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Derivatives - April 11, 2006

Interview with Laurence O’Connell, Director of Strategic Development with Man Financial, and member of the EDHEC Risk and Asset Management Research Centre’s International Advisory Board

Laurence O’Connell, Director of Strategic Development with Man Financial and former COO of Man Investments, sits on the EDHEC Risk and Asset Management Research Centre’s International Advisory Board. In this interview, he discusses Man Financial’s future strategy, the challenges that the company is likely to face, and the Man Group’s partnership with EDHEC-Risk Advisory and the EDHEC Risk and Asset Management Research Centre.

Laurence O'Connell

Could you give us an overview of Man Financial’s overall strategy going forward and the challenges that you think you will face?

Laurence O’Connell: Well, Man Financial is now without doubt the world’s leading independent futures and options broker. A year ago I guess there would have been some doubt as to whether the industry leader as an independent service provider was ourselves or Refco. The answer is now clear – we both are! Man Financial acquired the Refco assets after the difficulties that beset Refco last October, and we approached this opportunity as a merger of the two businesses.

The strategy that we pursue as the unquestioned independent market leader is very simple. Man Financial prior to the Refco transaction was a leader in institutional business with an important private client dimension. Through the absorption of the Refco businesses, we were able to develop very quickly a more diverse range of customer channels and geographic presences. The challenge in delivering effective cost-efficient risk transfer instruments to a diverse range of customer channels globally has grown very rapidly over a period of time; it’s a highly dynamic and adaptive segment of the financial services industry and our role is to make sure that the ways in which it develops are supportive to our expanded customer base and indeed to users of derivatives globally.

If you look at most of the major issues which affect the industry you can predict ways in which they could develop in a beneficial way and you can predict ways in which they could develop in a less than optimal way. Our role is very simply to make sure that they develop optimally and that includes a number of factors. One is ensuring that the debate about who delivers what and in what format is resolved in a way which is in customers’ interests. That embraces a range of issues; for example, in mature marketplaces how we as an industry continue to innovate in order to satisfy increasingly complex risk-transfer needs, and it also includes the development of new derivative instruments and marketplaces in parts of the world which have not historically been as well-developed as for example Europe and the United States. We intend going forward to support growth initiatives in for example the Asia-Pacific region, where we are working in partnership with a number of significant industry participants, particularly regulators and exchanges, to provide for the development of those markets.

What is your assessment of the Refco acquisition to date?

Laurence O’Connell: We discovered some outstanding strengths both in terms of the business configuration and the quality of the people engaged in the businesses, and we believe that the merger of Man Financial with Refco created a significantly strengthened industry leader as an independent provider of brokerage execution and clearing services.

Man Financial has chosen to work with EDHEC-Risk Advisory and Man Investments has also supported the EDHEC Risk and Management Research Centre’s activities, most notably as a partner of the EDHEC Hedge Fund Days 2006 in London. What are the reasons behind your support?

Laurence O’Connell: The background to that is that before I became part of the Man Financial business, I was with Man Group for some years prior to that as Chief Operating Officer with the Man Investments business, which is the other – actually the larger - of the two divisions within Man Group plc.

We were for a period of time very much aware of the innovative and highly insightful work that Noël Amenc, Lionel Martellini, Jean-René Giraud and others in the EDHEC specialist risk unit had done in the area of hedge funds, and we had a dialogue with them in that context.

We found their research to be of the highest and most informed quality. I made it known to Jean-René quite some time ago that I personally and many of my colleagues were serious admirers of his work and the centre’s work and that we considered that the EDHEC Risk and Asset Management Research Centre was a very important source of understanding the realities of the hedge fund industry. In due course I was delighted that through Jean-René and other participants in the risk management centre I was invited to sit on the advisory board.

I might say that I remember sitting at one meeting of the advisory board and remarking that Jean-René and his colleagues were probably the only people to whom I had ever made the observation, “Do you think you are too exposed to hedge funds?”!

I think they took my point that their work had been very prominent in that area and indeed very highly valued by the alternative asset management industry, but that in fact their skills and insights could be applied on a much wider basis. I was moving focus from fund management to brokerage services and I asked them whether they would like me to stay on the board? They said, “Yes, we would actually, because you will come to represent a different strand of the financial services industry and we welcome that as a source of diversity for our programmes,” so I’m delighted to be able to continue to support their work, which I do very enthusiastically.