Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Assets under management reached a new high of GBP773.7 billion, reflecting a 7% year-on-year increase.
- Wealth Management delivered excellent results with a 7% advised growth rate and net inflows of GBP3.7 billion.
- Schroders Capital saw positive net new business across all four private market pillars, contributing to a GBP3 billion net new business.
- Operating expenses were reduced by 1% year-on-year, demonstrating effective cost discipline.
- The company maintained an unchanged interim dividend of 6.5p per share, indicating financial stability.
Negative Points
- Net new business mix shifted towards lower-margin fixed income strategies, impacting top-line growth.
- Performance fees were lower compared to the previous year, contributing to a softer revenue outlook.
- The Solutions business experienced significant outflows, including GBP6.2 billion from Scottish Widows and GBP3 billion from a long-term client insourcing.
- Public markets business faced outflows of GBP0.2 billion in mutual funds and GBP2.5 billion in institutional investments.
- The effective tax rate increased to 22.8% from 19.4% in 2023, due to the revaluation of deferred tax assets and a change in the geographic mix of profits.
Q & A Highlights
Q: Can you talk about the fundraising efforts that are currently ongoing in private markets, specifically in real estate?
A: Peter Harrison, Group Chief Executive Officer: We've seen some good inflows during the first quarter in real estate, despite market headwinds. We have some wins coming through in 2025, which won't be onboarded this year but have been won. Overall, real estate feels like a good place with balanced performance across all segments.
Q: Given the current environment, is there an opportunity for new client referrals to Cazenove in wealth management?
A: Peter Harrison, Group Chief Executive Officer: The tax environment in the UK has always been dynamic, but we see a market share opportunity due to dislocation in the wealth management sector. We're seeing share gains and good growth in regional centers, reiterating our 5% to 7% net asset growth guidance.
Q: Are you seeing opportunities to be more active on the M&A front in private markets?
A: Peter Harrison, Group Chief Executive Officer: While our private offering is quite complete, we don't have a direct lending business and are comfortable not having it at the moment. Our focus is on organic growth rather than M&A, although we are open to securing flow through strategic partnerships like the recent transaction with Phoenix.
Q: Can you provide more details on the Future Growth Capital (FGC) initiative with Phoenix?
A: Peter Harrison, Group Chief Executive Officer: FGC was originated directly with Phoenix, and it aims to unlock investment opportunities in private markets for UK pension savers. We anticipate deploying significant capital, with an initial GBP1 billion commitment from Phoenix and a target of GBP10 billion to GBP20 billion over the next decade.
Q: What is the outlook for active equity net flows, particularly for regional equities?
A: Peter Harrison, Group Chief Executive Officer: There's a switch from equities to fixed income, which is evident across the market. Most of our fixed income flow was in credit, and we saw a re-risking trend during the period. We expect this pattern to continue into the second half.
Q: What are the types of assets included in the Future Growth Capital strategy, and what is the fee structure?
A: Peter Harrison, Group Chief Executive Officer: The products are yet to be launched, but we anticipate fees around 100 to 120 basis points. The assets will cover a wide scope, including private assets and specific focuses like climate-related investments.
Q: What are the implications of the UK government's pension review and Mansion House reforms for Schroders?
A: Peter Harrison, Group Chief Executive Officer: The review is likely to emphasize returns over low cost, which is positive for us. We're having active conversations with pension funds about alternatives to buyout, and we see significant opportunities in pension fund consolidation and product innovation.
Q: How should we think about the solutions business and its flows going forward?
A: Peter Harrison, Group Chief Executive Officer: Despite some lumpier outflows, the underlying dynamics of the solutions business remain positive. We see a decent pipeline of interesting mandates and opportunities for product innovation and international expansion.
Q: What are the key challenges and opportunities for your successor?
A: Peter Harrison, Group Chief Executive Officer: The key challenge will be managing the transition towards fast-flowing waters like private markets, wealth, and solutions while maintaining cost discipline. The opportunity lies in product innovation and embedding ourselves closer to customers.
Q: What is the updated guidance for the effective tax rate and performance fees in 2024?
A: Richard Oldfield, Chief Financial Officer: The effective tax rate for the full year is anticipated to be 22.8%. For performance fees, we expect some downside risk to the GBP75 million initially forecasted, given the current market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
