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Executives

Shirley Chan - Associate, IR

Noam Gottesman - Chairman and Co-CEO

Jeffrey Rojek - CFO

Analysts

Roger Freeman - Lehman Brothers

Craig Siegenthaler - Credit Suisse

Prashant Bhatia - Citigoup

GLG Partners, Inc. (GLG) Q2 2008 Earnings Call Transcript August 6, 2008 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 GLG Partners Incorporated Earnings Conference Call. My name is Gwen and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes.

I’d now like to turn the call over to Ms. [Shirley Chan], Associate, Investor Relations. Please proceed, ma’am.

Shirley Chan

Hello everyone and welcome to the GLG Partners investor and analyst conference call. On the call today from GLG Partners we have Noam Gottesman, Chairman of the Board and Co-CEO; Jeffrey Rojek, Chief Financial Officer; Simon White, Chief Operating Officer; and Michael Hodes, Acting Director of Investor Relations.

Earlier this morning we issued a press release announcing financial results for the second quarter of 2008. After our prepared remarks during this call, we’ll be happy to take your questions.

I also want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. Some of these factors are described in the risk factors section of our filings with the SEC. I want to remind you that GLG assumes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

I would also like to remind everyone that GLG represents – excuse me – presents certain financial measures such as adjusted net income, non-GAAP weighted average, fully diluted shares and non-GAAP compensation benefits and profit share. They are not prepared in accordance with US GAAP, in addition to financial results prepared in accordance with GAAP.

GLG is providing these non-GAAP financial measures to enable investors, security analysts and other interested parties to perform additional financial analysis of GLG’s 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 GLG’s business.

A reconciliation of these non-GAAP financial measures to GAAP is included in our earnings release, a copy of which is available on our website and has also been filed with our Form 8-K filed this morning with the SEC. Finally I’d like to point out that this is not intended to be an offer or a solicitation for an investment in any particular fund.

I’d now like to hand the call over to Noam for an overview of the quarter.

Noam Gottesman

Good morning. We are pleased to have the opportunity to speak with you today and provide an update on our second quarter results and the performance across our fund. Our financial metrics were as follows. Our net assets under management for the quarter stood at $23.7 billion, down slightly for the quarter and year-to-date, but up $5.1 billion or 27.5% year-over-year.

Our inflows were positive through June, though we did see outflows in the second quarter. Importantly, we continue to win investment mandate with the most notable being the approximately $3 billion from Banca Fideuram to start funding in September or October, and in terms of our US expansion, we remain on track and are pleased with our growing pipeline.

As to our performance on a dollar weighted basis in the second quarter, we averaged a net decrease of 0.2$ across all our funds and a net decrease of 0.5% for our hedge funds. In the first half on the dollar weighted basis, we averaged a net decrease in performance of 5.3% across all our funds and the net decrease of 4.2% for our hedge funds.

With approximately 17% of our AUM, actively in long-only funds, which were up, a dollar weighted 0.1% in the second quarter and down 11% in the first half. It’s important to flag that the Morgan Stanley World Index was down 1.8% this quarter and 14% in the first half.

Though we are focused on generating strong absolute returns, the relative performance is respectable given the prolonged turbulence in the capital markets. Overall, our performance fees in the second quarter totaled $78.2 million, reflecting positive showings in a number of our funds versus the $314 million on record in the second quarter of 2007.

Non-GAAP adjusted net income was $44.2 in the second quarter or $0.14 in non-GAAP weighted average fully diluted share. These metrics are down significantly year-over-year despite healthy management and administration fee growth and strong expense discipline as our performance fees declined.

More specifically, management and administration fees rose 44.2% year-over-year in the quarter, while the increase in G&A was kept to 8%, and the ratio of non-GAAP compensation benefits and profit share to revenues improved from the second quarter of last year.

Lastly, in terms of results I want to note our second quarter 2008 GAAP net income was a loss of $85.5 million. As we have previously disclosed under GAAP accounting, the company expects to recognize in the next several year significant and largely non-cash compensation related expenses associated GLG’s November 2007 reverse acquisition transaction with Freedom Acquisition Holdings.

In the second quarter of 2008, the GAAP net loss resulted primarily from the recognition of these acquisition-related compensation expenses, which reduced GAAP net income by $134.9 million. Our long-term objectives remain unchanged; extend our 12 year record of leading investment performance, expand our products and strategies, build on our success in Europe and the UK to penetrate other major markets, most notably the US and at least in Asia.

Now, let me pass you over to Jeff Rojek, our CFO, who will cover the financial results in little more depth.

Jeffrey Rojek

Thank you, Noam. Second quarter net revenues and other income were $188.8 million, down $418 million over the same period a year ago. And first half net revenues and other were $320.2 million, down from $491 million from the same period last year. Adjusted net income was $42.2 million for the quarter, down 64.5% year-over-year, and $77 million for the half, down 43.7% year-over-year.

Adjusted net income is a non-GAAP financial measure that we use internally to gauge the underlying performance of our business by deducting from GAAP net income cumulative dividends and adding back acquisition-relates compensation expense related to our reverse acquisition transaction with Freedom, less the corresponding tax benefit.

Non-GAAP adjusted net income divided by non-GAAP weighted average fully diluted shares was $0.14 for the second quarter of 2008, which is down 62.2% year-over-year and $0.24 for the first half of 2008, down 42.9% year-over-year. Please note that a substantial majority of the acquisition-related compensation expense excluded in this metric is non-cash. Further, any shares tied to share-related compensation items linked to the acquisition have been included in our measure of non-GAAP weighted average fully diluted shares.

Non-GAAP weighted average fully diluted shares is a metric that we use internally to measure the number of shares in which we expect to pay dividends plus the warrants outstanding under the treasury stock method. We reported GAAP net losses of $85.5 million for the second quarter of 2008 and GAAP net losses of $307.7 for the first half of 2008.

These GAAP numbers reflect $140.3 million of acquisition-related compensation expense for the quarter and $400.5 million for the first half of 2008. Going forward through the end of 2013, we expect to recognize under GAAP significant acquisition-related compensation expense related to the reverse acquisition transaction with Freedom as a service requirements in those associated plans are met.

Performance fees for the second quarter were $78.2 million, down 77% from record levels in the same period last year, and $82.9 million for the first half of 2008, down 75.8% from the year ago period. The year-over-year declines were driven by small number of GLG funds, exceeding their respective high watermarks at the end of the first half.

Conversely, due to our year-over-year increase in assets under management, our second quarter 2008 management and admin fees totaled $111 million, which was up 44.2% versus second quarter of 2007. Management and admin fees for the first half of 2008 totaled $232.1 million, up 57.8% compared to the first half 2007.

The second quarter 2008 total management and admin fees represent 1.8% of average net AUM, up 6 basis points on the same quarter last year. The combination of dollar strengthening in the period and differences between the actual fee calculations in our ratio presentation relative to a simple net assets under management average drove the above average decline of 20 basis points versus the first quarter of 2008.

There continues to be stable, a positive trend in net management and admin fees relatively to net AUM. Other loss of 0.4 million for the second quarter of 2008 reflects primarily currency translation related losses and cash held in our balance sheet, while other income for the first half of 2008 was 5.2 million due to foreign exchange gains during the first quarter.

In terms of expenses, GAAP employee compensation benefits and profit share for the second quarter 2008 dropped to 236.7 million compared to second quarter 2007, 240.6 million. This slight year-over-year decrease is attributable to the lower discretionary bonus in profit share accruals due to the performance of certain GLG funds which more than offset the recognition of acquisition related top expense of $140.3 million. GAAP-employee compensation benefits and profit share for the first half of 2008 increased by $277.7 million to #549.7 million from the first half of 2009.

The year-over year increase was driven primarily by recognition of acquisition related compensation expense of $400.5 million. We believe in a more meaningful comparison if you look at the total non-GAAP compensation benefits and a little amount of profit share excluding the acquisition related compensation expense, where we call non-GAAP CBP. A non-GAAP financial measure which management utilizes to measure the total cost of services provided to GLG by employees and limited partnerships. Second quarter 2008 non-GAAP CBP dropped 59.9% to 96.4%, largely due to lower discretionary bonus accruals.

First half 2008 non-GAAP CBP dropped by 45.1% to 149.2 million also due to lower discretionary bonus accruals in limited partner profit sharing. When measured as percentage of net revenues, non-GAAP CBP fell by 652 basis points or 51% for the quarter year-over-year, and by 880 basis points to 46.6% for the half year-over-year. This decrease is primarily due to our investment performance year-to-date.

We believe that we have prudently accrued for expected incentive compensation, what we ultimately pay will largely be based on an investment performance through the end of the year. General, admin and other expenses increased 8% to 30.2 million in the second quarter of 2008, versus second quarter of 2007. First half of 2008 general, administration and other expenses increased by 12.6% to 60.5 million year-over-year. However, when compared to our net AUM growth of 24.7% from the year ago period, we were comfortable that our G&A expense growth remained fiscal. The increase reflects both the increase in the scale of the business as well as the impact of additional public company costs.

Net interest expense was $4 million in the second quarter of 2008, and $8.1 million in the first half of 2008, reflecting the cost of borrowings under our long-term loan revolving credit facility offset by interest income generated by cash on our balance sheet. The GAAP income tax charge of $3.3 million in the second quarter of 2008 is lower compared to the first quarter of 2008 tax expense of 6.2 million due to the impact of recognizing a deferred tax benefit of acquisition related compensation expense in the period.

On a non-GAAP adjusted net income basis, the effective rate of tax for Q2 2008 was 23.9% versus 16.7% for the same period last year, and 23.7% the first half of 2008 versus 17% in the year-ago period. This effective tax rate – rate of tax in second quarter 2008 is higher than we had previously guided as we are now excluding the recognition of a tax benefit associated with the acquisition related compensation expense. Accordingly, we have adjusted our previous guidance of 17% to 23% in 2008 to a expected effective tax rate of between 20% to 25% which reflects a more conservative stance.

In terms of capital deployment we are taking an opportunistic approach. We have spent 82.9 million through June 30, 2008 repurchasing 14.3 million of our publicly traded warrants; though no purchases were made in the second quarter. On August 4, 2008 the Board of Directors approved an extension through February 2009 of our previous authorization to repurchase shares and warrants which had approximately $117 million remaining. Please note that 5.5 million warrants have been exercised at a $7.50 per share to date for aggregate proceeds of $41.4 million.

We paid a regularly quarterly dividend of $2.5 a share on July 21, 2008. Going forward, the Board of Directors will consider paying a special dividend based on annual profitability. Before I turn the call back to Noam for some additional comments I want to highlight that we have updated our investor presentation and it is available on our website www.glgpartners.com and has also been filed with the SEC today on our Form 8-K.

Noam Gottesman

Thanks, Jeff. All in all, the first half of 2008 went reasonably well considering the very extreme capital market backdrop. Before opening up the call to Q&A I want to provide some perspective on our recent investment performance and ongoing business initiatives.

As many of you are aware, the high level of economic uncertainty has posited an extraordinary period in the capital markets globally. Long-short strategies have faced heightened correlation and powerful sentiment shifts. The convertible bond market has seen a dramatic cheapening while credit strategies have wrestled with declining values and elevated basis risks. Against this backdrop, many of the major market indices fell fell in the first seven months of 2008. The Morgan Stanley World Index was down 15.6%, the Merrill Lynch 300 convertible index down 9%, MSCI Europe down 22%, and the S&P down just under 14%. More broadly the global financial system has come under significant stress with financial guarantor models breaking down commercial and investment bank actively and in many cases desperately working to deliver and the solvency of the GSE making headlines, we even saw a stretch in July with the CDS of US Treasury widened noticeably.

Against this backdrop, I want to provide some additional detail on our performance. In terms of our hedge funds, our dollar weighted performance was down 4.2% for the first half of 2008, and down 50 basis points for the second quarter 2008. If we exclude the main emerging markets fund as we did for illustrated purposes in our last conference call on the dollar weighted basis, our hedge funds were down 0.8% for the first six months of 2008, and up 2.3% in the second quarter of 2008. While our absolute returns were negative given the performance of the relevant market indices for the first half, our relative return held up well. That said, July proved to be a very challenging month with our preliminary list indicating a dollar-weighted decline of 3.6% for our hedge funds which again is 2.9% without the main emerging market funds. Our long-only fund which represents 17% of our asset have broadly outperformed their benchmark down to 11% in the first half of 2008.

Given these numbers, many of our funds are currently below their high watermark and the amount required to recover this performance, and therefore, start to generate performance fees is significant in some cases, the most significant being the main emerging market fund where as of the 31st of July funds were needed to recover approximately $744 million before it starts to generate performance fees. This will hopefully be resolved by positive performance to the extent that we are able to generate it in the next several months and also from the fact that as investors redeem out of this particular fund, the absolute dollar amount of the high watermark will also decline. Additionally, as you know, our funds are not linked to each other and inflows come without high watermark, the fact that our funds may be below its high watermark does not detract from another fund being able to generate performance fees.

Moving on to business initiative, we are very excited about the senior investment professionals we have hired in recent weeks to run our emerging market business and build out our Macro, as well as special situation platform the transition of leadership in GLG’s emerging market business has been a top priority for us, given Greg Coffey’s and his team’s (inaudible) announced unscheduled departure at the end of October.

Specifically in July we added, Driss Ben-Brahmin, a former Goldman Sachs partner who will be responsible for developing a macro platform as well as our special situations platform, Karim Abdul Motaal and Bart Turtelboom, who will be joining the firm as co-heads of GLG’s emerging market funds and emerging market currency fixed income fund and equity fund, they come from Morgan Stanley where they co-ran the emerging markets business and most recently, Jamil Baz will be joining the firm from PIMCO as GLG’s Chief Investment Strategist and will work closely also with Driss Ben-Brahim.

Our investing clients’ interests have remained paramount throughout this transition and while we have reason for optimism based on our recent hires, we are maintaining our initial assessment of the $3 billion to $4 billion in outflows from our EM funds.

To-date we have received redemption request for $2.2 billion, the bulk of which will be reflected in the fourth quarter. However, we can still receive additional redemption request. Separately, I want to note that Asia is an area of growing focus for us. We’re set to open a GLG office in Beijing during the fourth quarter of 2008 and have hired a terrific person to promote and grow our business and footprint there. We are also in the process of opening our Singapore office, which will include existing GLG employees who are relocating to run up at management and marketing. We will provide additional details on these initiatives as we approach year-end.

Finally to sum up, though the environment remains challenging, we remain optimistic about our prospects, our healthy pipeline of high quality investment mandate and about our business model. We are focused on meeting the needs of our investing clients and ensuring that they continue to crate value for our shareholders.

Operator lets open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Roger Freeman with Lehman Brothers. Please proceed, sir.

Roger Freeman - Lehman Brothers

Hi good morning, Noam. I guess first question around the flows, can you just talk a little more to the outflows that we did see this quarter where those were and none of this is emerging market, because that’s all locked up until later in the year?

Noam Gottesman

Some of it was emerging market and some of it was related to the news of the emerging funds. Additionally, we have seen while the first six months were positive inflows in the second quarter, given the stress in the system and the stress among certain of our clients, both financial institutions and Fund of Funds. We did see some movement from there, but I have to say our pipeline in institutional mandates looks very healthy.

Roger Freeman - Lehman Brothers

Yes, follow-up, you mentioned the Fund of Funds I thought do you really only plays Fund of Funds money is in the emerging markets complexes. Is that where the Fund of Funds money came out?

Noam Gottesman

No, part of it came out from that area, we have some other Fund of Funds on large amounts in other parts of the firm. But it was generally related to long only redemptions in some of the funds that we saw and it was related to either directly to the emerging market fund or as a result of the news associated with the emerging market funds.

Roger Freeman - Lehman Brothers

Is the issue here more redemptions or lack of new commitments. I mean what are your LPs, how are they thinking about putting new money into alternatives right now.

Noam Gottesman

Actually we got it on paper, we were still to see it in the third and fourth quarter, an extraordinarily strong letter of expected mandates funding to come in. So that part of it looks strong and looks positive and as I mentioned the US is coming through now.

On the redemption side I think that we are going to see redemptions in this industry as a whole the distress in other financial institutions, there is a weak performance in the space. And I think there is going to be a common theme in the alternative market and the Fund of Funds. The challenge for us and the opportunity to be able to run fast and hard win mandates at the same time to offset the redemptions. Clearly we expect to see redemptions from the emerging market we came out with that quarter ago. We are not changing that, but at the same time with a new team, once they set them on board, I think will attract significant investor interest and excitement. And so from what we can see at the moment, we got a healthy pipeline of mandates that will be coming in, we are seeing redemptions which are going to be connected to the departure of the emerging market team. And in general the performance hasn’t been terrific in the first six months. It’s not surprising that you see some movement.

Roger Freeman - Lehman Brothers

Can you talk to the US business where you maybe an update on flows in the second quarter I think you had if I recall a couple of 100 million maybe in the first quarter would that piece accelerate?

Noam Gottesman

We haven’t given -- I think we are going to see a very strong acceleration and are already seeing a strong federation in the third quarter and through the fourth quarter, but it’s been -- it continued along the same pace as the first quarter when we are looking for a substantial ramp for the next few quarters from hereon.

Roger Freeman - Lehman Brothers

And Sal Oppenheim and Istithmar, were those individually contributors to AUM in the quarter?

Noam Gottesman

Again on Sal Oppenheim we stressed we thought it would happen around the third to fourth quarter. We still expect it to happen third and fourth quarter and we are working hard with them and are comfortable. And Istithmar is going to case-by-case basis.

Roger Freeman - Lehman Brothers

Okay. I will ask one more and then jump in the queue, just around comp expense. So, it was came in lower than we had anticipated and on a as a percent of revenue lower than a year ago, I understand obviously that’s driven a lot by sort of performances. I guess the question is, how you think about comp and sort of minimum comp levels particularly with funds that are down and I don’t know, what’s employee morale like on funds that are way below high-water mark? Do you have an issue with retention at all?

Noam Gottesman

We haven’t had an issue with retention, but this is a business where people get paid for performance and reduction. And if you look at the performance fees and revenues earned by the company, than the case could be made for even larger reduction in comp expenses than we took, but we haven’t done that because we are trying to strike a balance as we stand, as we stand now, we are not the only financial services company experiencing a difficult performance patch and we want to be confident that we need to keep up that people, but also maintain certain economics for our shareholders. So I think w struck the right balance and we are trying to be conservative and accrue certainly a sufficient amount that employee morale won’t be damaged.

Roger Freeman - Lehman Brothers

Okay. Thanks a lot.

Operator

Our next question comes from Craig Siegenthaler of Credit Suisse. Please proceed sir.

Craig Siegenthaler - Credit Suisse

Thanks and good morning. First, can we have an update on distribution in the US. GLG also registered as an investor advisor in January forget about 200 million of inflow in the first quarter. What was that turned in the second quarter and what’s your outlook for the second half?

Noam Gottesman

Similar trend in the second quarter and our outlook is for increasing amount we now met with a very large percentage of the top 100 institutions and foundations and endowments that we had intended to. We had many meeting we are beginning to win mandates, we gotten our first endowments and foundations and we will be able to give you more color in the third and fourth quarter.

Craig Siegenthaler - Credit Suisse

Got it, and on a similar basis, how flows has been trending in separately Asia and also the Middle East?

Noam Gottesman

Middle East has been positive, we had some in the Middle East were significant investors in the emerging market in the main emerging market we are seeing redemptions, we are anticipating redemptions there. We are seeing also positive inflows and a nice Sovereign Wealth Fund win in the region, but nothing out of the ordinary this business is huge already in that regard. And in Asia it’s being only now becoming a more important area of focus, as we have announced a couple of openings. We have worked on some distribution agreements and again we would expect to see the beginning some decent flows in the late fourth quarter.

Craig Siegenthaler - Credit Suisse

Got it. And on performance fees, you generated about $78 million, I am wondering which bucket that came from, three buckets I was looking at being the hedge fund the long-only products and also the Fund of Funds projects?

Noam Gottesman

Your question in terms what buckets the funds being?

Craig Siegenthaler - Credit Suisse

Yes. I am just trying to determine if like how much if any of your long-only funds generate performance fees in the first half and also the same issue with the Fund of Funds, we can kind of track your alternative products on Bloomberg, but one of our two other buckets?

Noam Gottesman

Right. I think it’s safe to say that with the majority of the performance fees came from the alternative bucket this quarter, but we did see some performance fees from the long-only bucket as well.

Noam Gottesman

It is important I think if we just highlighting -- the mandate with Banca Fideuram is an interesting mandate in that it’s a different benchmark than we have in many of our other funds on our long-only funds, which tend to be more of a LIBOR type benchmark. In this particular mandate, we will earn the performance fee as long as we outperformed in the relative index, whether the index is up or down. So in a theoretical case where the market is down 10% and we’re down 5%, we’ll earn the performance fee on that out-performance.

Craig Siegenthaler - Credit Suisse

But right now, would you say maybe about 80% is long-only products or more are compensated relative to a LIBOR spread index versus an equity index?

Noam Gottesman

Virtually all of them are.

Jeffrey Rojek

Virtually all of them are.

Craig Siegenthaler - Credit Suisse

Okay, got it. And then my last question, I just wanted to -- I wanted to hear your thoughts on a special dividend in the first quarter versus buyback. If all is being equal, the stock has been relatively fairly weak over the last six months. Do you see more value in buying the shares or buying the warrants here or do you see more value in returning cash to shareholders?

Noam Gottesman

We haven’t really been buying shares; we’ve been buying warrants whenever they’ve gotten close to fair value or to intrinsic value. My expectation is that we will -- we’re going to hold onto our cash for now in order to provide us with the maximum amount of flexibility, but would very much expect distribution of cash to shareholders, as opposed to a share repurchase. As I said, if the warrants trade very cheaply, we would consider repurchasing them because of their potential dilutive effect, but in terms of repurchasing the shares, while we’ve got the ability and the authorization to do so, we’re sensitive to reducing our float. So I would assume that there will be a distribution of cash to shareholders as opposed to a share buyback.

Craig Siegenthaler - Credit Suisse

Great. Thanks for taking my questions.

Operator

Our next question comes from Prashant Bhatia. Please proceed, sir.

Prashant Bhatia - Citigoup

Hi. Just on the 2.2 billion of redemptions that you’ve gotten so far, what’s your best guess on what that’ll end up being based on talking to clients?

Noam Gottesman

It’s hard to tell because we’ve -- the clients haven’t met the new team yet and they will start doing that in September and through October and so it’s really hard to estimate. For prudence sake, we came out and said we’d expect to lose 4 billion and we’re sticking with that at the moment. Hopefully, it’ll be less, but we just want to be prudent in that regard. Once they meet the new team, they might determine to stay on; they might decide to switch to other funds or they might decide to redeem. To the extent that they stay on, they’ll be able to maintain the high-water markets that they have and the new team will work to reduce those. But it’s hard to tell right now because they’ve not met the new team.

Prashant Bhatia - Citigoup

Okay. And then in terms of the $3 billion mandate, is it fair to say the management fee on that is a 30-40 basis point range management fee, or would it be something different?

Noam Gottesman

We haven’t gone out with a number for competitive reasons. It’s lower than our normal fees, but it does come with a 20% performance fee as we said, over the relative index.

Prashant Bhatia - Citigoup

Okay. And do you have more mandates of this type in the pipeline?

Noam Gottesman

We have -- actually, as I said on paper again, a very substantial amount of long-only money, and increasing amounts of it, are 1-30-30 type money, which this mandate is.

Prashant Bhatia - Citigoup

Okay. Okay, great. And then just a departure of the Emerging Markets team, what kind of impact is that going to have in the third quarter, if any, on the share count or the comp line because I think there’s a fair amount of comp that probably gets reversed there, right?

Jeffrey Rojek

In terms of the EM team, right, the transition to benefit is GAAP income expense because of the reversals by approximately 95 million in the quarter, right, but if you look at the non-GAAP impact, it’s minimal related to the forfeiture. Since we didn’t book the impact of the majority of these expenses in our non-GAAP number, we don’t expect -- you shouldn’t expect to see the same benefit in that measure coming back to the Company.

Prashant Bhatia - Citigoup

Okay. So you can’t do amortization originally, so we won’t see it?

Jeffrey Rojek

Right. So if we -- we didn’t take the -- we added back the expense in our non-GAAP number, so you’re not going to see the benefit when that stuff reverses due to the forfeitures. In terms of a share count for the majority of the forfeited amounts, we are going to -- we maintain that they are not going to have any dilutive effect going forward as we reissue those. So the logic that we had when we issued those shares, that they had a non-GAAP -- that they didn’t have a non-GAAP impact, as we reissue those shares, it will continue to have a -- no non-GAAP impact. And there won’t be any further dilution related to those forfeited shares when we reissue those.

Prashant Bhatia - Citigoup

Okay, and then you’ve made several senior hires over the past quarter. How much headcount growth is budgeted as a result of those hires or maybe just trying to understand, is this -- you’ll see more of an expense build out and the assets come later or how big is that impact on the expense side?

Noam Gottesman

I wouldn’t expect to see an expense built-up.

Prashant Bhatia - Citigoup

Okay, so building at the whole global macro platform and so on that could be done, really with no expense built-out at all.

Noam Gottesman

That is within the current cost that we have.

Prashant Bhatia - Citigoup

Okay, and then you touched on this a little bit, but just the current incentive plans, if you would may be assign a percentage, what percentage of incentive for the for the PMs is individual performance versus firm-wide performance?

Noam Gottesman

I think, the vast majority, in fact, -- all of our discretionary bonus system which reflects both, their individual performance and the performance of the firm and their contribution to the performance of the firm. We, the numbers that we have are for us relatively scientific. It’s not a -- we haven’t just gone – and taken a top-down numbers that we like to have. We’ve looked at individual performances; we’ve looked at individual contributions and we’ve come up with a number that we think is conservatively realistic.

Prashant Bhatia - Citigoup

Okay, and I guess just finally, with the environment there is probably opportunities out there from an acquisition perspective, is that something you would be interested in, in terms of pulling an entire teams or even firms or would you rather just go about this more in organic growth?

Noam Gottesman

I think it’s a great question and I think it’s a something that we’ve mentioned before that we’re very interested in finding opportunities in areas where we can grow and where perhaps doing it organically might not be the best option. So, we are interested and we will be opportunistic, it makes sense to be a buyer in this environment if we find that if we find that things are cheap and accretive, most significantly, and if we haven’t transacted yet, it’s only because we have not found either the right fit or the right price.

Prashant Bhatia - Citigoup

Okay, thank you. That’s helpful.

Operator

Our next question comes from the line of Roger Freeman with Lehman Brothers (Operator Instructions).

Roger Freeman - Lehman Brothers

Just a couple of follow-ups, I guess I just wanted to come back on Prashant’s question. Can you just – I guess number one, in the second quarter, so the comp ratio being a little bit lower, was there any impact from Coffey, not in reversing the shares issue, but just in terms of ongoing comp because he’s leaving? Maybe there was a cutback in comp expense around him or the team? Is that fair to say?

Noam Gottesman

I think it’s, just performance is lower. So,

Roger Freeman - Lehman Brothers

Okay. And then, just going forward, I mean, you essentially have sort of -- let’s call it three very senior hires replacing one person. And I don’t know how big the total teams underneath are going to be on a relative basis, but until AUM comes in and there’s performance behind that, why wouldn’t comp expense go -- why wouldn’t that ratio go up as a result of that? Where’s the offset?

Noam Gottesman

Two of the hires, Karim and Bart are going to be taking over the main EM Fund and Greg’s team is a nine-man team. One of those, [Hy] Driss, is going to be looking after the Special Situations Fund and growing a global macro platform. So I think that we -- our expectation that we are the deals and transactions we had struck make me feel comfortable that this will be a growing expense.

Jeffrey Rojek

Roger maybe it’s better to say that the way you have been thinking about expense in the context of GLG versus revenues shouldn’t change given the additions of these things that we made recently.

Roger Freeman - Lehman Brothers

Okay, and what are the -- how some of the LPs responded to these hires and sort of been asked the couple of different ways that have any of that had good redemption request for EM changed among?

Noam Gottesman

Yes, we had people delay and cancelled and as I said I had expected to see 4 billion of redemption so far it’s only been 2.2 now. They could meet with the new team and decide they not to their liking or want to take away this attitude and continue the redemption. But I think people are very impressed with the quality they are very impressed with the speed and effectiveness of our hiring process and the depth of the team and I think we will be able to have a better sense of it off to September, October. And people meet the new teams and decide what they want to do. Clearly, the fact that the performance hasn’t been stellar in the major market fund isn’t helping. But at the same time I think a very good job has been done there in reducing the size of the balance sheet increasing cash, with no further losses.

Roger Freeman - Lehman Brothers

Okay, thanks. And then just lastly, you talked to this, I think, in the prepared remarks just that reduction in management and administration fees, a percent of AUM, sequentially. I think there was some comment about currency impacting it, but I guess the pound was sort of flat quarter-on-quarter. Can you just sort of walk that again?

Jeffrey Rojek

It’s not the pounds. It’s more the euro versus the US dollar.

Roger Freeman - Lehman Brothers

Okay.

Jeffrey Rojek

So, there was a small impact related to currencies. And then the change from period-to-period is really more due to the way the ratio is calculated is on a very 2 point simple average. And in essence the nuances in how we actually calculate and build our management fees are related to when the assets come in, when that calculation is made and when it’s invoiced. So, my point – the point that I tried to make was that why you did see a movement downward from period-to-period. It wasn’t due to a change in sort of our strategy or margins, etcetera. It’s more due to sort of the nuance of the calculations period.

Roger Freeman - Lehman Brothers

Okay. So apples-to-apples, it’s pretty much a flat comparison?

Jeffrey Rojek

Yes, that’s what I would look at it. Yes.

Roger Freeman - Lehman Brothers

Great, okay. Alright, thanks a lot.

Jeffrey Rojek

Thanks.

Operator

I would now like to turn the conference back over to Noam Gottesman. Please proceed.

Noam Gottesman

Since there’s no further questions, thank you for your time and patience. Have a good day.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.

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Source: GLG Partners, Inc. Q2 2008 Earnings Call Transcript
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