Schroders can stop slide by getting grip on costs
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Neil Unmack
LONDON, Nov 5 (Reuters Breakingviews) -Schroders’ SDR.L new CEO is having a baptism of fire. Finance chief Richard Oldfield will replace boss Peter Harrison on Friday, days after a quarterly update on assets under management sent the 5-billion-pound group’s shares down by around 12%.
Ironically, it was the first time in years that the group had disclosed the amount of assets won or lost on a quarterly basis, a move designed to please shareholders. The shares’ decline on Tuesday is probably overdone. In the third quarter, Schroders lost 2.3 billion pounds of assets under management before factoring in market moves. That’s equivalent to less than half a percent of its assets in June. Still, that loss, combined with a warning of a further 10 billion pounds of future client withdrawals in the fourth quarter, may have spooked investors hoping that falling interest rates would boost demand for actively managed risky assets like equities.
The market’s mood highlights the malaise that has affected Schroders in recent years. When Harrison took over from Michael Dobson in 2016, Schroders was worth nearly 15 times forward earnings. That number has now fallen to around 10 times, in line with peers. As with all mainstream asset managers, growth has been hard to come by, and fees are squeezed by passive products.
That valuation may be conservative. The group, which is still 44% owned by the Schroder family, is growing in hot areas like private assets, but that unit is less than a tenth of total assets. Harrison has been building a vibrant wealth management business, which last year grew the amount of new client funds by 8%, higher than peers’ 2%, Schroders says. Still, traditional active fund management accounted for more than half of its revenue in the first half of 2024. And with 777 billion pounds in assets, Schroders lacks the scale of a BlackRock BLK.N or even Amundi AMUN.PA, Europe’s biggest fund group.
One option is to do more deals. Yet recent acquisitions, like that of wind farm developer Greencoat, have yet to pay off. More radically, Oldfield could break the group up, allowing the fund and wealth divisions to merge with rivals and create bigger players. But the historically low share price may weaken Schroders’ hand in any stock-based M&A.
There’s still scope for self-help. Panmure analysts reckon that costs have roughly doubled since 2013, while revenues have risen by less than four fifths. Expenses are expected to chew up some 73% of revenue this year using Visible Alpha data, some 8 percentage points higher than similarly sized rival DWS DWSG.DE. Cost-cutting may be Oldfield’s best bet to regain some of Schroders’ lost glory.
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CONTEXT NEWS
Schroders on Nov. 5 reported that clients withdrew 2.3 billion pounds across its businesses in the quarter ending September. Assets under management rose to 777.4 billion pounds, thanks to rising markets.
The fund management group said that the fourth quarter of 2024 would be affected by the loss of mandates totalling 10 billion pounds from its institutional business and partnership with pensions provider Scottish Widows.
Schroders shares fell over 12% to 319 pence, as of 1008 GMT.
Graphic: Schroders' valuation comes down to earth https://reut.rs/3YCwWC8
Editing by Francesco Guerrera and Oliver Taslic
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