Business risks

Business risk can be influenced by both internal and external factors. A risk can materialise due to poor business execution or a failure to respond appropriately to internal or external factors. Business risk can impact our earnings.

Key risk

 

Description

 

How we manage risk

*

See glossary.

6. Reputational risk

 

The reputation of Schroders is of paramount importance as this can be impacted by any of our key risks.

Reputational risk impacts Schroders’ brand, reliability, and relationships with clients, regulators and shareholders. This may arise from poor conduct or judgements or risk events due to weaknesses in systems or controls.

Ineffective branding and marketing may impact our ability to grow our business.

Reputational risk may also arise from inappropriate client relationships or mandates which have adverse implications for the Group.

 

High standards of conduct and a commitment to regulatory compliance are integral to our culture and values. We consider key reputational risks when initiating changes in strategy or our operating model.

We have a number of controls and frameworks to address other risks that could affect our reputation including: financial crime, investment risk and client take-on and product development.

We are currently re-branding to ensure our marketing remains relevant and effective and supports our strategic objectives and product offerings. A key part of the governance process when considering our re-branding was to assess the likely impact on how Schroders is perceived by our clients and investors and the market generally.

7. Investment performance risk

 

The management of investment performance risk is a core skill of the Group. This is the risk that portfolios will not meet their investment objectives or that there is a failure to deliver consistent and above-average performance.

 

We have clearly defined investment processes designed to meet investment targets within stated risk parameters.

The Group’s Investment Risk Framework provides review and challenge of investment risks, independent of our fund managers, across all asset classes. Investment monitoring is performed by fund managers and asset class heads on a regular basis, as well as by Pricing and Valuation Committees, Asset Class Risk Committees, the GMC and the relevant legal entity Boards.

Recognising that products may not outperform all of the time, we offer clients a diversified product set.

Key to investment performance is our ability to attract and retain talented people (see (PDF:) people and employment practices risk for further information).

8. Product risk

 

Product risk can arise if our product range is not suitably diversified or does not provide access to strategies sought by investors.

Product risk also arises from:

  • product or service viability and the risk that products or services do not meet their objectives
  • capacity* constraints where the size of AUM in a particular asset class or strategy makes it more difficult to trade efficiently in the market.

Products containing assets outside of public markets may be more difficult to manufacture and maintain, particularly, those requiring longer-term management such as infrastructure or debt.

 

The Group’s new Product function will focus on strategy, innovation and changing investor requirements.

We conduct quantitative analysis on a product by product basis to confirm that products are performing to the expectation of our clients in accordance with our mandate.

Risk Dashboards, at product level, are presented for discussion at regular Asset Class Risk Committees. These show key performance and risk metrics and facilitate identification of outlier products for further analysis.

All new fund proposals are assessed by the Product Development Committee for commercial viability and distribution channels. New investment propositions and strategies are reviewed by the Product Strategy Committee.

We monitor potential capacity constraints in funds on a regular basis and the Product Development Committee also considers the interests and needs of potential investors in them.

9. Business concentration risk

 

Business concentration risk arises from concentration in a small number of distribution channels or products or when a small number of clients are concentrated in a specific product. Business concentration risk also arises from insufficient diversification of existing income streams.

A decline in fees due to changes in investor demands as set out under Strategic Risk where Schroders does not or is not able to respond, resulting in the concentration of business into a smaller grouping of clients.

While we strive to ensure our business is broadly diversified by region and this mitigates our aggregate risk profile it introduces additional risks in terms of operating cross-border and in multiple environments as a result of business practices, customs and traditions.

 

The broad range and scale of products, distribution and investment channels that we have established, mitigates our concentration risk and dependency on any single sales channel.

We aim to avoid client concentrations in any particular market or channel becoming excessive.

We have further diversification of income streams through the ongoing development of strategic relationships, acquisitions and identifying alternative growth strategies.

We continue to offer competitive solutions for clients. We consider the scalability of our business and continue to invest in infrastructure.