Schroders profit drops 14% in ‘challenging year for markets’

Operating profit at Schroders fell 14 per cent last year as the FTSE 100 asset manager became the latest player to report coming under pressure in “a challenging year for markets”.

The London-based group said on Thursday that profit before tax dropped to £723mn in 2022 from £841mn the year before. This is in line with analysts’ consensus and reflects how falling markets across almost all asset classes hit both management and performance fees in its core investment management business.

Overall assets under management dropped 4 per cent to £737.5bn from £766.7bn in 2021. They were pulled down by market and foreign exchange movements, which reduced assets by £73.6bn, while acquisitions contributed £52bn. Net new business was £1.6bn and net operating revenue, excluding performance-related fees, increased by 1 per cent.

In the six years or so since Peter Harrison became chief executive, Schroders has been ramping up diversification into private capital and wealth management and constructing multi-asset and derivatives strategies for pension fund clients through its Schroders Solutions business.

These three divisions now account for just over half of its assets under management and 46 per cent of its revenues, and “are all playing an increasingly important part in our growth”, Harrison said.

A more diversified business “makes us really relevant to our clients”, he added. “There is a flywheel effect of those businesses reinforcing each other . . . that was what we saw last year.”

Harrison said the business was moving towards having more longer-term revenues, “which gives us the confidence to navigate market uncertainty”. Schroders Capital, its private assets business, had a record year with £17.5bn of fundraising, notably in real estate and private equity.

Through its solutions division Schroders has a sizeable business in liability-driven investing, a derivatives strategy offered to pension funds that was thrown into turmoil in the aftermath of the mini-Budget last year. Harrison said he expected pension funds to move from pure play LDI to fiduciary management — which involves the delegation of some investment decisions by trustees to advisers, alongside providing investment advice. “This is good for our business,” he said.

David McCann, analyst at Numis, wrote on Thursday: “We continue to agree that this is a sensible direction to take the business but we would fundamentally continue to prefer to own pure plays in those areas, which offer full exposure to those areas now, rather than going on a long and potentially bumpy journey to get there with Schroders.”

Looking forward, Harrison said that “the dispersion of views and range of outcomes” for interest rates and inflation was “large”, predicting a volatile year ahead.

The Schroders board recommended a final dividend of 15p per share, making the total dividend 21.5p per share.

Elsewhere in the City of London, profits at Abrdn fell by a fifth last year, and at smaller rival Jupiter, the group suffered its fifth consecutive year of outflows and pre-tax profits declined by two-thirds.