Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Pity the British fund manager. They lack scale, carry bloated cost bases and live with the existential angst of burgeoning alternatives and passive fund industries. UK-domiciled funds notched up net outflows of £31.5bn in the first 10 months of the year, according to Morningstar Direct. This can only lead in one direction: further consolidation.
Some of the problems are also common to global peers. From a bottom line perspective, rising costs belie ongoing fee compression. The latter have been squeezed to an average 22 basis points last year from 26 bps in 2010, calculates BCG, while costs have risen about 80 per cent over the same period.
But for UK fund managers, a lack of scale magnifies the pain. Take Schroders, among the bigger London-listed players with assets under management of around $1tn (although it is only 120th by size globally on last year’s numbers). Staff costs eat up 46 per cent of its operating income. Yet, while headcount has almost doubled since 2013, revenues are only 80 per cent higher, notes Panmure Liberum’s Rae Maile.
Projected outflows of at least £10bn this quarter will put a slight dent in assets under management (AUM) but proved an ouch moment for investors, who drove Schroders’ share price down 13 per cent when the numbers were released earlier this month.
The industry backdrop leaves newly minted boss Richard Oldfield with only so many levers. Previously CFO, Oldfield stresses his pro-growth stripes but he presumably has an eye to streamlining excessive manpower. He scythed the executive committee from 22 to nine before lunch on his first day in the job. Another area worth revisiting is Schroders’ comprehensive — but costly — geographic footprint. Roughly half of AUM represent UK mandates.
Oldfield may look to double down on areas pursued by his predecessors, such as private markets. But Schroders’ 2022 acquisitions, including a majority stake in European renewable infrastructure managers Greencoat Capital, have yet to bear fruit. Then there is “solutions”, a souped-up service for pension funds and other big institutional investors.
But these moves will only go so far in cushioning Schroders and its ilk as investors turn heel on active fund managers. UK domiciled outflows year-to-date break down into £45.9bn out of active funds mitigated in part by a £14.4bn inflow into passive funds.
A resurgent Schroders could turn the UK’s fragmented and patchily profitable industry to its advantage, by playing consolidator on home turf. But to have the currency to do that, Oldfield will first need to pull what levers are at his disposal — no matter how limited.
