Talk of consolidation and efficiency drives from Schroders’ chief executive, Michael Dobson, have not gone down too well in the City, despite the high esteem in which he is held there. At 6 feet, four inches, Mr Dobson cuts an imposing presence – he played as centre half during his youthful footballing days. You wouldn’t fancy your chances against him on a muddy South London field.
But investment bank analysts are taking him on, hitting his share price by 10 per cent after interim results, which showed institutional net outflows of £4.6bn (€6.7bn) during the first half of 2006. Press coverage was largely negative, talking about poor performance and lack of acquisitions. Investment mandates are still being lost. Wealth manager St James’s Place axed Schroders from a £400m brief following the retirement of balanced manager Ted Williams. Scotland’s Falkirk Council pension scheme has put the fixed income remnant of a large balanced mandate, once held by Schroders, out to tender.
Resurfacing defectors
There have also been defections. Institutional fund manager Ben Whitmore resurfaced at Jupiter and John Parkin, once boss of Schroders’ fund of hedge funds business, has gone to alternatives house Aspect Capital.
Most damaging of all to its reputation as the City’s pre-eminent, blue chip fund management house, Schroders has been relegated from the prestigious FTSE 100 index, into the FTSE 250, a much larger league of also-ran stocks.
But a closer look at the figures shows that there is no crisis at Gresham Street. Simply from its position as a quoted London company, Schroders gets much more coverage than many rivals, which are not required to release as much regular information.
Much has been made of Schroders no longer being one of the Big Five groups in UK management and having lost its “pivotal” City role.
But the new-look Schroders has been heading away from that niche for a long time now. When Massimo Tosato, Mr Dobson’s wily head of global sales, was wheeled out five years ago at a results conference to boast about numbers of fund distribution agreements in Italy, France and Spain, it was still as an add-on to the traditional UK institutional business. But since 2004, foreign business has been growing faster and today 55 per cent of assets are sourced from outside the UK.
No one at Schroders will really admit it, but there is a feeling that they can afford to lose even more in poorly remunerated balanced mandates, and spend more of the effort bringing in fund distribution, sub-advisory and multi-manager business in continental Europe. Especially when the average mandate across Schroders’ £122bn in assets now commands a fee of more than 50 basis points, 10 per cent higher than five years ago. So although funds have flowed out, profits continue to rise, up 7 per cent on the previous year.
As Gavin Ralston, the group’s head of European distribution puts it, Schroders is in no way exiting the UK defined benefit pensions market, but there are many, more lucrative opportunities elsewhere in the world, which he wants to take advantage of. “We have a less dominant position in the City than we once did, but we are much stronger in other parts of the world,” says Mr Ralston. “We want to become just as well known in other parts of the world as we are in the UK.”
When a message like this comes from Mr Ralston, it shows that the international culture promoted by Mr Tosato – known for interviewing UK staff claiming to be multilingual in French or Italian – is really permeating through the group. Mr Ralston is Schroders through and through having joined the group in 1980. He is married to Nicola Ralston, who was with Schroders for 22 years, latterly as CIO, before leaving to head up the investment practice for consultancy Hewitt.
Schroders success in Europe has also owed much to maverick individuals on its payroll. Martin Theisinger, who runs the German operation, has helped create specialist defensive equity products for favoured distributors such as Deutsche Bank. And Hans Goossens, once of Fidelity, who runs the sales push out of Rotterdam, has boosted retail fund flows through his highly individual drive time radio adverts in the Netherlands.
New secret weapon
But the real weapon going forward has to be Alan Brown, who joined the company as head of investment in 2005, after an acrimonious divorce with State Street Global Advisers. With performance issues in Japanese equities largely resolved, the cerebral yet jolly Mr Brown can concentrate on what he does best – creating product concepts and taking them on the road to key clients – the very largest European, Asian and US pension funds, banks and insurance companies. For too long, some of Schroders’ best fund managers and nuggets in specialist strategies such as property and emerging markets have been hidden. Encouragingly, the group is no longer reluctant to poach the best talent from elsewhere. In this area, Mr Dobson seems to have taken a leaf from his beloved Chelsea football club.
It also pays to have friends in the consultant community, which still dominates the award of mandates in the UK and Benelux markets. When Mr Brown recently made a presentation on latest allocation techniques to the CFA summit in Zurich, only harmless questions were taken from the audience. Any tough or critical queries were smothered by the panel chairwoman – none other than Ms Ralston herself.
Yuri Bender, editor-in-chief
yuri.bender@ft.com
