Schroders pulls in more funds

Asset manager Schroders has made an impressive comeback from the dark days of 2008, when funds under management fell from £139bn to £110bn, and when the retail side alone suffered net outflows of £6.2bn as private investors grabbed their money back. Thankfully, this is now water under the bridge and, despite the roller coaster ride seen in equity markets so far this year, Schroders has pushed pre-tax profits on its asset management side up to £177m in the first half of 2010.

Not only is this a dramatic improvement on 2009's first half profits of just £66.3m; it is also not far off the £192m made in the whole of 2009. In fact, group pre-tax profits rose from £36m to £188m,which was more than the £138m it made in 2009. Net inflows touched record levels in the first quarter, and there were further inflows in the second quarter. This was mainly because of lower retail inflows, which fell from £3.3bn in the first quarter to £1.8bn in the second. The second quarter slowdown came as equity values retreated, sending the FTSE 100 index down 13 per cent. Even so, adding on institutional inflows meant that overall net inflows in the first half still rose by £16bn. The source of the new funds was also well diversified by sales channel, product and by region, with around 80 per cent of client inflows coming from outside the UK, and total funds under management grew to £164bn at the end of June from £113bn a year earlier.

As well as managing assets for a range of institutional and retail clients - offering investments in equities, multi-asset vehicles, fixed income and alternative investments, such as commodities and foreign exchange - Schroders also operates a private banking side that offers advisory and discretionary asset management services for rich clients, as well as custody and execution services and some lending. This side of the business has been a disappointment so far this year, with net revenue of £50m barely changed from a year earlier. True, management fee income was higher, but this was offset by a reduction in interest income, because of low interest rates. Costs were also higher as more people were employed, while bad and doubtful debt provisions of £4.7m, taken mostly in the first quarter, left pre-tax profits for private banking down from £14.9m a year earlier to £6.6m.

However, Schroders is basically a fund manager and the sharp rise in assets under management helped to boost performance fee income from a modest £1.7m a year earlier to £31.3m. Most of the inflow of funds came from institutional clients who contributed a net £9.8bn. And while retail investor held up well, management acknowledges that the rest of the year's cloudy outlook may both deter retail investors and hurt the value of the group's investments in equities. This is important because 54 per cent of retail funds and 46 per cent of institutional funds are invested in equities. This is not necessarily bad news. Equities could end the year higher than they are now, but they may not.

Schroders' balance sheet carries no strain, so management has been able to buy a 49 per cent stake in RWC Partners, an independent asset manager founded in 2000 that manages $2.2bn. The company offers a range of alternative funds and institutional mandates.