Group profile: Schroders plans next steps as inflows surge

The past year has been a significant one for Schroders. There have been top-level changes to personnel – including Peter Harrison’s appointment as CEO, following Michael Dobson’s decision to step down from the role after 14 years – and a shiny new logo to reflect the firm’s “digital-first, forward-looking brand platform”.

Most notably, perhaps, Schroders has benefited from the rise in popularity of value investing – something the firm has long been banging the drum for.

Indeed, the firm attracted £655.5m in net flows in the first quarter of this year and ranked second in the Pridham Report’s top 10 managers by net retail sales.

“There is still plenty of demand for active funds that can add value and with investors’ appetites turning from quality to value investing, Schroders was a significant beneficiary,” the Pridham Report said.

“Schroders has been working hard to bring its managers’ track records to clients’ attention in recent years and was rewarded with strong sales of its Income and European Alpha funds in particular during the quarter. This resulted in its strong showing in both the gross and net retail sales tables.”

As a result, Schroders’ assets under administration rose 5 per cent to £416.3bn in Q1, although this also included the acquisition of the wealth management firm C Hoare & Co, which added £2.5bn of assets under management.

Broken down, the firm now has £127.4bn of assets in its intermediary business, £361.9bn in the asset management arm, £43.2bn in wealth management and £405.1bn in assets under management overall, including institutional, with a further £11.2bn in assets under administration.

In the firm’s intermediary business, changes have been afoot this past year, with managing director of UK intermediary business Robin Stoakley relinquishing his position after 15 years.

Stoakley is now focusing on Benchmark Capital – the UK adviser support business Schroders bought in November 2016, of which he is a non-executive director – and developing the firm’s South African offering.

Consequently, Guy Henriques – previously Schroders’ country head of Japan – was named country head for the UK business, overseeing both the adviser and the institutional arms on the back of a convergence of the two channels.

In October 2016, head of UK financial institutions and strategic accounts James Rainbow and Phil Middleton, head of UK intermediary business development, were appointed co-heads of the UK intermediary business.

Rainbow, who joined Schroders in 2007 as head of marketing for the UK, describes the changes as “evolutionary, not revolutionary”, pointing out that he and Middleton – who started his career with Schroders in 1992 – have worked together for more than a decade. The two have worked with Stoakley for even longer than that and continue to speak with him daily.

Recently, the pair have been tasked with restructuring the sales teams. “Two years ago this month, we suggested we should change the structure of the business development team,” Rainbow says. “Part of that is that recently the markets have changed significantly. We have been bringing together the adviser and the discretionary sales teams and created three regional sales teams for the North, South and London.”

“We were one of the first to do this,” Middleton adds. “We were very early. Others have done the same subsequent to us.”

On the product front, Schroders has been casting a critical eye over its range since the end of last year, leading to the launch of the US Equity Income Maximiser fund in April and the Multi Asset Total Return fund the following month.

The US Equity Income Maximiser fund, managed by Mike Hodgson, “plays to the existing strength of the [£6.2bn] Maximiser range and the demand for income,” Rainbow says. He adds that while the firm has £96.2bn of assets in its multi-asset business globally, the multi-asset capacity has so far “been focused institutionally in the UK”.

“We would like to change that,” he says. “There is more demand for multi-asset style products, including absolute return.”

Boosting the fixed income offering is next on the agenda, according to Middleton. Schroders’ global fixed income business is almost half the size of its equity offering, with £82bn of assets under management in the former and £153.7bn in the latter.

“We would like to diversify into bonds,” Middleton says. “A lot of the business’s assets are dominated by equities. We are going to push with a number of bond funds. High Yield Opportunities (£433.2m) has been attracting flows this year. We are trying to diversify our book of business; we’ve pushed quite hard the past two years.”

Rainbow adds: “Fixed income is the obvious place to be. We have done a huge amount of work with the investment team on product line-up.”

Schroders’ range contains 124 unit trusts – a not insignificant number – of which 59 are for sale to UK retail investors.

So, with two launches under their belt so far this year, how many more can we expect in 2017?

“We will probably aim to do three or four fund launches a year, and I don’t think this year will be massively different,” Rainbow says. “The important thing is that the range continues to be relevant. New products capture headlines but a lot of the work we have done is about making sure the existing line-up is fit for purpose.”

In the current environment, Rainbow says investors are voting with their feet when it comes to fund performance.

“It challenges all of us as an industry to generate exceptional returns for investors,” he says. “It is not just about having the right people but the right investment parameters in place. If we constrain managers with guidelines, then we will never get to the right performance.

“Fund buyers clearly exhibit a strong trend to performance. They will punish you if you don’t have great performance.

“The average holding period for retail investors a decade ago was six years. Now it is 3.6 years. This is partly because of the ease of trading, for example through platforms, but it is also the intolerance of underperformance. We have made sure our parameters mean we generate the returns investors expect us to generate.”

He adds: “I think the market generally is not without its challenges, but it is in pretty good health. It is a fascinating time to be in a job like this. The last year has been amongst the most personally satisfying of my career; I have never worked so hard.

“The market is growing in size and is fiercely competitive, but Schroders in the UK is in a really good place and is as well prepared as any to face the challenges.”

The numbers:

£655.5m in net retail sales in Q1 2017

2nd in the Pridham Report’s top 10 managers by net retail sales for Q1

£416.3bn assets under administration in Q1

124 unit trusts in Schroders’ range, of which 59 are for sale to UK retail investors