Thursday 5 March 2020 10:34 am

Schroders profit falls as investors turn their back on equities

Schroders posted a four per cent fall in profit before tax as market uncertainty prompted investors to ditch equities.

The figures

Schroders reported that profit before tax fell four per cent from £649.9m to £624.6m.

The asset manager reported total net new business of £43.4bn, with positive net inflows across all asset classes as the first tranches of the Scottish Widows mandate were transferred to Schroders.

Assets under management increased 23 per cent to close at a new high of £500.2bn although the results were affected by average assets being up only two per cent as net inflows funded late in the year and markets only strongly rose through the fourth quarter.

Asset management net income before exceptional items was down one per cent to £1.7bn.

The group declared a final dividend of 79p bringing the total dividend to114p.

Read more: Schroders set to change results reporting to woo City analysts

Why it’s interesting

Schroders said that it had been hit by higher costs and a decrease in revenue margins as market uncertainty led some investors to sell out of equities.

In 2018 Lloyds hired Schroders to manage a portion of its Scottish Widows assets following its decision to terminate its contract with Standard Life Aberdeen.

Standard Life now manages a third of Scottish Widows’ total assets under management until April 2022. As part of the deal with Schroders, Lloyds agreed to a new joint venture – Schroders Personal Wealth.

The group net inflows of £43.4bn missed consensus expectations of £43.9bn.

Schroders said coronavirus is creating “considerable uncertainty” but said that it believes its business resilience will be sufficient to deal with it.

Nik Lysiuk, research analyst at Finncap, said: “Investment management is absolutely scalable, but unless a manager is doing something different and growing quickly, investors, like Schroders themselves, should look to put their money into companies that either provide true vertical integration, or lean more towards wealth rather than investment management. Again, it’s all about controlling distribution.”

Shares are down 2.98 per cent.

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What Schroders said

Chief executive Peter Harrison said:

We are pleased that the structural changes we have made in our business have delivered a resilient performance with record net new business of £43.4 billion during the year. As a committed active asset manager, our assets under management exceeded half a trillion pounds for the first time.

Over the last few years we have been re-positioning our business behind a clear vision to move closer to our end clients through Wealth Management, expand our capabilities in Private Assets and grow our Solutions business. Today, these business areas represent over half of our clients’ assets under management.

The year saw three notable events: the successful launch of Schroders Personal Wealth (our joint venture with Lloyds Banking Group), the start of the transfer of the Scottish Widows mandate to Schroders and the establishment of a market-leading position in impact investing and micro-finance through our acquisition of BlueOrchard.

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