or sell 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 may result in reduced
purchases of fund shares or units and increased sales or
redemptions of fund shares or units. As a result, investment
underperformance could have a material adverse effect on our
business, results of operations or financial condition. Such
underperformance would also likely lead to a decrease in our
revenue and operating income.
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. Historically, the
compensation and limited partner profit share paid to our
investment personnel and senior management (other than the
Principals) have been determined by the Principals or by the
Trustees in consultation with the Principals. We have set
compensation at levels that we believe are competitive against
compensation offered by other alternative 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.
Investors
in the GLG Funds can generally redeem investments with only
short periods of notice.
Investors in the GLG Funds may generally redeem their
investments in those funds with only short periods of notice.
Investors may reduce the aggregate amount of their investment in
such funds, or transfer their investment to other funds 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 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 could adversely affect our
revenues, which are substantially dependent upon the AUM in the
GLG Funds. If redemptions of investments in funds cause our
revenues to decline, they could have a material adverse effect
on our business, results of operations or financial condition.
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 is increasingly 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
8
retain key personnel are significant and will likely 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. As a result,
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.
We
have experienced rapid growth, which may be difficult to sustain
and which may place significant demands on our administrative,
operational and financial resources.
As of September 30, 2007, our gross AUM were
approximately $23.6 billion, up from approximately
$3.9 billion as of December 31, 2001, representing a
CAGR of 37%. As of September 30, 2007, our net AUM
were approximately $20.5 billion, up from approximately
$3.9 billion as of December 31, 2001, representing a
CAGR of 33%. This rapid growth has caused, and if it continues
will continue to 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, is a function not simply 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:
|
|
|
|
|
in maintaining adequate financial and business controls;
|
|
|
|
in implementing new or updated information and financial systems
and procedures; and
|
|
|
|
in training, managing and appropriately sizing our work force
and other components of our business on a timely and
cost-effective basis.
|
There can be no assurance that we will be able to manage our
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.
9
Damage
to our reputation, including as a result of personnel
misconduct, failure to manage inside information or fraud, 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, 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:
|
|
|
|
|
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;
|
|
|
|
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; and
|
|
|
|
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.
|
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 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
10
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 September 30, 2007, the
assets of our top individual client accounted for approximately
5.0% of our net AUM. As of September 30, 2007, our
largest institutional investor account represented approximately
4.5% of our net AUM, with the top five accounts
collectively contributing approximately 18.0% 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.
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 Irish Financial Services
Regulatory Authority (IFSRA), Cayman Islands
Monetary Authority (CIMA) and the Commission de
Surveillance du Secteur Financier in Luxembourg. The activities
of GLG Inc. will be regulated by the SEC following its proposed
registration as a U.S. investment adviser. 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.
For example, on February 28, 2006, the FSA found that we
had committed market abuse and failed to observe proper
standards of market conduct in relation to a convertible bond
issued by Sumitomo Mitsui Financial Group in 2003. This finding
was based solely on the conduct of Philippe Jabre, a former
Managing Director who resigned from GLG in early 2006. The FSA
imposed £750,000 fines on both Mr. Jabre and us.
On November 23, 2006, the Autorité des Marchés
Financiers (AMF), the French securities regulator,
imposed a fine of 1.2 million ($1.6 million)
against us in connection with our trading in the shares of
Alcatel S.A. (Alcatel) based on confidential
information prior to a December 12, 2002 issuance of
Alcatel convertible securities. We have appealed this decision.
On May 29, 2007, we agreed to pay a civil penalty of
$500,000 and disgorgement and interest of approximately
$2.7 million to settle enforcement and civil actions
brought by the SEC for illegal short selling. We did not admit
or deny the findings, but consented to the SEC order finding
that we violated Rule 105 of Regulation M under the
Exchange Act in connection with 14 public offerings and a final
judgment in the civil action in the United States District Court
for the District of Columbia.
On June 21, 2007, the AMF 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 have appealed this decision.
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.
11
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.
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.
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 alternative investment 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. 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.
12
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, 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 GLG Partners (Cayman) Limited (in the case of
Cayman Islands funds and the Luxembourg fund) or GLG Partners
Asset Management Limited (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. See 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
new revolving credit and term loan facilities. When these
facilities become due on November 2, 2012, we will be
required to refinance them by entering
13
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 all, 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
rate of (1) the base rate plus 0% per annum for loans based
on the base rate or (2) LIBOR plus 1.25% per annum for
loans based on LIBOR, at the election of FA Sub 3 Limited, for
the first two fiscal quarters ending after November 2, 2007
(the closing date of the acquisition of GLG), and thereafter at
an interest rate 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
or LIBOR reference 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.
We are
subject to currency-related risks that could adversely affect
our business, results of operation or financial
condition.
We earn a significant portion of our revenue and incur a
significant portion of our expenditures in currencies other than
the U.S. dollar. Movements in currency exchange rates could
have an adverse effect on both our revenues and expenses.
If we
were deemed an investment company under the
Investment Company Act of 1940, 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 the Acquired Companies and inter-company
debt. (These subsidiaries are vested with all management and
control over the Acquired Companies.) We do not believe our
equity interests in our subsidiaries or the equity interests of
these subsidiaries in the Acquired Companies 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 prohibit transactions with
affiliates, impose limitations on the issuance of debt and
equity
14
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 the Acquired Companies) 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, the Acquired Companies 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.
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
15
counterparty risks for the GLG Funds and managed accounts
investing in those markets. In addition, investor 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.
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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, withdrawal 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.
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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17
The
GLG Funds are subject to risks in using prime brokers,
custodians, administrators and other agents.
All of the GLG Funds depend on the services of prime brokers,
custodians, administrators and other agents in connection with
certain securities transactions. For example, in the event of
the insolvency of a prime broker
and/or
custodian, the funds might not be able to recover equivalent
assets in full as they will usually rank among the prime
brokers and custodians unsecured creditors in
relation to assets that the prime broker or custodian borrows,
lends or otherwise uses. In addition, the GLG Funds cash
held with a prime broker or custodian may not be segregated from
the prime brokers or custodians own cash, and the
GLG Funds may therefore rank as unsecured creditors in relation
thereto.
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
GLG Funds are subject to counterparty risk with regard to
over-the-counter instruments which they may hold.
In the event of the insolvency of any counterparty or of any
broker through which portfolio managers trade for the account of
the GLG Funds, such as prime brokerage and custodian agreements
to which certain of the GLG Funds are party, the funds may only
rank as unsecured creditors in respect of sums due to them on
the margin accounts or otherwise and any losses will be borne by
the funds. The GLG Funds 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 therefore a fall 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, the 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 have a material adverse effect on our
business, results of operations or financial condition.
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 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.
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The
GLG Funds may be subject to U.K. tax if the Company does 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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We are
a controlled company within the meaning of the New
York Stock Exchange 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 54% 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 New York Stock Exchange Listed
Company Manual.
As a controlled company, we are exempt from certain
governance requirements otherwise required by the New York Stock
Exchange, 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
20
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 New York Stock Exchange. In addition, although
our board of directors currently consists of a majority of
independent directors, we cannot assure you that we will not
rely on the exemption from this requirement in the future.
Because of their ownership of approximately 54% 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 54% 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 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 New York Stock
Exchange and trades under the symbol GLG. However,
we cannot assure you a regular trading market of our shares will
develop on the New York Stock Exchange 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.
Even if an active trading market develops, the market price of
our shares and warrants may be highly volatile and could be
subject to wide fluctuations. In addition, the trading volume in
our shares and warrants
21
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 after the acquisition of GLG;
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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.
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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. In addition, 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.
22
To
complete the acquisition of GLG, 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 of GLG, 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.
We
incurred significant costs associated with the acquisition of
GLG, which reduced the amount of cash otherwise available for
other corporate purposes.
We incurred direct transaction costs of approximately
$38.6 million associated with the acquisition of GLG, which
are included as a part of the total purchase cost for accounting
purposes. There is no assurance that the significant costs
associated with the acquisition will prove to be justified in
light of the benefit ultimately realized. Although there were no
compensation charges in connection with the acquisition, we
expect compensation and benefits post-acquisition to reflect the
amortization of a significant non-cash equity-based compensation
expense associated with the vesting of equity-based awards over
the next five years. The expected compensation and benefits
expense will relate 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 will reduce our net income and
may result in net losses in future periods. As a result, as
described under Unaudited Pro Forma Condensed Combined
Financial Information, we had negative net worth of
$99.3 million as of September 30, 2007, and net losses
of $427.1 million and $710.3 million on a pro forma
basis for the nine months ended September 30, 2007 and the
year ended December 31, 2006, respectively, on a pro forma
basis after the consummation of the acquisition.
Fulfilling
our obligations as a public company will be expensive and time
consuming.
Prior to its acquisition by us, GLG was a private company and
was not required to prepare or file periodic and other reports
with the SEC under the applicable U.S. federal securities
laws or to comply with the
23
requirements of U.S. federal securities laws applicable to
public companies, such as Section 404 of the Sarbanes-Oxley
Act of 2002. Although GLG maintained separate legal and
compliance and internal audit functions, which along with its
Chief Operating Officer, reported on a day-to-day basis directly
to its Co-Chief Executive Officer with further formal reporting
to it Management Committee, and we maintained disclosure
controls and procedures and internal control over financial
reporting as required under the U.S. federal securities
laws with respect to our activities, neither GLG nor we were
required to establish and maintain such disclosure controls and
procedures and internal controls over financial reporting as
required with respect to a public company with substantial
operations.
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 have been required to implement additional
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 significantly
increase our legal, insurance and financial compliance costs. 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.
We
must comply with Section 404 of the Sarbanes-Oxley Act of
2002 in a relatively short timeframe.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to document and test the effectiveness of our internal controls
over financial reporting in accordance with an established
control framework and to report on our managements
conclusion as to the effectiveness of these internal controls
over financial reporting beginning with the fiscal year ending
December 31, 2007. We will also be required to have an
independent registered public accounting firm test the internal
controls over financial reporting and report on the
effectiveness of such controls for the fiscal year ending
December 31, 2007 and subsequent years. In addition, the
independent registered public accounting firm will be required
to report on managements assessment. For 2007, we will be
relying on relief from these requirements to limit the scope of
these requirements primarily to GLG Partners, Inc. and certain
subsidiaries, excluding the GLG entities. Beginning in 2008, we
will be required to comply with these requirements with respect
to the consolidated group, including the GLG entities. Any
delays or difficulty in satisfying these requirements could
adversely affect future results of operations and our stock
price.
We may incur significant costs to comply with these
requirements. We may in the future discover areas of internal
controls over financial reporting that need improvement,
particularly with respect to any businesses acquired in the
future. There can be no assurance that remedial measures will
result in adequate internal controls over financial reporting in
the future. Any failure to implement the required new or
improved controls, or difficulties encountered in their
implementation, could materially adversely affect our results of
operations or could cause us to fail to meet our reporting
obligations. If we are unable to conclude that we have effective
internal controls over financial reporting, or if our auditors
are unable to provide an unqualified report regarding the
effectiveness of internal controls over financial reporting as
required by Section 404, investors may lose confidence in
the reliability of our financial statements, which could result
in a decrease in the value of our securities. In addition,
failure to comply with Section 404 could potentially
subject us to sanctions or investigation by the SEC or other
regulatory authorities.
The
failure to address actual or perceived conflicts of interest
that may arise as a result of the investment by our 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 significant amount that our Principals, their
Trustees and certain key personnel intend to invest in the GLG
Funds in December 2007, other investors in the GLG Funds may
perceive conflicts of interest regarding investments in the GLG
Funds in which our Principals, their 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
24
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.
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 21,500,003 warrants beneficially owned by our founders
and their affiliates (which includes 5,000,000 co-investment
warrants), outstanding redeemable warrants to purchase an
aggregate of 45,650,400 shares of common stock will become
exercisable 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.
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 expected effective tax rate after the
acquisition of GLG is primarily attributable to the asset basis
step-up
resulting from the acquisition 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 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
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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 the total combined voting power
of all classes of stock entitled to vote of such corporation.
Approximately 32.0% 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.
The U.K. government has recently published proposals with regard
to the deductibility of interest expense incurred by U.K. tax
resident entities. No assurances can be given that the U.K.
government will not enact legislation that restricts 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.
26
FORWARD-LOOKING
STATEMENTS
This prospectus includes forward-looking statements
within the meaning of Section 21E of the Exchange Act. 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 prospectus 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 the heading Risk Factors and the
following:
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financial performance;
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market conditions for GLG Funds;
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performance of GLG Funds, 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;
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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;
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risks associated with the use of leverage, investment in
derivatives, interest rates and currency fluctuations; and
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other risk factors set forth in our SEC filings.
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Should one or more of these risks or uncertainties materialize,
or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these
forward-looking statements. We undertake no obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as may be
required under applicable law.
This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates of the
growth of our markets. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance
or achievements. Forward-looking statements contained in this
prospectus speak only as of the date of this prospectus. Unless
required by law, we undertake no obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. You should, however,
review the risks and uncertainties we describe in the reports we
will file from time to time with the SEC after the date of this
prospectus. See Where you can find more information.
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We will receive up to an aggregate of approximately $503,628,023
from the exercise of the warrants, if they are exercised in
full. We expect that any net proceeds from the exercise of the
warrants will be used to fund additional repurchases of warrants
or shares of common stock, for general corporate purposes and to
fund working capital.
The selling stockholders will receive all of the proceeds from
the sale of any shares of common stock
and/or
warrants sold by them pursuant to this prospectus. We will not
receive any proceeds from these sales.
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We are offering the shares of common stock underlying the
warrants upon the exercise of the warrants by the holders
thereof. The warrants may be exercised on or prior to
December 28, 2011 at the offices of the warrant agent,
Continental Stock Transfer & Trust Company, with
the exercise form certificate completed and executed as
indicated, accompanied by full payment of the exercise price, by
certified check payable to us, for the number of warrants being
exercised. Promptly upon receipt of the notice of exercise
together with full payment of the warrant price, the warrant
agent will deliver to the holder the shares of common stock
being purchased.
The shares of common stock and warrants underlying outstanding
units, and shares of our common stock issued upon the exercise
of the warrants may be sold by the selling stockholders from
time to time in:
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transactions in the over-the-counter market;
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negotiated transactions;
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underwritten offerings; or
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a combination of such methods of sale.
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The selling stockholders may sell the shares of common stock and
warrants underlying outstanding units, and the shares of our
common stock issued upon the exercise of the warrants at:
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fixed prices which may be changed;
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market prices prevailing at the time of sale;
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prices related to prevailing market prices; or
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negotiated prices.
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The selling stockholders may also resell all or a portion of the
securities in open market transactions in reliance upon
Rule 144 under the Securities Act, provided they meet the
criteria and conform to the requirements of Rule 144.
The selling stockholders may effect these transactions by
selling the shares of common stock and warrants underlying
outstanding units, and shares of our common stock issued upon
the exercise of the warrants to or through broker-dealers, and
these broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling
stockholders
and/or the
purchasers of the securities for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess
of customary commissions).
The selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions. In
connection with these transactions, broker-dealers or other
financial institutions may engage in short sales of our
securities in the course of hedging the positions they assume
with selling stockholders. The selling stockholders may also
enter into options or other transactions with broker-dealers or
other financial institutions which require the delivery to such
broker-dealer or other financial institution of the securities
covered by this prospectus, which securities the broker-dealer
or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The founders units, shares and warrants (1) held by
our 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 our initial public offering and
(2) held by our sponsors are subject to certain
restrictions on transfer pursuant to the terms of the founders
agreement entered into among Noam Gottesman, as Sellers
Representative, our Principals, the Trustees and our sponsors,
each of which provides that subject to certain exceptions, these
shares and warrants may not be transferred until
November 2, 2008.
In order to comply with the applicable securities laws of
particular states, if applicable, the shares of common stock and
warrants underlying outstanding units, and the shares of common
stock issued upon the exercise of the warrants will be sold in
the jurisdictions only through registered or licensed brokers or
dealers.
29
In addition, in particular states, the shares of our common
stock and warrants underlying outstanding units, and the shares
of common stock issued upon the exercise of the warrants may not
be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in the distribution of
the shares of common stock and warrants underlying outstanding
units, or the shares of our common stock issued upon the
exercise of the warrants may be deemed to be
underwriters within the meaning of the Securities
Act, and any commissions received by them and any profit on the
resale of the warrants or the shares of our common stock issued
upon the exercise of the warrants purchased by them may be
deemed to be underwriting commissions or discounts under the
Securities Act of 1933.
Each selling stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases
and sales of shares of our securities by the selling stockholder.
We will pay for all costs of the registration of the warrants,
including, without limitation, SEC filing fees and expenses of
compliance with state securities or blue sky laws;
except that, the selling holders will pay all underwriting
discounts and selling commissions, if any. We have agreed to
indemnify the selling stockholders against particular civil
liabilities, including some liabilities under the Securities Act
of 1933, or we will compensate them for some of these
liabilities incurred in connection therewith.
30
PRICE
RANGE OF OUR 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 5, 2007, our units, common stock and warrants
began trading on the New York Stock Exchange under the symbols
GLG.U, GLG and GLG WS,
respectively. The following sets forth the high and low closing
sales price of our units, common stock and warrants, as reported
on the American Stock Exchange or the New York Stock Exchange
for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
Common Stock
|
|
|
Warrants
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter (beginning on December 21, 2006)
|
|
$
|
10.20
|
|
|
$
|
10.00
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
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 (through December 19, 2007)
|
|
$
|
20.75
|
|
|
$
|
14.25
|
|
|
$
|
14.97
|
|
|
$
|
11.25
|
|
|
$
|
6.63
|
|
|
$
|
4.40
|
|
|
|
|
|
On December 19, 2007 the last reported sale price for our
units, common stock and warrants on the New York Stock Exchange
was $20.09 per unit, $13.59 per share and $6.05 per
warrant, respectively. As of November 30, 2007 there was
one holder of record of our units, 228 holders of record of
our common stock and 10 holders of record of our warrants,
respectively.
Except for the
1-for-3
stock dividend that was effected on December 14, 2006 and
the 1-for-5
stock dividend that was effected on December 21, 2006, we
have not paid any dividends on our common stock to date. Our
board of directors currently intends to begin paying cash
dividends on our common stock in 2008. However, our board of
directors has not yet determined the amount
and/or
frequency of such cash dividends, if any. We currently
anticipate that our board of directors will determine to declare
a modest regular quarterly cash dividend and will consider
paying a special annual dividend based upon our annual
profitability beginning after the end of 2008. Our board of
directors may, from time to time, examine our dividend policy
and may, in its absolute discretion, change such policy.
31
The following table summarizes our capitalization as of
September 30, 2007:
|
|
|
|
|
on a historical basis;
|
|
|
|
on a pro forma basis, after giving effect to the acquisition of
GLG;
|
|
|
|
on a pro forma as adjusted basis to give effect to the
acquisition of GLG and the issuance of 67,150,403 shares of
our common stock upon exercise of the warrants at a price of
$7.50 per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007
|
|
|
|
GLG
|
|
|
Freedom
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Combined
|
|
|
As Adjusted
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Cash and cash equivalents
|
|
$
|
391,732
|
|
|
$
|
1,779
|
|
|
$
|
454,531
|
|
|
$
|
958,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
163
|
|
|
$
|
|
|
|
$
|
163
|
|
|
$
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
$
|
2,031
|
|
|
$
|
|
|
|
$
|
2,031
|
|
|
$
|
2,031
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
6,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 200,000,000 authorized,
64,800,003 issued and outstanding, actual; 1,150,000,000
authorized, 240,894,910 issued and outstanding, pro forma;
308,045,313 issued and outstanding, pro forma as adjusted
|
|
|
|
|
|
|
6
|
|
|
|
23
|
|
|
|
31
|
|
Series A voting preferred stock, $.0001 par value; no
shares authorized, issued and outstanding, actual; 58,904,993
authorized, issued and outstanding, pro forma and pro forma as
adjusted
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Additional paid-in capital
|
|
|
|
|
|
|
392,127
|
|
|
|
97,149
|
|
|
|
600,777
|
|
Income accumulated during the development stage
|
|
|
|
|
|
|
8,886
|
|
|
|
|
|
|
|
|
|
Accumulated income (deficit)
|
|
|
257,238
|
|
|
|
|
|
|
|
(200,143
|
)
|
|
|
(200,143
|
)
|
Accumulated other comprehensive income
|
|
|
3,655
|
|
|
|
|
|
|
|
3,655
|
|
|
|
3,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
267,736
|
|
|
|
401,019
|
|
|
|
(99,310
|
)
|
|
|
404,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
269,767
|
|
|
$
|
401,019
|
|
|
$
|
(97,279
|
)
|
|
$
|
406,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The capitalization table should be read in conjunction with the
financial statements of GLG and Freedom and the unaudited pro
forma condensed combined financial information and related notes
included elsewhere in this prospectus.
32
If holders of warrants exercise their warrants to purchase
shares of our common stock, their interests will be diluted
immediately to the extent of the difference between the exercise
price per share of our common stock and the as adjusted net
tangible book value per share of our common stock assuming all
outstanding warrants are exercised. As of September 30,
2007, our net tangible book value was approximately
$(99) million, or approximately $(0.41) per share of our
common stock. Net tangible book value per share is equal to our
total net tangible assets, or total net assets less intangible
assets, divided by the number of shares of our outstanding
common stock. After giving effect to the exercise of warrants to
purchase 67,150,403 shares of our common stock outstanding
as of September 30, 2007, as adjusted to include the
issuance of the co-investment units, at an exercise price of
$7.50 per share, and the application of the proceeds therefrom,
our as adjusted net tangible book value as of September 30,
2007, attributable to common stockholders would have been
approximately $404 million, or approximately $1.31 per
share of our common stock. This represents an immediate increase
in net tangible book value of $1.72 per share to our existing
stockholders, and an immediate dilution of $6.19 per share to
warrant holders exercising their warrants and purchasing shares
of our common stock. The following table illustrates this per
share dilution:
|
|
|
|
|
|
|
|
|
Exercise price per share
|
|
|
|
|
|
$
|
7.50
|
|
Net tangible book value per share before warrant exercises
|
|
$
|
(0.41
|
)
|
|
|
|
|
Increase in net tangible book value per share attributable to
warrant exercises
|
|
$
|
1.72
|
|
|
|
|
|
As adjusted net tangible book value per share after warrant
exercises
|
|
|
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to exercising warrant holders
|
|
|
|
|
|
$
|
6.19
|
|
|
|
|
|
|
|
|
|
|
33
SELECTED
COMBINED HISTORICAL FINANCIAL INFORMATION OF GLG
Because 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 combined historical financial
information of GLG as of and for the nine months ended
September 30, 2007 and for the nine months ended
September 30, 2006 was derived from unaudited condensed
combined financial statements of GLG included in this
prospectus. The selected combined historical financial
information of GLG as of and for the years ended
December 31, 2006, 2005 and 2004 was derived from combined
financial statements of GLG audited by Ernst & Young
LLP, independent registered public accounting firm, included in
this prospectus. The selected combined historical financial
information of GLG as of September 30, 2006 and 2007 and as
of and for the years ended December 31, 2003 and 2002 was
derived from unaudited combined financial statements of GLG not
included in this prospectus. This information should be read in
conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the financial
statements of GLG and the notes thereto included in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(US dollars in thousands)
|
|
|
Combined Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
30,108
|
|
|
$
|
65,259
|
|
|
$
|
138,988
|
|
|
$
|
137,958
|
|
|
$
|
186,273
|
|
|
$
|
129,981
|
|
|
$
|
198,892
|
|
Performance fees, net
|
|
|
31,288
|
|
|
|
206,685
|
|
|
|
178,024
|
|
|
|
279,405
|
|
|
|
394,740
|
|
|
|
177,047
|
|
|
|
343,835
|
|
Administration fees, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311
|
|
|
|
34,814
|
|
|
|
25,050
|
|
|
|
42,986
|
|
Transaction charges
|
|
|
80,613
|
|
|
|
115,945
|
|
|
|
191,585
|
|
|
|
184,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
626
|
|
|
|
6,497
|
|
|
|
6,110
|
|
|
|
1,476
|
|
|
|
5,039
|
|
|
|
1,883
|
|
|
|
7,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
|
142,635
|
|
|
|
394,386
|
|
|
|
514,707
|
|
|
|
603,402
|
|
|
|
620,866
|
|
|
|
333,961
|
|
|
|
593,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
(88,994
|
)
|
|
|
(158,789
|
)
|
|
|
(196,784
|
)
|
|
|
(345,918
|
)
|
|
|
(168,386
|
)
|
|
|
(118,194
|
)
|
|
|
(110,526
|
)
|
General, administrative and other
|
|
|
(22,052
|
)
|
|
|
(23,005
|
)
|
|
|
(42,002
|
)
|
|
|
(64,032
|
)
|
|
|
(68,404
|
)
|
|
|
(43,721
|
)
|
|
|
(79,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(111,046
|
)
|
|
|
(181,794
|
)
|
|
|
(238,786
|
)
|
|
|
(409,950
|
)
|
|
|
(236,790
|
)
|
|
|
(161,915
|
)
|
|
|
(190,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
31,589
|
|
|
|
212,592
|
|
|
|
275,921
|
|
|
|
193,452
|
|
|
|
384,076
|
|
|
|
172,046
|
|
|
|
403,428
|
|
Interest income, net
|
|
|
882
|
|
|
|
709
|
|
|
|
519
|
|
|
|
2,795
|
|
|
|
4,657
|
|
|
|
3,603
|
|
|
|
4,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
32,471
|
|
|
|
213,301
|
|
|
|
276,440
|
|
|
|
196,247
|
|
|
|
388,733
|
|
|
|
175,649
|
|
|
|
408,122
|
|
Income taxes
|
|
|
(8,456
|
)
|
|
|
(49,966
|
)
|
|
|
(48,372
|
)
|
|
|
(25,345
|
)
|
|
|
(29,225
|
)
|
|
|
(14,803
|
)
|
|
|
(33,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,015
|
|
|
$
|
163,335
|
|
|
$
|
228,068
|
|
|
$
|
170,902
|
|
|
$
|
359,508
|
|
|
$
|
160,846
|
|
|
$
|
375,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Principals and Trustees
|
|
$
|
(33,895
|
)
|
|
$
|
(70,825
|
)
|
|
$
|
(222,074
|
)
|
|
$
|
(106,531
|
)
|
|
$
|
(165,705
|
)
|
|
$
|
(148,533
|
)
|
|
$
|
(254,331
|
)
|
Distributions to non-controlling interest holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,656
|
)
|
|
$
|
(6,718
|
)
|
|
$
|
(215,744
|
)
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(US dollars in thousands)
|
|
|
Combined Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,450
|
|
|
$
|
65,655
|
|
|
$
|
136,378
|
|
|
$
|
236,261
|
|
|
$
|
273,148
|
|
|
$
|
272,711
|
|
|
$
|
391,732
|
|
Fees receivable
|
|
|
34,826
|
|
|
|
139,103
|
|
|
|
163,235
|
|
|
|
246,179
|
|
|
|
251,963
|
|
|
|
23,229
|
|
|
|
40,687
|
|
Working capital
|
|
|
15,579
|
|
|
|
25,940
|
|
|
|
20,395
|
|
|
|
42,387
|
|
|
|
370,094
|
|
|
|
198,032
|
|
|
|
273,639
|
|
Property and equipment, net
|
|
|
4,102
|
|
|
|
3,801
|
|
|
|
4,342
|
|
|
|
3,290
|
|
|
|
6,121
|
|
|
|
3,847
|
|
|
|
8,966
|
|
Total assets
|
|
|
75,359
|
|
|
|
220,829
|
|
|
|
310,592
|
|
|
|
495,340
|
|
|
|
557,377
|
|
|
|
315,111
|
|
|
|
474,195
|
|
Accrued compensation and benefits
|
|
|
21,654
|
|
|
|
25,038
|
|
|
|
125,850
|
|
|
|
247,745
|
|
|
|
102,507
|
|
|
|
60,310
|
|
|
|
63,199
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,100
|
|
|
|
3,972
|
|
|
|
3,654
|
|
Loans payable
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
13,000
|
|
Total members equity
|
|
|
19,400
|
|
|
|
112,722
|
|
|
|
117,980
|
|
|
|
180,229
|
|
|
|
361,952
|
|
|
|
187,435
|
|
|
|
267,736
|
|
35
SELECTED
HISTORICAL FINANCIAL INFORMATION OF FREEDOM
The summary historical financial information of Freedom as of
December 31, 2006 and September 30, 2007 was derived
from financial statements of Freedom as of December 31,
2006 audited by Rothstein, Kass & Company P.C.,
independent registered public accounting firm, and unaudited
financial statements of Freedom as of September 30, 2007,
respectively, included in this proxy statement. This information
should be read in conjunction with the financial statements of
Freedom and the notes thereto included in this proxy statement.
Since Freedom did not have any significant operations to through
the date of the acquisition of GLG, only balance sheet data is
presented.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2006
|
|
|
September 30, 2007
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Working capital (deficiency)
|
|
$
|
(122,294
|
)
|
|
$
|
(52,141
|
)
|
Total assets
|
|
|
467,306,751
|
|
|
|
524,705,119
|
|
Total liabilities
|
|
|
110,289,016
|
|
|
|
123,686,235
|
|
Common stock, subject to possible redemption for cash
|
|
|
93,247,353
|
|
|
|
102,572,088
|
|
Stockholders equity
|
|
|
357,017,735
|
|
|
|
401,018,884
|
|
36
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and
results of operations of GLG should be read in conjunction with
GLGs combined historical financial statements and the
related notes. This discussion contains forward-looking
statements that are subject to known and unknown risks and
uncertainties. Actual results and the timing of events may
differ significantly from those expressed or implied in such
forward-looking statements due to a number of factors, including
those included in our filings with the SEC.
General
GLGs
Business
GLG is a leading alternative asset manager offering its clients
a diverse range of investment products. GLG currently derives
its revenues from management fees and administration fees based
on the value of the assets in the funds and accounts it manages,
referred to as the GLG Funds, and performance fees based on the
performance of those investment funds and accounts.
Substantially all of GLGs assets under management, or AUM,
are attributable to third-party investors, and the GLG Funds and
accounts managed by GLG are not consolidated into its financial
statements. As of September 30, 2007, GLGs
gross AUM (including assets invested from other GLG Funds)
were approximately $23.6 billion, up from approximately
$3.9 billion as of December 31, 2001, representing a
compound annual growth rate, or CAGR, of 37%. As of
September 30, 2007 GLGs net AUM (net of assets
invested from other GLG Funds) were approximately
$20.5 billion, up from approximately $3.9 billion as
of December 31, 2001, representing a CAGR of 33%.
Factors
Affecting GLGs Business
GLGs business and results of operations are impacted by
the following factors:
|
|
|
|
|
Assets under management. GLGs revenues
from management and administration fees are directly linked to
AUM. As a result, GLGs future performance will depend on,
among other things, its ability both to retain AUM and to grow
AUM from existing and new products.
|
|
|
|
Fund performance. GLGs revenues from
performance fees are linked to the performance of the funds and
accounts it manages. Performance also affects AUM because it
influences investors decisions to invest assets in, or
withdraw assets from, the GLG Funds and accounts managed by GLG.
|
|
|
|
Personnel, systems, controls and
infrastructure. GLG depends on its ability to
attract, retain and motivate leading investment and other
professionals. GLGs business requires significant
investment in its fund management platform, including
infrastructure and back-office personnel. GLG has in the past
paid and expects to continue in the future to pay these
professionals significant compensation and a share of GLGs
profits.
|
|
|
|
Fee rates. GLGs management and
administration fee revenues are linked to the fee rates it
charges the GLG Funds and accounts it manages as a percentage of
their AUM. GLGs performance fees are linked to the rates
it charges the GLG Funds and accounts it manages as a percentage
of their performance-driven asset growth, subject to high
water marks, whereby performance fees are earned by GLG
only to the extent that the net asset value of a GLG Fund at the
end of a measurement period exceeds the highest net asset value
on a preceding measurement period end for which GLG earned
performance fees, and in some cases to performance hurdles.
|
In addition, GLGs 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, the operating results of GLG may reflect significant
volatility from period to period.
GLG operates in only one business segment, the management of
global investment funds and accounts.
37
Critical
Accounting Policies
Managements Discussion and Analysis of Financial Condition
and Results of Operations is based upon GLGs combined
financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United
States, or GAAP. 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. A
summary of GLGs significant accounting policies is
presented in Note 2 to GLGs audited and unaudited
combined financial statements included in this prospectus. The
following is a summary of GLGs critical accounting
policies that are most affected by judgments, estimates and
assumptions.
Combination
Criteria
GLG has prepared financial statements on a combined basis in
connection with the reverse acquisition transaction with
Freedom. The financial statements combine all GLG entities under
common control or management of the Principals and the Trustees.
GLGs principals, Noam Gottesman, Emmanuel Roman and Pierre
Lagrange, are collectively referred to as the Principals. Leslie
J. Schreyer, in his capacity as trustee of the Gottesman GLG
Trust, Jeffrey A. Robins, in his capacity as trustee of the
Roman GLG Trust, and G&S Trustees Limited, in its capacity
as trustee of the Lagrange GLG Trust, are collectively referred
to as the Trustees.
The analysis as to whether to combine an entity is subject to a
significant amount of judgment. Some of the criteria considered
are the determination as to the degree of control over an entity
by its various equity holders, the design of the entity, how
closely related the entity is to each of its equity holders and
the relationship of the equity holders to each other.
GLG has determined that it does not own a substantive,
controlling interest in any of the investment funds it manages
and that they are not variable interest entities. As a result,
none of the GLG Funds is required to be consolidated with GLG.
For all GLG Funds, GLG has granted rights to the investors that
provide a simple majority of the unrelated investors with the
ability to remove GLG from its position as fund manager.
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, four external funds of funds, or FoHF, and two
single-manager alternative strategy funds, to performance
hurdles, over a measurement period, generally six months. GLG
has 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, GLG does not recognize performance fee revenues until
the end of the measurement period when the amounts are
contractually payable, or crystallized.
The majority of the GLG Funds and accounts managed by GLG have
contractual measurement periods that end on each of June 30 and
December 31. As a result, the performance fee revenues for
GLGs 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
The portion of compensation expense related to performance fees
is accrued during the period for which the related performance
fee revenue is recognized.
GLG also has a limited partner profit share arrangement which
remunerates certain individuals through distributions of profits
from two GLG entities paid either to two limited liability
partnerships in which those individuals are members or directly
to those individuals who are members of the two GLG entities.
These partnership draws are priority distributions, which are
recognized in the period in which they are payable.
38
There is an additional limited partner profit share
distribution, which is recognized in the period in which it is
declared. 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.
Compensation expense and limited partner profit share tied to
fund performance is only recognized when the related performance
fees crystallize, generally on June 30 and December 31 of each
year. When fourth quarter financials are reported, the portion
of compensation expense and limited partner profit share tied to
performance will reflect crystallized second half performance as
well as any adjustments to amounts accrued in the first half.
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, 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 approximately 15% of the total
consideration of cash and our 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 LP. The balance of the consideration remains
unallocated. Of the portion which has been allocated, 92.4% was
allocated to limited partners whom we refer to as Equity Sub
Plan A members and 7.6% was allocated to limited partners whom
we refer 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 of GLG, 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, whose respective boards of directors consist of
the Trustees, to accelerate vesting. These limited partnerships
will distribute to the limited partners in Equity Sub Plan B,
25% of 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,
whose respective boards of directors consist of the Trustees, 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 our company after completion of the
acquisition or due to death or disability. Upon forfeiture,
these unvested amounts will not be returned to us but instead to
the limited partnerships, which may reallocate such amounts to
their existing or future limited partners.
Ten million shares of our common stock issued as part of the
purchase price for the acquisition of GLG have been allocated to
our employees, service providers and certain key personnel,
subject to vesting, which may be accelerated under the
Restricted Stock Plan. Of this amount, 123,500 shares have
not yet been awarded to individuals. Any unvested stock awards
will be returned to us.
In connection with the acquisition, we adopted 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. As of November 30, 2007,
an aggregate of 478,922 shares of restricted stock have
been awarded under the LTIP, subject to vesting.
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 of GLG, a portion of the
equity interests held by
39
that Principal and his related Trustee as of the closing of the
acquisition of GLG will be forfeited to the Principals who are
still employed by us and their related Trustees.
The equity portion of these plans and agreements for employees
will be accounted for in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment
(SFAS 123(R)), which requires that such equity
instruments are recorded at their fair value on the measurement
date, which date is typically upon the inception of the services
that will be performed, and amortized into expense over the
vesting period on a straight-line basis.
In accordance with SFAS 123(R) 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 will be 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 date is typically upon the inception of the services
that will be performed, remeasured at subsequent dates to the
extent the awards are unvested, and amortized into expense over
the vesting period on a straight-line basis
As a result, following the completion of the acquisition of GLG,
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 will reduce our net income and may result in net
losses.
The share-based compensation expense was recorded upon
consummation of the acquisition of GLG. Set forth below is a
summary of total share-based compensation expenses GLG will
incur over the vesting terms of the stock-based awards or
interests in connection with the acquisition of GLG beginning on
the closing date of the acquisition (dollars in thousands):
|
|
|
|
|
12-Month Periods
|
|
|
|
Following Acquisition
|
|
|
|
|
Year 1
|
|
$
|
1,416,968
|
|
Year 2
|
|
|
529,470
|
|
Year 3
|
|
|
301,542
|
|
Year 4
|
|
|
149,590
|
|
Year 5
|
|
|
61,716
|
|
|
|
|
|
|
|
|
$
|
2,459,287
|
|
|
|
|
|
|
Share-based compensation expenses have been calculated assuming
a fair value of our common stock of $13.70 per share (the
closing price on November 2, 2007), no change in the fair
value of our common stock over the applicable vesting period and
a zero forfeiture rate.
Net
Revenues
All fee revenues are presented in MD&A net of any
applicable rebates or sub-administration fees.
Where a single-manager alternative strategy fund or a fund of
GLG Funds (internal FoHF) managed by GLG invests in an
underlying single-manager alternative strategy fund managed by
GLG, 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.
40
Management
Fees
GLGs 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):
|
|
|
Product
|
|
Typical Range of Gross Fee Rates (% of AUM)
|
|
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
|
|
1.50% 1.95%
|
|
|
|
* |
|
When one of the single-manager alternative strategy funds or
internal FoHFs managed by GLG invests in an underlying
single-manager alternative strategy fund managed by GLG,
management fees are charged at the investee fund level. In
addition, management fees are charged on the following GLG Funds
at the investing fund level: (1) GLG Multi Strategy Fund;
and (2) Prime GLG Diversified Fund. |
Management fees are generally paid monthly, one month in arrears.
Most GLG Funds have share classes with distribution fees that
are paid to third-party institutional distributors with no net
economic impact to GLG. In certain cases, GLG may rebate a
portion of its gross management fees in order to compensate
third-party institutional distributors for marketing GLG
products and, in a limited number of cases, in order to
incentivize clients to invest in GLG Funds.
Performance
Fees
GLGs 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, four multi-manager funds (external
FoHF) and two single-manager alternative strategy funds, to
performance hurdles. As a result, even when a GLG Fund has
positive fund performance, GLG 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):
|
|
|
Product
|
|
Typical Range of Gross Fee Rates (% of Investment Gains)
|
|
Single-manager alternative strategy funds
|
|
20% 30%*
|
Long-only funds
|
|
20% 25%
|
Internal FoHF
|
|
0% 20% (at the investing fund level)*
|
External FoHF
|
|
5% 10%
|
|
|
|
* |
|
When one of the single-manager alternative strategy funds or
internal FoHFs managed by GLG invests in an underlying
single-manager alternative strategy fund managed by GLG,
performance fees are charged at the investee fund level. In
addition, performance fees are charged on the following GLG
Funds at the investing fund level: (1) Prime GLG
Diversified Fund; and (2) GLG Global Aggressive Fund, to
the extent, if any, that the performance fee at the investing
fund level is greater than the performance fee at the investee
fund level. |
GLG has adopted Method 1 for recognizing performance fee
revenues and under Method 1 does 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 GLG is on June 30 and
December 31.
41
Administration
Fees
GLGs gross administration fee rates are set as a
percentage of fund AUM. Administration fee rates vary
depending on the product. From its gross administration fees,
GLG pays sub-administration fees to third-party administrators
and custodians, with the residual fees recognized as GLGs
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 GLG invests in an underlying
single-manager alternative strategy fund managed by GLG,
administration fees are charged at both the investing and
investee fund levels.
Change
in Business Practice
Prior to 2005, GLG levied transaction charges on certain of the
funds it managed, with respect to certain investment types, on a
per-trade basis, and only charged administration fees to cover
sub-administration fees paid to third parties. However,
beginning in 2005, GLG ceased levying transaction charges and
increased administration fee rates for these funds, which going
forward include a portion retained by GLG. This transition was
effected on a
fund-by-fund
basis, with GLG ceasing to levy transaction charges on all GLG
Funds by the end of 2005, and administration fees being rolled
out to all of the single-manager alternative strategy GLG Funds
by early 2006, and to all of the long-only GLG Funds by the end
of 2006. The elimination of transaction charges was only
partially offset by the increase in administration fee rates.
This resulted in lower fund expenses which contributed to higher
performance fees. The combined impact of this change in business
practice was a net reduction in the fees and charges earned by
GLG from the GLG Funds in 2005 compared to 2004. However,
GLGs management believes that, given competitive factors,
the increasing importance of institutional accounts and the need
to better position GLG to enter new markets, this change was
necessary to execute on its long-term growth strategy.
Substantially all of the impact of these changes was reflected
in 2006.
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 in the aggregate are generally within the
performance and management fee ranges charged with respect to
comparable fund products.
Expenses
Employee
Compensation and Benefits and Limited Partner Profit
Share
To attract, retain and motivate the highest quality investment
and other professionals, GLG provides significant remuneration
through salary, discretionary bonuses, profit sharing and other
benefits.
The largest component of expenses is compensation and other
benefits payable to GLGs investment and other
professionals. This includes significant fixed annual salary or
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 its key personnel in recognition of their importance
in creating and maintaining the long-term value of GLG. These
individuals ceased to be employees and either became holders of
direct or indirect limited partnership interests in GLG or
formed two limited liability partnerships through which they
provide services to GLG. 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 it is declared. Key personnel that are participants in the
limited partner profit share arrangement do not receive salaries
or discretionary bonuses from GLG. Limited partner profit share
does not affect net income, whereas comparable amounts paid to
these key personnel as employees had been recorded as employee
compensation and benefits prior to mid-2006 and accordingly
reduced net income. Under GAAP, limited partner profit share
cannot be presented as employee compensation expense. However,
42
management believes that it is more appropriate to treat limited
partner profit share as expense when considering business
performance because it reflects the cost of the services
provided to GLG by these participants in the limited partner
profit share arrangement. As a result, GLG presents the measure
non-GAAP comprehensive limited partner profit share,
compensation and benefits, or non-GAAP PSCB, which is
a non-GAAP financial measure used to calculate adjusted net
income, as described below under Assessing
Business Performance, and which adds limited partner
profit share to employee compensation expense to show the total
cost of the services provided to GLG by both participants in the
limited partner profit share arrangement and employees.
The components of total non-GAAP PSCB are:
|
|
|
|
|
Base compensation fixed contractual base
payments made to personnel. This compensation is paid to
employees in the form of base salary. Base compensation is
generally paid monthly and the expense is recognized as the
amounts are paid.
|
|
|
|
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. These
amounts are paid to employees in the form of variable salary.
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.
|
|
|
|
Discretionary compensation payments that are
determined by GLGs management in its sole discretion and
are generally linked to performance during the year. In
determining such payments, GLGs 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
personnel retention and incentivization purposes. This
discretionary compensation is paid to employees in the form of a
discretionary cash bonus. Discretionary compensation is
generally declared and paid following the end of each calendar
year. However, the notional discretionary compensation charge
accrual 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 is generally crystallized at year end and
is typically paid in January following the year end.
|
|
|
|
Limited partner profit share distributions of
limited partner profit shares under the limited partner profit
share arrangement described below.
|
Limited
Partnership Profit Share
The key personnel who are participants in the limited partner
profit share arrangement provide services to GLG 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 attributable to each of the LLPs is
determined at the discretion of GLGs management based upon
the profitability of GLGs business and their view of the
contribution to revenues and profitability from the services
provided by each limited partnership during that period. The
amount of such distribution will be accrued monthly although it
is generally crystallized at year end. However, the notional
distribution accrual is adjusted monthly based on the
year-to-date profitability and revenues recognized on a
year-to-date basis. 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 will be 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, Steven Roth and Greg Coffey (through Saffron
Woods Corporation) 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.
43
Under GAAP, such distributions are recognized when declared and
paid. Because the amounts relate to revenues recognized in the
previous accounting period, GLG uses a non-GAAP adjustment to
deduct any LLP distributions and any distributions to Steven
Roth and Saffron Woods Corporation made after the end of each
accounting period relating to revenues recognized in the
previous accounting period, as it believes this more accurately
reflects the net income for the relevant period. This non-GAAP
adjustment is also included in the measure limited partner
profit share used in determining non-GAAP PSCB.
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 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 make
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 GLG by each key personnel,
his or her seniority and the performance of the individual
during the period. The notional limited partner profit share
expense accrual is adjusted monthly based on year-to-date
profitability and revenues recognized on a year-to-date basis.
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.
GLGs management believes that the adjustments made to
include limited partner profit share in non-GAAP PSCB do
not give rise to an income tax effect.
See Non-GAAP Expense Measures under
each period to period comparison discussed under
Results of Operations
Expenses for a reconciliation of non-GAAP PSCB to
GAAP employee compensation and benefits for the periods
presented.
As GLGs investment performance improves, its 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.
In addition to share-based compensation expense discussed above,
GLG will record deferred compensation expense with respect to
the cash portion of the awards under the equity participation
plan in the aggregate amount of $150 million. For the three
12-month
periods beginning with the consummation of the acquisition of
GLG, deferred compensation expense will include
$104.1 million, $32.0 million and $13.2 million
related to the cash portion of the equity participation plan.
General
and Administrative
GLGs 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 and marketing, occupancy, facilities and
insurance.
44
Income
Tax
Historically, 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. Although only a relatively small portion of the profits
earned by GLG was subject to U.S. corporate income tax, GLG
Partners, Inc. is a U.S. corporation that is subject to
U.S. corporate income tax.
After the acquisition of GLG, our effective tax rate will be a
function of our overall earnings, the income tax rates in the
jurisdictions in which we and our subsidiaries do business, the
type and relative amount of income earned by us and our
subsidiaries in these jurisdictions and the timing of
repatriation of profits back to the United States (e.g.,
in the form of dividends). As our business expands into
countries with higher tax rates such as the United States, we
expect that our effective tax rate may increase.
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 will amortize over a
15-year
period and deduct for U.S. income tax purposes the carrying
value of certain assets, such as intangibles, arising in
connection with the acquisition of GLG, effectively reducing
U.S. tax expense on repatriated profits. The amount of
annual tax deductible goodwill amortization was approximately
$214 million based on the fair market value of Company common
stock on November 2, 2007 of $13.70 per share and estimates
of the fair market values of the assets and liabilities acquired
in the acquisition.
GLG accounts 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
management believes it is more likely than not that a deferred
tax asset will not be realized.
Assessing
Business Performance
As discussed above under Expenses
Employee Compensation and Benefits and Limited Partner Profit
Share, GLGs management assesses its
personnel-related expenses based on the measure
non-GAAP PSCB. Non-GAAP PSCB reflects GAAP employee
compensation and benefits, adjusted to include the limited
partner profit shares described above under
Expenses Employee Compensation and
Benefits and Limited Partner Profit Share.
In addition, GLGs management assesses the underlying
performance of its business based on the measure adjusted
net income, which adjusts for the difference between GAAP
employee compensation and benefits and non-GAAP PSCB as
discussed above. See Results of
Operations Adjusted Net Income for a
reconciliation of adjusted net income to net income for the
periods presented.
Non-GAAP PSCB is not a measure of financial performance
under GAAP and should not be considered as an alternative to
GAAP employee compensation and benefits. 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 GLGs operating performance or any other
measures of performance derived in accordance with GAAP. The
non-GAAP financial measures presented by GLG may be different
from non-GAAP financial measures used by other companies.
GLG is providing these non-GAAP financial measures to enable
investors, securities analysts and other interested parties to
perform additional financial analysis of GLGs
personnel-related costs and its earnings from operations and
because it believes that they will be helpful to investors in
understanding all components of the personnel-related costs of
GLGs business. GLGs management believes that the
non-GAAP financial measures also enhance comparisons of
GLGs core results of operations with historical periods.
In particular,
45
GLG believes that the non-GAAP adjusted net income measure
better represents profits available for distribution to
stockholders than does GAAP net income. In addition, GLGs
management uses these non-GAAP financial measures in its
evaluation of GLGs core results of operations and trends
between fiscal periods and believes these measures are an
important component of its internal performance measurement
process. GLGs management also prepares forecasts for
future periods on a basis consistent with these non-GAAP
financial measures. Under the revolving credit and term loan
facilities entered into in connection with the acquisition of
GLG, we and our subsidiaries 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 GLGs
business and may not be indicative of the cash flows from
operations as determined in accordance with GAAP.
Assets
Under Management
The following is a discussion of GLGs gross and
net AUM as of September 30, 2007 and 2006 and as of
December 31, 2006, 2005 and 2004, and GLGs average
gross and net AUM for the nine months ended
September 30, 2007 and 2006 and for the years ended
December 31, 2006, 2005 and 2004.
In order to accurately represent
fund-in-fund
investments whereby one GLG Fund may hold exposure to another
GLG Fund, 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.
GLG has achieved strong historical AUM growth. The following
table sets out GLGs gross and net AUM on a historical
basis, categorized by product types:
AUM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(US dollars in millions)
|
|
|
Alternative strategy
|
|
$
|
14,713
|
|
|
$
|
9,184
|
|
|
$
|
10,410
|
|
|
$
|
7,030
|
|
|
$
|
9,171
|
|
Long-only
|
|
|
4,561
|
|
|
|
3,735
|
|
|
|
3,815
|
|
|
|
3,253
|
|
|
|
2,666
|
|
Internal FoHF
|
|
|
1,651
|
|
|
|
1,089
|
|
|
|
1,261
|
|
|
|
790
|
|
|
|
870
|
|
External FoHF
|
|
|
598
|
|
|
|
511
|
|
|
|
568
|
|
|
|
410
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross fund-based AUM
|
|
|
21,524
|
|
|
|
14,519
|
|
|
|
16,053
|
|
|
|
11,484
|
|
|
|
13,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed accounts
|
|
|
1,905
|
|
|
|
1,042
|
|
|
|
1,233
|
|
|
|
335
|
|
|
|
5
|
|
Cash and other holdings
|
|
|
164
|
|
|
|
372
|
|
|
|
310
|
|
|
|
229
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross AUM
|
|
|
23,593
|
|
|
|
15,932
|
|
|
|
17,596
|
|
|
|
12,047
|
|
|
|
13,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: internal FoHF investments in GLG Funds
|
|
|
(1,653
|
)
|
|
|
(1,091
|
)
|
|
|
(1,268
|
)
|
|
|
(805
|
)
|
|
|
(867
|
)
|
Less: external FoHF investments in GLG Funds
|
|
|
(55
|
)
|
|
|
(48
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Less: alternatives
fund-in-fund
investments
|
|
|
(1,419
|
)
|
|
|
(1,075
|
)
|
|
|
(1,125
|
)
|
|
|
(942
|
)
|
|
|
(726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net AUM
|
|
$
|
20,466
|
|
|
$
|
13,718
|
|
|
$
|
15,154
|
|
|
$
|
10,300
|
|
|
$
|
11,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(US dollars in millions)
|
|
|
Quarterly average gross AUM
|
|
$
|
20,341
|
|
|
$
|
14,360
|
|
|
$
|
15,007
|
|
|
$
|
12,166
|
|
|
$
|
11,890
|
|
Quarterly average net AUM
|
|
|
17,576
|
|
|
|
12,324
|
|
|
|
12,890
|
|
|
|
10,549
|
|
|
|
10,427
|
|
46
Note: Quarterly average gross and net AUM
for a given period are calculated by averaging the AUM figures
at the start of the period, and at the end of each quarter
during the period concerned. Average AUM for a given fiscal year
is calculated by averaging the AUM balances at December 31 of
the prior year and each quarter-end during the fiscal year. In a
similar manner, average AUM for a given nine-month period is
calculated by averaging the AUM balances at December 31 of the
prior year and each quarter end during the nine-month period.
Quarterly average gross and net AUM are GLG
managements preferred measures of assets under GLGs
management in each period for the purposes of calculating key
ratios such as fee yield.
The following table sets out the components of growth of
GLGs gross fund-based AUM, consisting of the alternative
strategy, long-only, internal FoHF and external FoHF funds, and
GLGs managed accounts:
Components
of Growth of Fund-Based and Managed Account AUM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(US dollars in millions)
|
|
|
Opening gross fund-based AUM
|
|
$
|
16,053
|
|
|
$
|
11,484
|
|
|
$
|
11,484
|
|
|
$
|
13,045
|
|
|
$
|
9,425
|
|
Gross fund-based inflows (net of redemptions)
|
|
|
3,350
|
|
|
|
1,541
|
|
|
|
1,986
|
|
|
|
(1,704
|
)
|
|
|
2,353
|
|
Gross fund-based net performance (net of losses)
|
|
|
2,121
|
|
|
|
1,494
|
|
|
|
2,584
|
|
|
|
143
|
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing gross fund-based AUM
|
|
$
|
21,524
|
|
|
$
|
14,519
|
|
|
$
|
16,053
|
|
|
$
|
11,484
|
|
|
$
|
13,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening managed account AUM
|
|
$
|
1,233
|
|
|
$
|
335
|
|
|
$
|
335
|
|
|
$
|
5
|
|
|
$
|
12
|
|
Managed account inflows (net of redemptions)
|
|
|
457
|
|
|
|
766
|
|
|
|
865
|
|
|
|
309
|
|
|
|
(10
|
)
|
Managed account net performance (net of losses)
|
|
|
215
|
|
|
|
(60
|
)
|
|
|
34
|
|
|
|
20
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing managed account AUM
|
|
$
|
1,905
|
|
|
$
|
1,042
|
|
|
$
|
1,233
|
|
|
$
|
335
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2007 Compared to December 31, 2006
Change in
AUM
between September 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(US dollars in millions)
|
|
|
Alternative strategy
|
|
$
|
14,713
|
|
|
$
|
10,410
|
|
|
$
|
4,303
|
|
Long-only
|
|
|
4,561
|
|
|
|
3,815
|
|
|
|
747
|
|
Internal FoHF
|
|
|
1,651
|
|
|
|
1,261
|
|
|
|
391
|
|
External FoHF
|
|
|
598
|
|
|
|
568
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross fund-based AUM
|
|
|
21,524
|
|
|
|
16,053
|
|
|
|
5,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed accounts
|
|
|
1,905
|
|
|
|
1,233
|
|
|
|
673
|
|
Cash and other holdings
|
|
|
164
|
|
|
|
310
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AUM
|
|
|
23,593
|
|
|
|
17,596
|
|
|
|
5,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: internal FoHF investments in GLG Funds
|
|
|
(1,653
|
)
|
|
|
(1,268
|
)
|
|
|
(385
|
)
|
Less: external FoHF investments in GLG Funds
|
|
|
(55
|
)
|
|
|
(49
|
)
|
|
|
(6
|
)
|
Less: alternatives
fund-in-fund
investments
|
|
|
(1,419
|
)
|
|
|
(1,125
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net AUM
|
|
$
|
20,466
|
|
|
$
|
15,154
|
|
|
$
|
5,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
|
(US dollars in millions)
|
|
|
Opening gross fund-based AUM
|
|
$
|
16,053
|
|
Gross fund-based inflows (net of redemptions)
|
|
|
3,350
|
|
Gross fund-based net performance (net of losses)
|
|
|
2,121
|
|
|
|
|
|
|
Closing gross fund-based AUM
|
|
$
|
21,524
|
|
|
|
|
|
|
Opening managed account AUM
|
|
$
|
1,233
|
|
Managed account inflows (net of redemptions)
|
|
|
457
|
|
Managed account net performance (net of losses)
|
|
|
215
|
|
|
|
|
|
|
Closing managed account AUM
|
|
$
|
1,905
|
|
|
|
|
|
|
During the nine months ended September 30, 2007,
gross AUM increased by $6.0 billion to
$23.6 billion and net AUM increased by
$5.3 billion to $20.5 billion.
Overall AUM growth was attributable primarily to growth in
GLGs gross fund-based AUM, which increased by
$5.5 billion to $21.5 billion as of September 30,
2007, principally as a result of the following factors:
|
|
|
|
|
strong demand for GLGs fund products, which resulted in
inflows (net of redemptions) of $3.4 billion, which were
responsible for 61.2% of gross fund-based AUM growth in the nine
months ended September 30, 2007.
|
|
|
|
positive fund performance during the nine months ended
September 30, 2007, resulting in performance gains (net of
losses) of $2.1 billion, which was responsible for 38.8% of
gross fund-based AUM growth in the nine months ended
September 30, 2007; and
|
Managed account AUM increased by $0.7 billion to
$1.9 billion as of September 30, 2007. This growth was
primarily attributable to the following factors:
|
|
|
|
|
strong demand for GLGs managed account products from
certain institutional investors whose investment mandates made
individual managed account solutions preferable to fund-based
investments, which resulted in inflows (net of redemptions) of
$457 million, representing 68.0% of managed account AUM
growth in the nine months ended September 30, 2007; and
|
|
|
|
positive managed account performance during the nine months
ended September 30, 2007, resulting in performance gains
(net of losses) of $215 million, representing 32.0% of
managed account AUM growth in the nine months ended
September 30, 2007.
|
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 GLGs FoHF
products in certain GLG Funds and investments by certain
single-manager alternative strategy GLG Funds in other
single-manager alternative strategy GLG Funds.
48
December 31,
2006 Compared to December 31, 2005
Change in
AUM
between December 31, 2006 and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(US dollars in millions)
|
|
|
Alternative strategy
|
|
$
|
10,410
|
|
|
$
|
7,030
|
|
|
$
|
3,380
|
|
Long-only
|
|
|
3,815
|
|
|
|
3,253
|
|
|
|
561
|
|
Internal FoHF
|
|
|
1,261
|
|
|
|
790
|
|
|
|
470
|
|
External FoHF
|
|
|
568
|
|
|
|
410
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross fund-based AUM
|
|
|
16,053
|
|
|
|
11,484
|
|
|
|
4,569
|
|
Managed accounts
|
|
|
1,233
|
|
|
|
335
|
|
|
|
898
|
|
Cash and other holdings
|
|
|
310
|
|
|
|
229
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AUM
|
|
|
17,596
|
|
|
|
12,047
|
|
|
|
5,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: internal FoHF investments in GLG Funds
|
|
|
(1,268
|
)
|
|
|
(805
|
)
|
|
|
(462
|
)
|
Less: external FoHF investments in GLG Funds
|
|
|
(49
|
)
|
|
|
|
|
|
|
(49
|
)
|
Less: alternatives
fund-in-fund
investments
|
|
|
(1,125
|
)
|
|
|
(942
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net AUM
|
|
$
|
15,154
|
|
|
$
|
10,300
|
|
|
$
|
4,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2006
|
|
|
|
(US dollars in millions)
|
|
|
Opening gross fund-based AUM
|
|
$
|
11,484
|
|
Gross fund-based inflows (net of redemptions)
|
|
|
1,986
|
|
Gross fund-based net performance (net of losses)
|
|
|
2,584
|
|
|
|
|
|
|
Closing gross fund-based AUM
|
|
|
16,053
|
|
|
|
|
|
|
Opening managed account AUM
|
|
|
335
|
|
Managed account inflows (net of redemptions)
|
|
|
865
|
|
Managed account net performance (net of losses)
|
|
|
34
|
|
|
|
|
|
|
Closing managed account AUM
|
|
$
|
1,233
|
|
|
|
|
|
|
During 2006, gross AUM increased by $5.5 billion to
$17.6 billion and net AUM increased by
$4.9 billion to $15.2 billion.
Overall AUM growth was attributable primarily to growth in
GLGs gross fund-based AUM, which increased by
$4.6 billion to $16.1 billion as of December 31,
2006, principally as a result of the following factors:
|
|
|
|
|
positive fund performance during 2006, resulting in performance
gains (net of losses) of $2.6 billion, which was
responsible for 56.5% of gross fund-based AUM growth in
2006; and
|
|
|
|
a general increase in demand for GLGs fund products, which
resulted in inflows (net of redemptions) of $2.0 billion,
which were responsible for 43.5% of gross fund-based AUM growth
in 2006. This growth was primarily attributable to:
|
|
|
|
continued interest in GLGs established investment fund
products; and
|
|
|
|
investor demand for GLGs new investment funds launched
during 2006.
|
This demand was, in part, attributable to returning investors
who had withdrawn AUM due to underperformance in certain GLG
Funds during 2005, but who were attracted to reinvest in GLG
Funds in 2006.
49
Managed account AUM increased significantly by $0.9 billion
to $1.2 billion as of December 31, 2006. This growth
was primarily attributable to the following factors:
|
|
|
|
|
strong demand for GLGs managed account products from
certain institutional investors whose investment mandates made
individual managed account solutions preferable to fund-based
investments, which resulted in inflows (net of redemptions) of
$865 million, representing 96.3% of managed account AUM
growth in the year ended December 31, 2006; and
|
|
|
|
positive managed account performance during the year ended
December 31, 2006, resulting in performance gains (net of
losses) of $34 million, representing 3.7% of managed
account AUM growth in the year ended December 31, 2006.
|
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 GLGs FoHF
products in certain GLG Funds and investments by certain
single-manager alternative strategy GLG Funds in other
single-manager alternative strategy GLG Funds.
December 31,
2005 Compared to December 31, 2004
Change in
AUM
between December 31, 2005 and December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
|
(US dollars in millions)
|
|
|
Alternative strategy
|
|
$
|
7,030
|
|
|
$
|
9,171
|
|
|
$
|
(2,141
|
)
|
Long-only
|
|
|
3,253
|
|
|
|
2,666
|
|
|
|
587
|
|
Internal FoHF
|
|
|
790
|
|
|
|
870
|
|
|
|
(79
|
)
|
External FoHF
|
|
|
410
|
|
|
|
338
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross fund-based AUM
|
|
|
11,484
|
|
|
|
13,045
|
|
|
|
(1,561
|
)
|
Managed accounts
|
|
|
335
|
|
|
|
5
|
|
|
|
329
|
|
Cash and other holdings
|
|
|
229
|
|
|
|
215
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross AUM
|
|
|
12,047
|
|
|
|
13,265
|
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: internal FoHF investments in GLG funds
|
|
|
(805
|
)
|
|
|
(867
|
)
|
|
|
62
|
|
Less: external FoHF investments in GLG funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: alternatives
fund-in-fund
investments
|
|
|
(942
|
)
|
|
|
(726
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net AUM
|
|
$
|
10,300
|
|
|
$
|
11,671
|
|
|
$
|
(1,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
(US dollars in millions)
|
|
|
Opening gross fund-based AUM
|
|
$
|
13,045
|
|
Gross fund-based inflows (net of redemptions)
|
|
|
(1,704
|
)
|
Gross fund-based net performance (net of losses)
|
|
|
143
|
|
|
|
|
|
|
Closing gross fund-based AUM
|
|
$
|
11,484
|
|
|
|
|
|
|
Opening managed account AUM
|
|
$
|
5
|
|
Managed account inflows (net of redemptions)
|
|
|
309
|
|
Managed account net performance (net of losses)
|
|
|
20
|
|
|
|
|
|
|
Closing managed account AUM
|
|
$
|
335
|
|
|
|
|
|
|
50
During 2005, gross AUM decreased by $1.2 billion to
$12.0 billion and net AUM decreased by
$1.4 billion to $10.3 billion. The overall decrease in
AUM was attributable primarily to a reduction in GLGs
gross fund-based AUM by $1.6 billion to $11.5 billion
as of December 31, 2005, driven by the following factors:
|
|
|
|
|
while still delivering performance gains (net of losses) of
$0.1 billion, fund performance in 2005 was depressed by
particularly significant underperformance in two of the GLG
Funds, the GLG Credit Fund and the GLG Market Neutral
Fund; and
|
|
|
|
fund underperformance gave rise to significant redemptions of
AUM, primarily from the two underperforming funds. Redemptions
for this period (net of inflows) from fund-based products were
$1.7 billion.
|
During 2005, managed account AUM grew from $5 million to
$335 million. This growth was primarily attributable to the
following factors:
|
|
|
|
|
strong demand for GLGs managed account products from
certain institutional investors whose investment mandates made
individual managed account solutions preferable to fund-based
investments, which resulted in inflows (net of redemptions) of
$309 million, representing 93.8% of managed account AUM
growth in the year ended December 31, 2005. Fiscal 2005 was
the first period in which managed accounts represented a
significant source of assets for GLG; and
|
|
|
|
positive managed account performance during the year ended
December 31, 2005, resulting in performance gains (net of
losses) of $20 million, representing 6.2% of managed
account AUM growth in the year ended December 31, 2005.
|
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 GLGs FoHF
products in certain GLG Funds and investments by certain
single-manager alternative strategy GLG Funds in other
single-manager alternative strategy GLG Funds.
51
Results
of Operations
Combined
GAAP Statement of Operations Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Years Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(US dollars in thousands)
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
198,892
|
|
|
$
|
129,981
|
|
|
$
|
186,273
|
|
|
$
|
137,958
|
|
|
$
|
138,988
|
|
Performance fees, net
|
|
|
343,835
|
|
|
|
177,047
|
|
|
|
394,740
|
|
|
|
279,405
|
|
|
|
178,024
|
|
Administration fees, net
|
|
|
42,986
|
|
|
|
25,050
|
|
|
|
34,814
|
|
|
|
311
|
|
|
|
|
|
Transaction charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,252
|
|
|
|
191,585
|
|
Other
|
|
|
7,875
|
|
|
|
1,883
|
|
|
|
5,039
|
|
|
|
1,476
|
|
|
|
6,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
|
593,588
|
|
|
|
333,961
|
|
|
|
620,866
|
|
|
|
603,402
|
|
|
|
514,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
(110,526
|
)
|
|
|
(118,194
|
)
|
|
|
(168,386
|
)
|
|
|
(345,918
|
)
|
|
|
(196,784
|
)
|
General, administrative and other
|
|
|
(79,634
|
)
|
|
|
(43,721
|
)
|
|
|
(68,404
|
)
|
|
|
(64,032
|
)
|
|
|
(42,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(190,160
|
)
|
|
|
(161,915
|
)
|
|
|
(236,790
|
)
|
|
|
(409,950
|
)
|
|
|
(238,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
403,428
|
|
|
|
172,046
|
|
|
|
384,076
|
|
|
|
193,452
|
|
|
|
275,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
4,694
|
|
|
|
3,603
|
|
|
|
4,657
|
|
|
|
2,795
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
408,122
|
|
|
|
175,649
|
|
|
|
388,733
|
|
|
|
196,247
|
|
|
|
276,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(33,020
|
)
|
|
|
(14,803
|
)
|
|
|
(29,225
|
)
|
|
|
(25,345
|
)
|
|
|
(48,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
375,102
|
|
|
$
|
160,846
|
|
|
$
|
359,508
|
|
|
$
|
170,902
|
|
|
$
|
228,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Net
Revenues
Nine
Months Ended September 30, 2007 Compared to Nine Months
Ended September 30, 2006
Change in
GAAP Net Revenues and Other Income
between Nine Months Ended September 30, 2007 and
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
198,892
|
|
|
$
|
129,981
|
|
|
$
|
68,911
|
|
Performance fees, net
|
|
|
343,835
|
|
|
|
177,047
|
|
|
|
166,788
|
|
Administration fees, net
|
|
|
42,986
|
|
|
|
25,050
|
|
|
|
17,937
|
|
Transaction charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
7,875
|
|
|
|
1,883
|
|
|
|
5,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
$
|
593,588
|
|
|
$
|
333,961
|
|
|
$
|
259,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Total annualized net revenues and other income/quarterly average
net AUM
|
|
|
4.50
|
%
|
|
|
3.61
|
%
|
|
|
0.89
|
%
|
Annualized management fees/quarterly average net AUM
|
|
|
1.51
|
%
|
|
|
1.41
|
%
|
|
|
0.10
|
%
|
Total net revenues and other income increased by
$259.6 million, or 78%, to $593.6 million. This
increase was driven by growth in all categories of fee revenue,
especially in relation to performance fees.
For each type of fee revenue, GLGs management uses net fee
yield as a measure of GLGs fees generated for every dollar
of GLGs net AUM. The net management, performance and
administration fee yield is equal to the management fees,
performance fees or administration fees, respectively, divided
by quarterly average net AUM for the applicable period.
Management fees increased by $68.9 million, or 53%, to
$198.9 million. This growth was driven by two main factors:
|
|
|
|
|
a 42.6% higher quarterly average net AUM balance between
the periods which, at constant net management fee yield,
resulted in an increase in management fees of
$55.4 million, or 80.4% of the total increase in management
fees; and
|
|
|
|
an increase in the net management fee yield from 1.41% 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 $13.5 million, or 19.6% 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.
|
Performance fees increased by $166.8 million, or 94%, to
$343.8 million. This growth was driven by two main factors:
|
|
|
|
|
a 42.6% higher quarterly average net AUM balance between
the periods which, at constant net performance fee yield,
resulted in an increase in performance fees of
$75.5 million, or 45.2% of the total increase in
performance fees;
|
|
|
|
an increase in the annualized net performance fee yield from
1.92% to 2.61% which, when applied to the increased net AUM
base, resulted in an increase in performance fees of
$91.3 million, or 54.8% 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.
|
53
Net administration fees increased by $17.9 million, or 72%,
to $43.0 million. This growth was driven by two main
factors:
|
|
|
|
|
a 42.6% higher quarterly average net AUM balance between
the periods which, at constant administration fee yield,
resulted in an increase in administration fees of
$10.7 million, or 59.5% of the total increase in
administration fees; and
|
|
|
|
an increase in the net administration fee yield from 0.27% to
0.33% which, when applied to the increased net AUM base,
resulted in an increase in administration fees of
$7.3 million, or 40.5% 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.
|
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Change in
GAAP Net Revenues and Other Income
between Years Ended December 31, 2006 and
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
186,273
|
|
|
$
|
137,958
|
|
|
$
|
48,315
|
|
Performance fees, net
|
|
|
394,740
|
|
|
|
279,405
|
|
|
|
115,335
|
|
Administration fees, net
|
|
|
34,814
|
|
|
|
311
|
|
|
|
34,503
|
|
Transaction charges
|
|
|
|
|
|
|
184,252
|
|
|
|
(184,252
|
)
|
Other
|
|
|
5,039
|
|
|
|
1,476
|
|
|
|
3,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
$
|
620,866
|
|
|
$
|
603,402
|
|
|
$
|
17,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income/quarterly average
net AUM
|
|
|
4.82
|
%
|
|
|
5.72
|
%
|
|
|
(0.90
|
)%
|
Management fees/quarterly average net AUM
|
|
|
1.45
|
%
|
|
|
1.31
|
%
|
|
|
0.14
|
%
|
Total net revenues and other income increased by
$17.5 million, or 2.9%, to $620.9 million. This
increase was driven by growth in both management and performance
fees, offset by net revenue loss resulting from the transition
from a transaction charge to an administration fee model in 2005.
Management fees increased by $48.3 million, or 35.0%, to
$186.3 million. This growth was driven by two main factors:
|
|
|
|
|
a 22.2% higher quarterly average net AUM balance between
the periods which, at constant net management fee yield,
resulted in an increase in management fees of
$30.6 million, or 63.4% of the total increase in management
fees; and
|
|
|
|
an increase in the net management fee yield from 1.3 1% to
1.45%, 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 $17.7 million, or 36.6% 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.
|
Performance fees increased by $115.3 million, or 41.3%, to
$394.7 million. This growth was driven by two main factors:
|
|
|
|
|
a 22.2% increase in quarterly average net AUM balances
between the periods which, at constant net performance fee
yield, resulted in an increase in performance fees of
$62.0 million, or 53.8% of the total increase in
performance fees; and
|
54
|
|
|
|
|
an increase in the net performance fee yield from 2.65% to 3.06%
which, when applied to the increased net AUM base, resulted
in an increase in performance fees of $53.3 million, or
46.2% 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. The increase
in performance was partly attributable to the transition to an
administration fee model from a transaction charge model in
2005, which reduced fund expenses and resulted in higher fund
performance. Substantially all of the impact of these changes
was reflected in 2006.
|
Combined revenues from transaction charges and net
administration fees fell by $149.7 million, or 81.1%, to
$34.8 million. This reduction was attributable primarily to
the transition from a transaction charge to an administration
fee model in 2005.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Change in
GAAP Net Revenues and Other Income
between Years Ended December 31, 2005 and
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
|
|
|
Net revenues and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
137,958
|
|
|
$
|
138,988
|
|
|
$
|
(1,030
|
)
|
Performance fees, net
|
|
|
279,405
|
|
|
|
178,024
|
|
|
|
101,381
|
|
Administration fees, net
|
|
|
311
|
|
|
|
|
|
|
|
311
|
|
Transaction charges
|
|
|
184,252
|
|
|
|
191,585
|
|
|
|
(7,333
|
)
|
Other
|
|
|
1,476
|
|
|
|
6,110
|
|
|
|
(4,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income
|
|
$
|
603,402
|
|
|
$
|
514,707
|
|
|
$
|
88,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues and other income/quarterly average
net AUM
|
|
|
5.72
|
%
|
|
|
4.94
|
%
|
|
|
0.78
|
%
|
Management fees/quarterly average net AUM
|
|
|
1.31
|
%
|
|
|
1.33
|
%
|
|
|
(0.03
|
)%
|
Total net revenues and other income increased by
$88.7 million, or 17.2%, to $603.4 million. This
increase was driven primarily by growth in performance fees.
Management fees decreased by $1.0 million, or 0.7%, to
$138.0 million. This reduction was primarily driven by a
reduction in the net management fee yield from 1.33% to 1.31%,
reflecting lower management fees per unit of AUM, which, when
applied to the increased net AUM base, resulted in a
decrease in management fees of $2.7 million. The lower net
management fee yield was attributable to increased management
fee rebates, partly offset by higher management fee yields on
new AUM inflows during 2005. These decreases were partially
offset by a 1.2% increase in quarterly average net AUM
balances between the periods which, at constant net performance
fee yield, resulted in an increase in management fees of
$1.6 million.
Performance fees increased by $101.4 million, or 56.9%, to
$279.4 million. This growth was driven by two main factors:
|
|
|
|
|
an increase in the net performance fee yield from 1.71% to 2.65%
which, when applied to the increased net AUM base, resulted
in an increase in performance fees of $99.3 million, or
97.9% 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. The increase
in net performance fee yield was attributable to strong GLG Fund
and managed account performance, with the principal exception of
two GLG Funds which recorded significant underperformance during
the 2005 period; and
|
55
|
|
|
|
|
a 1.2% increase in quarterly average net AUM balances
between the periods which, at constant net performance fee
yield, resulted in an increase in performance fees of
$2.1 million, or 2.1% of the total increase in performance
fees.
|
The transition from a transaction charge to an administration
fee model, which began in 2005, also resulted in a slight
increase in net administration fees and a slight decrease in
transaction charges. However, due to the phased-in
implementation, the effect on 2005 revenues was limited.
Expenses
Nine
Months Ended September 30, 2007 Compared to Nine Months
Ended September 30, 2006
Change in
GAAP Expenses between Nine Months Ended September 30,
2007 and September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
(110,526
|
)
|
|
$
|
(118,194
|
)
|
|
$
|
7,668
|
|
General, administrative and other
|
|
|
(79,634
|
)
|
|
|
(43,721
|
)
|
|
|
(35,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
(190,160
|
)
|
|
$
|
(161,915
|
)
|
|
$
|
(28,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits/total GAAP net revenues and
other income
|
|
|
18.62
|
%
|
|
|
35.39
|
%
|
|
|
(16.77
|
)%
|
General, administrative and other/total GAAP net revenues and
other income
|
|
|
13.42
|
%
|
|
|
13.09
|
%
|
|
|
0.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses /total GAAP net revenues and other income
|
|
|
32.04
|
%
|
|
|
48.48
|
%
|
|
|
(16.45
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits decreased by
$7.7 million, or 6.5%, to $110.5 million. The
decreases included a $16.8 million decrease in variable
salary, and a $1.5 million decrease in base compensation
and benefits, which were mainly attributable to certain GLG key
personnel ceasing to be employees at or after the end of the
second quarter of 2006, partially offset by a $10.6 million
increase in discretionary bonuses. Under the limited partner
profit share arrangement, these key personnel became holders of
direct or indirect limited partnership interests in the entities
which had previously employed them, resulting in comparable
amounts which had been paid as compensation thereafter being
paid as limited partner profit share.
General, administrative and other expenses increased by
$35.9 million, or 82%, to $79.6 million. This was
attributable to the following factors in approximately equal
proportions:
|
|
|
|
|
the growing scale of GLGs operations, principally in
relation to increases in personnel and market data
expenses; and
|
|
|
|
one-time regulatory and legal costs.
|
Non-GAAP Expense
Measures
As discussed above under Assessing Business
Performance, GLG presents a non-GAAP comprehensive limited
partner profit share, compensation and benefits measure. The
table below reconciles GAAP employee compensation and benefits
to non-GAAP PSCB for the periods presented.
56
Change in
Non-GAAP Expenses between Nine Months Ended
September 30, 2007 and September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Non-GAAP expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP employee compensation and benefits
|
|
$
|
(110,526
|
)
|
|
$
|
(118,194
|
)
|
|
$
|
7,668
|
|
Limited partner profit share
|
|
|
(207,500
|
)
|
|
|
(76,530
|
)
|
|
|
(130,970
|
)
|
Non-GAAP PSCB
|
|
|
(318,026
|
)
|
|
|
(194,724
|
)
|
|
|
(123,302
|
)
|
GAAP general, administrative and other
|
|
|
(79,634
|
)
|
|
|
(43,721
|
)
|
|
|
(35,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses
|
|
$
|
(397,660
|
)
|
|
$
|
(238,445
|
)
|
|
$
|
(159,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios (based on non-GAAP measures)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP PSCB /total GAAP net revenues and other income
|
|
|
53.58
|
%
|
|
|
58.31
|
%
|
|
|
(4.73
|
)%
|
General, administrative and other/total GAAP net revenues and
other income
|
|
|
13.42
|
%
|
|
|
13.09
|
%
|
|
|
0.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses/total GAAP net revenues and other
income
|
|
|
66.99
|
%
|
|
|
71.40
|
%
|
|
|
(4.41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP PSCB, including payments of limited partner profit
shares, increased by $123.3 million, or 63%, to
$318.0 million. This increase was mainly attributable to
the growing scale of GLGs operations, as GLGs AUM
grew during the period, driving additional headcount. In
particular, the 94% increase in performance fees between the
periods contributed to a $123.4 million increase in
non-GAAP discretionary compensation and bonus, which, together
with a $6.8 million increase in non-GAAP base compensation
and benefits, substantially outweighed the decreases in non-GAAP
variable compensation of $6.9 million attributable to
managements decision to reduce the number of personnel
with contractual entitlements to variable compensation. The
$131.0 million increase in limited partner profit share was
composed of a $112.8 million increase in discretionary
limited partner profit share, an $8.2 million increase in
base limited partner profit share and a $9.9 million
increase in variable limited partner profit share. The
non-GAAP PSCB/total GAAP net revenues and other income
ratio fell from 58.3% to 53.6%, demonstrating the increasing
scalability of GLGs personnel-related cost base.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Change in
GAAP Expenses between Years Ended December 31, 2006
and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
(168,386
|
)
|
|
$
|
(345,918
|
)
|
|
$
|
177,532
|
|
General, administrative and other
|
|
|
(68,404
|
)
|
|
|
(64,032
|
)
|
|
|
(4,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
(236,790
|
)
|
|
$
|
(409,950
|
)
|
|
$
|
173,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits/total GAAP net revenues and
other income
|
|
|
27.12
|
%
|
|
|
57.33
|
%
|
|
|
(30.21
|
)%
|
General, administrative and other/total GAAP net revenues and
other income
|
|
|
11.02
|
%
|
|
|
10.61
|
%
|
|
|
0.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses /total GAAP net revenues and other income
|
|
|
38.14
|
%
|
|
|
67.94
|
%
|
|
|
(29.80
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Employee compensation and benefits fell by $177.5 million,
or 51.3%, to $168.4 million. The decreases included a
$121.7 million decrease in discretionary bonuses and a
$14.3 million decrease in variable salary, which were
driven primarily by the following factors:
|
|
|
|
|
certain GLG key personnel ceasing to be employees at or after
the end of the second quarter of 2006. These key personnel
became holders of direct or indirect limited partnership
interests in the entities which had previously employed them,
resulting in comparable amounts which had been paid as
compensation being paid as limited partner profit share; and
|
|
|
|
the non-recurrence in 2006 of certain one-time costs incurred in
2005, primarily the approximately $41.6 million expense
recorded in 2005 related to an employment tax settlement
covering the period from GLGs separation from Lehman
Brothers International (Europe), or Lehman International, in
2000 to April 5, 2006.
|
The decrease was partially offset by the following factors which
increased employee compensation and benefits through the period:
|
|
|
|
|
an increase in compensation attributable to the growth in
GLGs headcount as its operations grew; and
|
|
|
|
an increase in the proportion of performance-based discretionary
compensation. GLG Funds are managed either by principals or by
non-principals. Non-principals receive performance-based
discretionary compensation related to their performance, either
as bonus (for employees who do not participate in the limited
partner profit share arrangement) or as discretionary limited
partner profit share (for key personnel who participate in the
limited partner profit share arrangement). In 2005 a number of
funds managed by a former principal of GLG started to be managed
by employee non-principal managers. This increased the
performance-based discretionary bonuses included in employee
compensation and benefits.
|
General, administrative and other expenses increased by
$4.4 million, or 6.8%, to $68.4 million. This was
mainly attributable to the growing scale of GLGs
operations, principally increases in personnel and market data
expenses.
Non-GAAP Expense
Measures
As discussed above under Assessing Business
Performance, GLG presents a non-GAAP PSCB measure.
The table below reconciles GAAP employee compensation and
benefits to non-GAAP PSCB for periods presented.
Change in
Non-GAAP Expenses between Years Ended December 31,
2006 and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Non-GAAP expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP employee compensation and benefits
|
|
$
|
(168,386
|
)
|
|
$
|
(345,918
|
)
|
|
$
|
177,532
|
|
Limited partner profit share
|
|
|
(201,450
|
)
|
|
|
|
|
|
|
(201,450
|
)
|
Non-GAAP PSCB
|
|
|
(369,836
|
)
|
|
|
(345,918
|
)
|
|
|
(23,918
|
)
|
GAAP general, administrative and other
|
|
|
(68,404
|
)
|
|
|
(64,032
|
)
|
|
|
(4,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses
|
|
$
|
(438,240
|
)
|
|
$
|
(409,950
|
)
|
|
$
|
(28,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios (based on non-GAAP measures)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP PSCB/total GAAP net revenues and other income
|
|
|
59.57
|
%
|
|
|
57.33
|
%
|
|
|
2.24
|
%
|
General, administrative and other/total GAAP net revenues and
other income
|
|
|
11.02
|
%
|
|
|
10.61
|
%
|
|
|
0.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP total expenses/total GAAP net revenues and other
income
|
|
|
70.59
|
%
|
|
|
67.94
|
%
|
|
|
2.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Non-GAAP PSCB, including payments of limited partner profit
shares, increased by $23.9 million, or 6.9%, to
$369.8 million. The increase was attributable primarily to
an increase in non-GAAP discretionary compensation and bonus of
$65.0 million, offset by a decrease of $7.1 million in
non-GAAP 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. The $201.5 million increase in
limited partner profit share was composed of a
$186.7 million increase in discretionary limited partner
profit share, a $7.6 million increase in base limited
partner profit share priority drawings, and a $7.2 million
increase in variable limited partner profit share. The factors
contributing to the increases include:
|
|
|
|
|
an increase in net revenues, primarily a 41.3% increase in
performance fees, which impacted performance-based variable
compensation and limited partner profit share;
|
|
|
|
an increase in compensation attributable to the growth in
GLGs headcount as its operations grew;
|
|
|
|
GLGs transition from a transaction charge to an
administration fee model, which resulted in an increase in the
performance fee revenues as a proportion of total net revenues
and therefore an increase in the proportion of total net
revenues giving rise to performance-based non-GAAP PSCB
expense; and
|
|
|
|
an increase in the proportion of performance-based discretionary
compensation attributable to funds managed by non-principals as
described above in the discussion of GAAP expenses. In 2005,
this increased the performance-based discretionary bonuses
included in employee compensation and benefits. In addition,
beginning in mid-2006, as a result of certain of the
non-principal investment managers ceasing to be employees and
becoming participants in the limited partner profit share
arrangement, this increased performance-based discretionary
limited partner profit share.
|
The increase caused by these factors was partially offset by the
non-recurrence in 2006 of certain one-time costs incurred in
2005, primarily the approximately $41.6 million expense
recorded in 2005 related to the employment tax settlement
covering the period from GLGs separation from Lehman
International in 2000 to April 5, 2006 discussed above. The
net impact of all such factors was a slight increase in the non-
GAAP PSCB/total GAAP net revenues and other income ratio by
2.2% to 59.6%.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Change in
GAAP Expenses between Years Ended December 31, 2005
and December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
(345,918
|
)
|
|
$
|
(196,784
|
)
|
|
$
|
(149,134
|
)
|
General, administrative and other
|
|
|
(64,032
|
)
|
|
|
(42,002
|
)
|
|
|
(22,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
(409,950
|
)
|
|
$
|
(238,786
|
)
|
|
$
|
(171,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits / total GAAP net revenues and
other income
|
|
|
57.33
|
%
|
|
|
38.23
|
%
|
|
|
19.10
|
%
|
General, administrative and other / total GAAP net revenues and
other income
|
|
|
10.61
|
%
|
|
|
8.16
|
%
|
|
|
2.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses/total GAAP net revenues and other income
|
|
|
67.94
|
%
|
|
|
46.39
|
%
|
|
|
21.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits increased by
$149.1 million, or 75.8%, to $345.9 million, which
included a $115.0 million increase in discretionary
bonuses, driven primarily by a 56.9% increase in performance
fees and an increase in the proportion of discretionary
performance-based compensation attributable to funds managed by
non-principals, offset by a $4.6 million decrease in
variable salary and a $2.8 million
59
decrease in base compensation and benefits. For 2005 and 2004,
non-principals received as bonus performance-based discretionary
compensation related to their performance. As such, an increase
in the contribution of performance attributable to
non-principals increased the performance-based discretionary
bonus included in employee compensation and benefits.
The major driver of the increase in the proportion of
performance-based discretionary compensation attributable to
non-principals was the transition in the management of funds
managed by a former principal of GLG during the periods
presented to employee non-principal investment professionals.
The shift in 2005 to employee non-principal managers of the
funds primarily managed by the former principal resulted in
higher performance based discretionary bonuses being included in
employee compensation and benefits in 2005 compared to 2004. The
increase in employee compensation and benefits was also
partially attributable to certain one-time costs incurred in
2005, primarily the approximately $41.6 million expense
recorded in 2005 related to the employment tax settlement
covering the period from GLGs separation from Lehman
International in 2000 to April 5, 2006. No comparable
expense was recorded in 2004.
General and administrative expenses increased by
$22.0 million, or 52.4%, to $64.0 million. This
increase was mainly attributable to legal, professional and
regulatory costs, in addition to costs associated with the
development of the GLG platform to support the growing scale of
GLGs operations.
For these periods, there were no limited partner profit shares,
as the limited partner profit share arrangement was not
implemented until 2006. As a result, non-GAAP PSCB for
these periods would have been the same as GAAP employee
compensation and benefits.
Income
Tax
GLGs effective income tax rate is generally low since the
portion of GLGs profits comprising the limited partner
profit share is included in income before income taxes but is
subject to tax at the level of the limited partners and is not
subject to corporation tax. In addition, some of GLGs
business is conducted in the Cayman Islands which does not levy
corporate income tax on GLGs earnings. Shown in the tables
below are reconciliations of income taxes computed at the
standard U.K. corporation tax rate to the actual income tax
expense which reflect GLGs effective income tax rate.
Nine
Months Ended September 30, 2007 Compared to Nine Months
Ended September 30, 2006
Change in
Income Taxes between Nine Months Ended September 30, 2007
and September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(US dollars in thousands)
|
|
|
Income taxes
|
|
$
|
(33,020
|
)
|
|
$
|
(14,803
|
)
|
|
$
|
(18,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of income taxes computed at standard U.K.
corporation tax rate to income tax charge
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
408,122
|
|
|
$
|
175,649
|
|
|
$
|
232,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax charge at U.K. corporation tax rate (30%)
|
|
|
(122,437
|
)
|
|
|
(52,695
|
)
|
|
|
(69,742
|
)
|
Factors affecting charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Overseas tax rate differences
|
|
|
28,913
|
|
|
|
15,438
|
|
|
|
13,475
|
|
Disallowed and non-taxable items
|
|
|
(1,746
|
)
|
|
|
(505
|
)
|
|
|
(1,241
|
)
|
Pass through to non-controlling interest holders
|
|
|
62,250
|
|
|
|
22,959
|
|
|
|
39,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on profit on ordinary activities
|
|
$
|
(33,020
|
)
|
|
$
|
(14,803
|
)
|
|
$
|
(18,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
8.09
|
%
|
|
|
8.43
|
%
|
|
|
(0.34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense increased by $18.2 million to
$33.0 million, driven mainly by a 132.4% increase in income
before income taxes, partially offset by a reduction in the
effective income tax rate from 8.43% to
60
8.09%. The decrease in the effective income tax rate was due to
an increase in amounts distributed as limited partner profit
shares included in income before income taxes that did not
impact income tax expense. The increase in these distributions
was a result of certain key personnel ceasing to be employees
and becoming participants in the limited partner profit share
arrangement at or after the end of the second quarter of 2006.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Change in
Income Taxes between Years Ended December 31, 2006 and
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income taxes
|
|
$
|
(29,225
|
)
|
|
$
|
(25,345
|
)
|
|
$
|
(3,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of income taxes computed at standard U.K.
corporation tax rate to income tax charge
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
388,733
|
|
|
$
|
196,247
|
|
|
$
|
192,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax charge at U.K. corporation tax rate (30%)
|
|
|
(116,620
|
)
|
|
|
(58,874
|
)
|
|
|
(57,746
|
)
|
Factors affecting charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Overseas tax rate differences
|
|
|
27,557
|
|
|
|
35,185
|
|
|
|
(7,628
|
)
|
Disallowed and non-taxable items
|
|
|
(841
|
)
|
|
|
(1,656
|
)
|
|
|
815
|
|
Pass through to non-controlling interest holders
|
|
|
60,679
|
|
|
|
|
|
|
|
60,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on profit on ordinary activities
|
|
$
|
(29,225
|
)
|
|
$
|
(25,345
|
)
|
|
$
|
(3,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
7.52
|
%
|
|
|
12.91
|
%
|
|
|
(5.40
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax increased by $3.9 million to $29.2 million,
driven by a 98.1% increase in income before income taxes,
partially offset by a reduction in the effective income tax rate
from 12.91% to 7.52%. The decrease in the effective income tax
rate was due to an increase in amounts distributed as limited
partner profit shares included in income before income taxes
that did not impact income tax expense and a reduction in
disallowed expenses, partially offset by an increase in the
proportion of income before income taxes recognized in the
United Kingdom, which applies a higher tax rate than the Cayman
Islands and other jurisdictions in which GLG conducts business.
The increase in these distributions was a result of certain key
personnel ceasing to be employees and becoming participants in
the limited partner profit share arrangement at the end of the
second quarter of 2006.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Change in
Income Taxes between Years Ended December 31, 2005 and
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income taxes
|
|
$
|
(25,345
|
)
|
|
$
|
(48,372
|
)
|
|
$
|
23,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of income taxes computed at standard U.K.
corporation tax rate to income tax charge
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
196,247
|
|
|
$
|
276,440
|
|
|
$
|
(80,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax charge at U.K. corporation tax rate (30%)
|
|
|
(58,874
|
)
|
|
|
(82,932
|
)
|
|
|
24,058
|
|
Factors affecting charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
Overseas tax rate differences
|
|
|
35,185
|
|
|
|
36,118
|
|
|
|
(933
|
)
|
Disallowed and non-taxable items
|
|
|
(1,656
|
)
|
|
|
(1,558
|
)
|
|
|
(98
|
)
|
Pass through to non-controlling interest holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax on profit on ordinary activities
|
|
$
|
(25,345
|
)
|
|
$
|
(48,372
|
)
|
|
$
|
23,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
12.91
|
%
|
|
|
17.49
|
%
|
|
|
(4.58
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Income tax decreased by $23.0 million to
$25.3 million, driven by both a 29.0% decrease in income
before income taxes and by a reduction in the effective income
tax rate from 17.49% to 12.91%. The decrease in the effective
income tax rate was due to a decrease in the proportion of
income before income taxes recognized in the United Kingdom,
which applies a higher tax rate than the Cayman Islands and
other jurisdictions in which GLG conducts business, partially
offset by an increase in disallowed expenses.
Adjusted
Net Income
As discussed above under Assessing Business
Performance, GLG presents a non-GAAP adjusted net income
measure. The tables below reconcile net income to adjusted net
income for the periods presented.
Nine
Months Ended September 30, 2007 Compared to Nine Months
Ended September 30, 2006
Change in
Non-GAAP Adjusted Net Income
between Nine Months Ended September 30, 2007 and
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Derivation of non-GAAP adjusted net income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
375,102
|
|
|
$
|
160,846
|
|
|
$
|
214,256
|
|
Deduct: limited partner profit share
|
|
|
(207,500
|
)
|
|
|
(76,530
|
)
|
|
|
(130,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted net income
|
|
$
|
167,602
|
|
|
$
|
84,316
|
|
|
$
|
83,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income increased by $83.3 million, or 99%, to
$167.6 million. This increase was driven by increased
performance, management and administration fees, resulting from
GLGs larger pool of AUM, stronger performance and
increased fee yields during the 2007 period. The adjusted net
income measure for these periods includes limited partner profit
share arising from fund performance crystallized during the nine
months ended September 30, 2007.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Change in
Non-GAAP Adjusted Net Income
between Years Ended December 31, 2006 and
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Derivation of non-GAAP adjusted net income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
359,508
|
|
|
$
|
170,902
|
|
|
$
|
188,606
|
|
Deduct: limited partner profit share
|
|
|
(201,450
|
)
|
|
|
|
|
|
|
(201,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted net income
|
|
$
|
158,058
|
|
|
$
|
170,902
|
|
|
$
|
(12,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income decreased by $12.8 million, or 7.5%, to
$158.1 million. This reduction was driven by an increase in
non-GAAP PSCB, resulting from the transition from a
transaction charge to an administration fee model and an
increase in the proportion of performance attributable to
non-principals, as further described under
Results of Operations
Expenses Year Ended December 31, 2006 Compared
to Year Ended December 31, 2005
Non-GAAP Expense Measures. Such increase was
partially offset by the non-recurrence in 2006 of certain
one-time costs incurred in 2005, primarily relating to the
approximately $41.6 million employment tax settlement with
the Inland Revenue.
For fiscal 2004 and 2005, there were no limited partner profit
shares, as the limited partner profit share arrangement was not
implemented until 2006. As a result, non-GAAP PSCB for
these periods would have
62
been the same as GAAP employee compensation and benefits, and
non-GAAP adjusted net income would have been the same as GAAP
net income.
Liquidity
and Capital Resources
Liquidity is a measurement of GLGs ability to meet
potential cash requirements, including ongoing commitments to
repay borrowings, pay compensation, and satisfy other general
business needs. GLGs primary sources of funds for
liquidity consist of cash flows provided by operating
activities, primarily the management fees and performance fees
paid from the GLG Funds and accounts managed by GLG.
In connection with the acquisition of GLG, GLG repaid its credit
facility with the Bank of New York and we entered into a new
revolving and term loan credit facilities, primarily to fund the
cash purchase price for the acquisition of GLG, and which also
provides funding of working capital for us and our subsidiaries.
We expect that our cash on hand and our cash flows from
operating activities, the issuance of debt and equity securities
and existing and future bank loans will satisfy our liquidity
needs over the next twelve months. We expect to meet our
long-term liquidity requirements, including the repayment of
debt obligations, through the generation of operating income,
the issuance of debt and equity securities and existing and
future bank loans.
Our ability to execute our business strategy, particularly our
ability to form new GLG 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 GLG Funds
and accounts managed by us will depend upon a number of factors,
including, but not limited to the financial performance of the
GLG Funds and managed accounts, industry and market trends and
performance and the relative attractiveness of alternative
investment opportunities.
Excess cash held by us on our balance sheet is either kept in
deposit bearing accounts or invested in AAA-rated money market
funds. Currency hedging is undertaken to maintain currency net
assets at pre-determined ratios.
Operating
Activities
GLGs net cash provided by operating activities was
$529.8 million for the nine months ended September 30,
2007 compared to $189.1 million for the nine months ended
September 30, 2006, reflecting significantly lower cash
payments of compensation and benefits due to certain key
personnel ceasing to be employees in mid-2006 and instead
becoming participants in the limited partner profit share
arrangement. The amounts paid as limited partner profit share
are reflected beginning in 2006 as distributions to
non-controlling interest holders in financing activities in the
statements of cash flows.
GLGs net cash provided by operating activities was
$219.2 million, $208.5 million and $296.1 million
during the years ended December 31, 2006, 2005 and 2004,
respectively. These amounts primarily reflect cash-based fee
income, less cash compensation, benefits and non-personnel costs
and tax payments. The increase in net cash provided by operating
activities from 2005 to 2006 was attributable to an increase in
net income, driven primarily by certain key personnel ceasing to
be employees in mid-2006 and instead becoming participants in
the limited partner profit share arrangement, offset by
GLGs need during the period to pay greater accrued
compensation which had arisen in 2005. The decrease in net cash
provided by operating activities from 2004 to 2005 was
attributable primarily to a reduction in net income, coupled
with higher
year-end
fees receivable.
Investing
Activities
GLGs net cash used in investing activities was
$4.4 million for the nine months ended September 30,
2007 compared to $1.7 million for the nine months ended
September 30, 2006, reflecting increased purchases of fixed
assets to support GLGs expanding headcount and
infrastructure.
GLGs net cash used in investing activities was
$4.7 million, $0.6 million and $2.9 million
during the years ended December 31, 2006, 2005 and 2004,
respectively. These amounts primarily reflect the cash
63
purchase of fixed assets to support GLGs expanding
headcount and infrastructure. GLG does not undertake material
investing activities, and hence net cash used in 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
a potentially volatile year-to-year net cash usage.
Financing
Activities
GLGs net cash used in financing activities was
$407.6 million for the nine months ended September 30,
2007 compared to $152.1 million for the nine months ended
September 30, 2006. The increase primarily reflects an
increase of $149.3 million of distributions to
non-controlling interest holders, the participants in the
limited partner profit share arrangement.
GLGs net cash used in financing activities was
$179.4 million, $106.5 million and $222.1 million
during the years ended December 31, 2006, 2005 and 2004,
respectively. These amounts primarily reflect distributions made
to principals and other participating members. The increase in
net cash used in financing activities from 2005 to 2006 was
attributable primarily to a decision by the Principals and
Trustees to change the timing of distributions from the business
from 2005 to 2006, coupled with distributions to non-controlling
interest holders during 2006, resulting from certain key
personnel becoming participants in the limited partner profit
share arrangement beginning in mid-2006.
GLG did not make quarterly distributions of profit in 2006 and
there were no distributions to non-controlling interest holders
in 2005 because the limited partner profit share arrangement was
not yet in effect. The decrease in net cash used in financing
activities from 2004 to 2005 was attributable to a decision by
the Principals and Trustees to draw less cash distributions from
the business during 2005.
Off-Balance
Sheet Arrangements
GLG did not have, and we do not have, any off-balance sheet
arrangements.
Contractual
Obligations, Commitments and Contingencies
GLG has annual commitments under non-cancellable operating
leases for office space located in London, the Cayman Islands
and New York City (GLG Inc.) which expire on various dates
through 2018. The minimum future rental expense under these
leases is as follows:
Future
Rental Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Total
|
(Dollars in thousands)
|
|
$
|
4,287
|
|
|
$
|
4,287
|
|
|
$
|
4,339
|
|
|
$
|
4,339
|
|
|
$
|
4,339
|
|
|
$
|
27,877
|
|
|
$
|
49,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expenses are recognized on a straight-line basis and
during the years ended December 31, 2006, 2005 and 2004
were $7.5 million, $6.2 million and $5.1 million,
respectively.
GLG Holdings Limited entered into a credit facility in the
principal amount of $13.0 million on October 29, 2002
with the Bank of New York. Interest on the loan was payable
quarterly at the annual rate of LIBOR plus 75 basis points.
The loan was repayable in four equal quarterly installments of
$3.25 million. The first installment was originally due on
January 29, 2007; however, the facility was extended on
February 28, 2007 for another five years under the same
terms and conditions and the repayment was to commence effective
January 29, 2012. The loan was secured by a pledge of
substantially all of the assets of GLG Holdings Limited and
there were liens on the future revenue streams of certain GLG
entities. In connection with the consummation of the acquisition
of GLG, this loan was repaid in full.
On October 30,2007, we and certain of our wholly owned
subsidiaries entered into a credit agreement with a syndicate of
banks arranged by Citigroup Global Markets, Inc. providing our
subsidiary FA Sub 3
64
Limited, subject to customary conditions, with: (i) a
5-year
non-amortizing
revolving credit facility in a principal amount of up to
$40.0 million; and (ii) a
5-year
amortizing term loan facility in a principal amount of up to
$530.0 million. On November 2, 2007, we borrowed
$530.0 million under the term loan facility to finance the
purchase price for our acquisition of GLG, including purchase
price adjustments, to pay transaction costs and to repay
existing GLG indebtedness. The remaining $40.0 million
under the revolving credit facility was also drawn down in
November 2007. Interest on the revolving and term loans is
payable quarterly at the annual rate, at our option, of 1,2,3 or
6-month LIBOR plus the applicable margin (currently 1.25%),
which was 5.9534% at November 30, 2007.
In the normal course of business, GLG and its subsidiaries enter
into operating contracts that contain a variety of
representations and warranties and that provide general
indemnifications. GLGs maximum exposure under these
arrangements is unknown as this would involve future claims that
may be made against GLG that have not yet occurred. However,
based on experience, GLG expects the risk of material loss to be
remote.
Qualitative
and Quantitative Disclosures About Market Risk
GLGs predominant exposure to market risk is related to its
role as investment manager for the GLG Funds and accounts it
manages 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 and
performance fee revenues.
The broad range of investment strategies that are employed
across the approximately 40 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 GLG, is a significant focus for GLG and it
uses 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 GLGs 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 GLG 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
GLGs management fees are based on the AUM of the various
GLG Funds and accounts that it manages, 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 GLG. A 10% change in the fair
values of all of the investments held by the GLG Funds and
managed accounts as of September 30, 2007 would impact
future net management fees in the following four fiscal quarters
by an aggregate of $25.5 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
GLGs performance fees are generally based on a percentage
of profits of the various GLG Funds and accounts that it
manages, and, as a result, are impacted by changes in market
risk factors. GLGs performance fees will therefore
generally increase given an increase in the market value of the
investments in the relevant
65
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 GLG is
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 benchmarks 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
GLGs 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.
GLGs administration fees will 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. In certain cases, the calculation of the
administration fees includes minimum payments and fixed payments
and, as a result, the impact on administration 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.
Market
Risk
The GLG Funds and accounts managed by GLG hold investments that
are reported at fair value as of the reporting date. GLGs
AUM is a measure of the estimated fair values of the investments
in the GLG Funds and managed accounts. GLGs 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 September 30, 2007 would impact GLGs
gross AUM by $2.4 billion and net AUM by
$2.0 billion as of such date. This change will consequently
affect GLGs management fees and performance fees as
described above.
Exchange
Rate Risk
The GLG Funds and the accounts managed by GLG hold investments
that are denominated in foreign currencies, whose value against
GLGs reporting currency may fluctuate. 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 GLGs reporting currency, may
fluctuate. The GLG Funds and the managed accounts may employ
currency hedging to help mitigate such risks. In addition,
foreign currency movements may impact GLGs management and
performance fees as described above. GLG employs a currency
hedging policy to help mitigate such risk.
Interest
Rate Risk
The GLG Funds and accounts managed by GLG 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 GLGs
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 1.25%), which is
reset periodically and was 5.9534% at November 30, 2007. A
10% change in the
1-month
LIBOR would impact our interest expense by approximately
$0.2 million for the
1-month
period.
66
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance
sheets as of September 30, 2007 and the unaudited pro forma
condensed combined statements of operations for the nine months
ended September 30, 2007 and the year ended
December 31, 2006 give effect to the acquisition by us of
GLG and also give effect to certain transactions coincident with
the acquisition. However, the pro forma information does not
give effect to the proposed acquisition of GLG Holdings, Inc.
and GLG Inc., which is subject to certain conditions precedent
and is not expected to be completed until after the consummation
of the acquisition of GLG. The pro forma information is based on
the historical financial statements of Freedom and GLG after
giving effect to the combination and applying the estimates,
assumptions and adjustments described in the accompanying notes
to the unaudited pro forma condensed combined financial
information.
The acquisition is considered to be a reverse acquisition
recapitalization for accounting purposes because, among other
things, the GLG Shareowners own a majority of our outstanding
shares following consummation of the acquisition of GLG. Under
this method of accounting, GLG is the acquiring company. The
acquisition is treated as the equivalent of GLG issuing stock
for the net assets of Freedom accompanied by a recapitalization.
The net assets of Freedom, primarily cash, are stated at their
fair value, which is equivalent to the carrying value, and
accordingly no goodwill or other intangible assets are recorded
for accounting purposes.
For pro forma purposes, the unaudited balance sheet of Freedom
as of September 30, 2007 was combined with the unaudited
combined balance sheet of GLG as of September 30, 2007 as
if the transaction had occurred on September 30, 2007. The
unaudited statement of operations of Freedom for the nine months
ended September 30, 2007 was combined with the unaudited
combined statement of operations of GLG for the nine months
ended September 30, 2007 and the statement of operations of
Freedom for the period from June 8, 2006 (date of
inception) to December 31, 2006 was combined with the
combined statement of operations of GLG for the year ended
December 31, 2006, in each case as if the transaction had
occurred on January 1, 2006.
The unaudited pro forma condensed combined financial information
has been prepared for illustrative purposes and is not intended
to represent the condensed combined financial position or
condensed combined results of operations in future periods or
what the results actually would have been had Freedom and GLG
been a combined company during the specified periods. The
unaudited pro forma condensed combined financial information and
accompanying notes should be read in conjunction with the
following information included in this prospectus: (1) the
GLG historical combined financial statements and notes thereto
for the year ended December 31, 2006 and the nine months
ended September 30, 2007, (2) the Freedom historical
financial statements for the period from June 8, 2006 (date
of inception) to December 31, 2006 and notes thereto
included in our Annual Report on
Form 10-K
for the year ended December 31, 2006 and the Freedom
historical condensed financial statements for the nine months
ended September 30, 2007, included in our Quarterly Report
on
Form 10-Q
for the quarter ended September 30, 2007, in each case,
filed with the SEC and (3) Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Net losses of $427.1 million and $710.3 million on a
pro forma basis for the nine months ended September 30,
2007 and the year ended December 31, 2006, respectively,
were largely driven by non-cash share-based compensation
expenses of $791 million and $1,055 million,
respectively. These expenses for the nine months ended
September 30, 2007 and the year ended December 31,
2006 are composed of the following:
|
|
|
|
|
charges of $53 million and $71 million, respectively,
related to the 10,000,000 shares of our common stock to be
issued for the benefit of GLGs employees, service
providers and certain key personnel under the Restricted Stock
Plan;
|
|
|
|
charges of $209 million and $279 million,
respectively, related to the 33,000,000 shares of our
common stock and $150 million in cash or Notes to be issued
for the benefit of certain of GLGs key personnel
participating in the equity participation plan; and
|
67
|
|
|
|
|
charges of $529 million and $705 million,
respectively, related to the 77,604,988 shares of our
common stock and 58,904,993 exchangeable Class B ordinary
shares of FA Sub 2 Limited subject to the agreement among
principals and trustees.
|
The shares described above 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 using the accelerated method in
accordance with the provisions of SFAS 123(R) for the
Restricted Stock Plan and agreement among principals and
trustees, and EITF Issue
No. 96-18,
for the equity participation plan.
Total shareholders deficit on a pro forma basis as of
September 30, 2007 of $99 million largely reflects the
cash portion of the acquisition consideration of
$1.0 billion, less certain amounts payable in relation to
the equity participation plan that will be recognized in future
periods.
68
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
as of September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG
|
|
|
Freedom
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Combined
|
|
|
|
(In thousands, except share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
391,732
|
|
|
$
|
1,779
|
|
|
$
|
(1,001,320
|
)
|
|
|
|
(1),(7)
|
|
$
|
454,531
|
|
|
|
|
|
|
|
|
|
|
|
|
519,142
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,952
|
)
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511,151
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)(6)
|
|
|
|
|
Deferred compensation, current
|
|
|
|
|
|
|
|
|
|
|
104,094
|
|
|
|
|
(1)
|
|
|
69,469
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,625
|
)
|
|
|
|
(8)
|
|
|
|
|
Investments
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Fees receivable
|
|
|
40,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,687
|
|
Prepaid and other current assets
|
|
|
32,647
|
|
|
|
3,784
|
|
|
|
5,849
|
|
|
|
|
(5)
|
|
|
42,280
|
|
Cash held in trust account (restricted cash)
|
|
|
|
|
|
|
519,142
|
|
|
|
(519,142
|
)
|
|
|
|
(2)
|
|
|
23,892
|
|
|
|
|
|
|
|
|
|
|
|
|
23,892
|
|
|
|
|
(7)
|
|
|
|
|
Deferred compensation, non-current
|
|
|
|
|
|
|
|
|
|
|
45,906
|
|
|
|
|
(8)
|
|
|
45,906
|
|
Property, plant and equipment, net
|
|
|
8,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
474,195
|
|
|
$
|
524,705
|
|
|
$
|
(313,006
|
)
|
|
|
|
|
|
$
|
685,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rebates and sub-administration fees payable
|
|
$
|
19,473
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
19,473
|
|
Accrued compensation and benefits
|
|
|
63,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,199
|
|
Income taxes payable
|
|
|
19,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,038
|
|
Distributions payable
|
|
|
71,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,311
|
|
Accounts payable and accruals
|
|
|
14,753
|
|
|
|
1,853
|
|
|
|
36,000
|
|
|
|
|
(9)
|
|
|
52,606
|
|
Other liabilities
|
|
|
3,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,654
|
|
Loan notes
|
|
|
|
|
|
|
|
|
|
|
23,892
|
|
|
|
|
(7)
|
|
|
23,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
191,428
|
|
|
|
1,853
|
|
|
|
59,892
|
|
|
|
|
|
|
|
253,173
|
|
Loan payable
|
|
|
13,000
|
|
|
|
|
|
|
|
517,000
|
|
|
|
|
(5)
|
|
|
530,000
|
|
Deferred underwriters fee
|
|
|
|
|
|
|
17,952
|
|
|
|
(17,952
|
)
|
|
|
|
(4)
|
|
|
|
|
Redeemable common stock and interest
|
|
|
|
|
|
|
103,881
|
|
|
|
(103,881
|
)
|
|
|
|
(6)
|
|
|
|
|
Minority interest
|
|
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
(10),(16)
|
|
|
2,031
|
|
Members equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
6,843
|
|
|
|
|
|
|
|
(6,843
|
)
|
|
|
|
(1)
|
|
|
|
|
Common stock, $.0001 par value; 200,000,000 authorized,
64,800,003 issued and outstanding, actual; 1,150,000,000
authorized, 230,340,290 issued and outstanding, pro forma
|
|
|
|
|
|
|
6
|
|
|
|
17
|
|
|
|
|
(1)
|
|
|
23
|
|
Series A voting preferred stock, $.0001 par value; no
shares authorized, issued and outstanding, actual; 1,000,000,000
authorized, 58,904,993 issued and outstanding, pro forma
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
(12)
|
|
|
6
|
|
Additional paid-in capital
|
|
|
|
|
|
|
392,127
|
|
|
|
(851,320
|
)
|
|
|
|
(1),(7)
|
|
|
97,149
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,880
|
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,000
|
)
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,820
|
|
|
|
|
(11),(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431,642
|
|
|
|
|
(8)
|
|
|
|
|
Income accumulated during the development stage
|
|
|
|
|
|
|
8,886
|
|
|
|
(8,886
|
)
|
|
|
|
(11)
|
|
|
|
|
Accumulated income (deficit)
|
|
|
257,238
|
|
|
|
|
|
|
|
8,886
|
|
|
|
|
(11)
|
|
|
(200,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(466,267
|
)
|
|
|
|
(8)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
3,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
267,736
|
|
|
|
401,019
|
|
|
|
(768,065
|
)
|
|
|
|
|
|
|
(99,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
474,195
|
|
|
$
|
524,705
|
|
|
$
|
(313,006
|
)
|
|
|
|
|
|
$
|
685,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited pro forma condensed combined financial
information.
69
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG
|
|
|
Freedom
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Combined
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
198,892
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
198,892
|
|
Performance fees, net
|
|
|
343,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,835
|
|
Administration fees, net
|
|
|
42,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,986
|
|
Other
|
|
|
7,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
593,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
593,588
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and other benefits
|
|
|
(110,526
|
)
|
|
|
|
|
|
|
(791,096
|
)
|
|
|
|
(8)
|
|
|
(893,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
8,593
|
|
|
|
|
(13)
|
|
|
|
|
General, administrative and other
|
|
|
(79,634
|
)
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
|
(80,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190,160
|
)
|
|
|
(554
|
)
|
|
|
(782,503
|
)
|
|
|
|
|
|
|
(973,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
403,428
|
|
|
|
(554
|
)
|
|
|
(782,503
|
)
|
|
|
|
|
|
|
(379,629
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
4,694
|
|
|
|
19,242
|
|
|
|
(24,981
|
)
|
|
|
|
(5)
|
|
|
(20,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(19,242
|
)
|
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
408,122
|
|
|
|
18,688
|
|
|
|
(826,726
|
)
|
|
|
|
|
|
|
(399,916
|
)
|
Income taxes
|
|
|
(33,020
|
)
|
|
|
(8,663
|
)
|
|
|
8,663
|
|
|
|
|
(1)
|
|
|
(27,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
7,494
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,707
|
)
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
375,102
|
|
|
|
10,025
|
|
|
|
(812,276
|
)
|
|
|
|
|
|
|
(427,149
|
)
|
Less cumulative dividends
|
|
|
|
|
|
|
|
|
|
|
(15,880
|
)
|
|
|
|
(16)
|
|
|
(15,880
|
)
|
Interest income subject to possible redemption
|
|
|
|
|
|
|
(1,309
|
)
|
|
|
1,309
|
|
|
|
|
(6)
|
|
|
|
|
Less minority interest
|
|
|
(479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(10),(16)
|
|
|
(479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to equity interest holders
|
|
$
|
374,623
|
|
|
$
|
8,716
|
|
|
$
|
(826,847
|
)
|
|
|
|
|
|
$
|
(443,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
|
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.84
|
)
|
Weighted average shares outstanding, basic
|
|
|
|
|
|
|
64,395
|
|
|
|
|
|
|
|
|
|
|
|
240,895
|
|
Net income (loss) per common share, diluted
|
|
|
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.84
|
)
|
Weighted average shares outstanding, diluted
|
|
|
|
|
|
|
82,542
|
|
|
|
|
|
|
|
|
|
|
|
240,895
|
|
See notes to unaudited pro forma condensed combined financial
information.
70
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLG
|
|
|
Freedom
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
|
|
|
Combined
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees, net
|
|
$
|
186,273
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
186,273
|
|
Performance fees, net
|
|
|
394,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,740
|
|
Administration fees, net
|
|
|
34,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,814
|
|
Other
|
|
|
5,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620,866
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and other benefits
|
|
|
(168,386
|
)
|
|
|
|
|
|
|
(1,054,795
|
)
|
|
|
|
(8)
|
|
|
(1,212,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
10,524
|
|
|
|
|
(1)
|
|
|
|
|
General, administrative and other
|
|
|
(68,404
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
(68,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(236,790
|
)
|
|
|
(94
|
)
|
|
|
(1,044,271
|
)
|
|
|
|
|
|
|
(1,281,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
384,076
|
|
|
|
(94
|
)
|
|
|
(1,044,271
|
)
|
|
|
|
|
|
|
(660,289
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
4,657
|
|
|
|
390
|
|
|
|
(33,365
|
)
|
|
|
|
(5)
|
|
|
(28,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(390
|
)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
388,733
|
|
|
|
296
|
|
|
|
(1,078,026
|
)
|
|
|
|
|
|
|
(688,997
|
)
|
Income taxes
|
|
|
(29,225
|
)
|
|
|
(127
|
)
|
|
|
127
|
|
|
|
|
(1)
|
|
|
(21,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
10,010
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,094
|
)
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
359,508
|
|
|
|
169
|
|
|
|
(1,069,983
|
)
|
|
|
|
|
|
|
(710,306
|
)
|
Less cumulative dividends
|
|
|
|
|
|
|
|
|
|
|
(14,174
|
)
|
|
|
|
(16)
|
|
|
(14,174
|
)
|
Interest income subject to possible redemption
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(10),(16)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less minority interest
|
|
$
|
359,326
|
|
|
$
|
169
|
|
|
$
|
(1,084, 157
|
)
|
|
|
|
|
|
$
|
(724,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to equity interest holders
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
$
|
(3.01
|
)
|
Net income (loss) per common share, basic
|
|
|
|
|
|
|
13,012
|
|
|
|
|
|
|
|
|
|
|
|
240,895
|
|
See notes to unaudited pro forma condensed combined financial
information.
71
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(In thousands, except share and per share amounts)
|
|
Note A.
|
Basis of
Presentation
|
On June 22, 2007, Freedom and GLG announced a definitive
agreement pursuant to which Freedom agreed to purchase all of
the outstanding equity interests of certain GLG entities.
Because the owners of the equity interests in the acquired GLG
entities (the GLG Shareowners) own approximately 77%
of our voting interests of immediately following the
consummation of the acquisition, GLG was deemed to be the
acquiring company for accounting purposes. Accordingly, the
transaction has been accounted for as a reverse acquisition.
Because Freedom had no active business operations, the
acquisition has been accounted for as a recapitalization of GLG
and GLG was treated as the acquirer and continuing reporting
entity for accounting purposes. The assets and liabilities of
Freedom were recorded, as of completion of the acquisition, at
fair value, which is considered to approximate historical cost,
and added to those of GLG.
The fair values of the net assets of Freedom are shown below.
|
|
|
|
|
Cash
|
|
$
|
520,921
|
|
Deferred underwriters fee
|
|
|
(17,952
|
)
|
Other net current assets
|
|
|
1,931
|
|
Redeemable stock
|
|
|
(1
|
)
|
|
|
|
|
|
Total
|
|
$
|
504,899
|
|
|
|
|
|
|
Minority
Interest
FA Sub 2
Limited Exchangeable Shares
Upon consummation of the transaction, Noam Gottesman and the
Gottesman GLG Trust received, in exchange for their interests in
the existing GLG entities, 58,904,993 exchangeable Class B
ordinary shares of FA Sub 2 Limited (the Exchangeable
Shares) and 58,904,993 shares of our Series A
voting preferred stock (the Series A preferred
stock), in addition to their proportionate share of the
cash consideration.
The Exchangeable Shares are exchangeable for an equal number of
shares of our 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 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. In contrast, 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 holder of Exchangeable Shares. The
combined ownership of the Exchangeable Shares and the
Series A preferred stock provides the holder of these
shares with voting rights that are equivalent to those of our
common stockholders.
The dividend rights of the Exchangeable Shares are such that the
holder of these shares will receive an equivalent dividend as
the common stockholders in addition to a cumulative dividend.
The dividend rights of the holder of the Exchangeable Shares are
in excess of those of our common stockholders, and these rights
are therefore presented as a cumulative dividend in the pro
forma condensed combined statements of operations.
Since FA Sub 2 Limited will have negative equity on a pro forma
basis following completion of the acquisition of GLG and the
holder of the Exchangeable Shares will have no obligation to
fund losses, we will absorb all losses after the cumulative
dividends. Upon the materialization of future earnings, the
majority interest will be credited to the extent of such losses
previously absorbed.
72
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (Continued)
GLG
Holdings Inc. and GLG Inc.
GLG consolidates GLG Holdings Inc. and GLG Inc. pursuant to the
requirements of Financial Accounting Standards Board
(FASB) Interpretation No. 46, Consolidation
of Variable Interest Entities, since they are variable
interest entities and GLG is the Primary Beneficiary.
|
|
Note B.
|
Pro Forma
Adjustments
|
Pro forma adjustments are necessary to record the purchase price
of the acquisition of GLG (consisting of cash and loan notes
issued to certain GLG Shareowners (the Notes)) and
to reflect transactions that are a direct result of the
acquisition.
The following pro forma adjustments are included in the
unaudited condensed combined financial statements:
(1) Reflects cash paid to GLG Shareowners upon consummation
of the acquisition, which comprises the $1.0 billion
purchase consideration and $1.3 million net
cash, as defined in the purchase agreement, less the Notes
(see Note 7).
(2) Reflects reclassification of Freedoms
pre-acquisition cash from being held as a receivable (restricted
cash) to cash since upon consummation of the acquisition the
restrictions will lapse.
(3) Reflects cash proceeds from the co-investment by
Freedoms sponsors immediately prior to consummation of the
acquisition.
|
|
|
|
(4)
|
Reflects payment of the deferred underwriters fee from
Freedoms initial public offering in December 2006 to be
made upon consummation of the acquisition.
|
(5) Reflects the revolving credit and term loan facilities
to be entered into upon consummation of the acquisition,
repayment of existing borrowing and related interest payable. A
0.125% increase in the interest rate would have the following
impacts:
|
|
|
|
|
Interest expense
|
|
$
|
663
|
|
Income tax
|
|
$
|
(199
|
)
|
(6) Reflects the redemption of 100 shares of our
common stock upon consummation of the acquisition and
reclassification of redeemable common stock as permanent equity.
(7) Reflects Notes issued, upon request, to Sage Summit LP
and Lavender Heights Capital LP upon consummation of the
acquisition and the transfer of cash to an escrow account to be
held for the repayment of the Notes. The amount reflects the
likely maximum amount of Notes that may be requested by those
key personnel that may find it advantageous to exercise their
right to request Notes. Interest is payable on the Notes at a
fluctuating interest rate per annum equal to the rate for the
Citibank Custody Institutional Market Deposit Account less 0.10%
per annum. As the total interest payable is expected to closely
match the returns on restricted cash set aside for the repayment
of the Notes, no adjustment has been made to net interest
expense in the condensed combined pro forma statement of
operations. Pro forma gross interest income on the
restricted cash and interest payable on the loan notes are each
$797 for the nine months ended September 30, 2007 and
$1,063 for the year ended December 31, 2006. The Notes are
repayable on demand by either party after an initial minimum
holding period of nine months, up to the final redemption date
on the second anniversary of the issuance date of the Notes. The
Notes are non-recourse obligations of FA Sub 1 Limited and its
affiliates (including GLG Partners, Inc.).
73
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (Continued)
(8) Reflects share-based and other compensation recognized
in respect of (a) the equity participation plan,
(b) the 10,000,000 shares allocated for the benefit of
employees, service providers and certain key personnel under the
Restricted Stock Plan, and (c) the agreement among the
principals and trustees.
(a) Equity participation plan
Upon consummation of the acquisition, certain key personnel who
participate in GLGs equity participation plan are entitled
through their limited partnership interests in Sage Summit LP
and Lavender Heights Capital LP to receive collectively
approximately 15% of the total consideration of cash (or
promissory notes) and our capital stock payable to the GLG
Shareowners in the acquisition. This cash and our capital stock
will be subject to vesting requirements and will be accounted
for in accordance with 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.
These equity participation plan participants will receive a pro
rata portion of 25% of such amounts on consummation of the
acquisition, with the remaining 75% vesting in equal
installments over a three-year period on the first, second and
third anniversaries or in equal installments over a four-year
period on the first, second, third and fourth anniversaries of
the consummation of the acquisition. 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 our company or due to
death or disabi