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Schroders booked restructuring costs of £86.2mn last year as part of “efficiency initiatives” to enhance its performance, becoming the latest asset manager to take steps to manage its cost base in a tough environment.
The asset manager said on Thursday that the restructuring costs included reducing its office footprint and rationalising software, relocating roles in wealth management, and job losses to drive future growth. The charges meant that profit before tax dropped 17 per cent year on year to £487.6mn.
“It’s important to remain a healthy business and get the cost base right coming into this year,” Schroders’ chief executive Peter Harrison told the Financial Times. “We needed some new capabilities and took out a layer of costs. Despite there being pressure in the traditional asset management world from cash and passive [investing], growth in those other areas is far more predictable.”
Harrison was referring to Schroders’ wealth management, private markets and solutions division — home to its outsourced chief investment officer and liability-driven investment businesses — the three strategic growth priorities that he outlined for the group in 2016.
Assets under management increased by about 2 per cent during the year to £750.6bn, including total net new business of £9.7bn, excluding joint ventures and associates. Net new business of £23.1bn from wealth management, private markets and solutions was offset by outflows of £13.4bn from mutual funds and institutional mandates. Overall there were about 120 net job cuts, said Harrison.
The group’s three growth areas now make up 56 per cent of assets under management, and last year their contribution to net operating revenue increased from 31 per cent in 2016 to 48 per cent. “It’s a bit of a tipping point,” said Harrison.
In recent months, numerous asset managers on both sides of the Atlantic, including BlackRock, Abrdn, and Janus Henderson, have unveiled job cuts as they come under pressure to balance maintaining profit margins with investing in technology and growth areas like alternatives.
Multiyear trends such as increased competition from lower-margin passive investing and higher regulatory costs are continuing to erode mainstream asset management. Meanwhile, higher interest rates have made cash and money market funds an attractive proposition for investors and raised the bar for what risk assets need to deliver.
Looking ahead, with the prospect of interest rates falling, “it’s more of a risk-on environment”, said Harrison.
Schroders said that just over three-quarters of assets have outperformed over five years. It maintained its dividend for the year at 21.5 pence per share.
“The ongoing strategy to reposition the group . . . is the right one,” wrote David McCann, analyst at Numis, on Thursday. “Nonetheless, the group continues to carry a heavy legacy of more traditional and under pressure businesses.”
