Building a sustainable business for the long term

Despite political uncertainties in many parts of the world, markets performed well in 2017 and it was a record year for Schroders.

Evolving our business in a changing world

Watch this video to find out more about why 2017 was a good year for Schroders and how our long-term strategy will drive our future growth.

Market and opportunities

2017 has seen a continuation of many of the themes that have categorised recent years.

Changing client demand

Although markets have largely dealt well with macro concerns, uncertainty remains and it is possible that the investment environment will become more challenging.

Market and opportunities

Continued macro uncertainty

2017 has seen a continuation of many of the themes that have defined recent years. Political instability, low interest rates and high market valuations have again driven headlines across the world.

While political uncertainty did not diminish in 2017, there was a slowdown in the wave of populism that had dominated the previous year. General elections in France and the Netherlands were won by the more centrist parties, despite populist movements. However, we witnessed independence campaigns in Spain, increasing far-right politics in Austria and a German general election that left the incumbent party initially struggling to form a coalition government.

In our home market of the UK, a snap general election failed to deliver a majority government to any political party. The UK’s planned exit from the European Union has continued to dominate the political agenda and a great deal of uncertainty remains.

In the US, the administration struggled to push through key legislation, although succeeded in passing a tax reform bill that will reduce the headline corporate tax rate. In Asia Pacific, escalating tensions on the Korean peninsula threatened to destabilise the region.

Interest rates globally remain at historically low levels, although we have seen some central banks take steps towards normalising monetary policy. The Federal Reserve has enacted three interest rate increases through 2017 and the Bank of England raised rates for the first time in a decade. The European Central Bank maintained its Quantitative Easing policy, but tapered purchases throughout the year and is expected to continue to do so in 2018.

Regulation continues to be a key focus for the industry. In June, the UK’s Financial Conduct Authority (FCA) published the final report of its Asset Management Market Study and announced a series of measures to improve competition within the industry. In Europe, MiFID II and PRIIPs dominated regulatory discussions. Both were implemented at the start of 2018 and aim to provide greater investor protection and improve transparency.

Asset class returns
A good year for risk assets

Despite these macro concerns, our clients have benefited from a benign environment through 2017, with global equity markets advancing against a backdrop of positive economic data. Global growth rates have continued to improve, albeit in many cases these were not matched by wage growth. Inflation rates in most developed economies remain relatively low and employment data has generally been strong.

Within global equity markets, all of the major indices provided positive returns for the year. Emerging markets led the way with a near 40% return in US dollar terms. European and US indices also performed well, although the latter fell behind when taking the depreciation of the US dollar into account.

The positive environment for risk assets was also beneficial for credit strategies, with both global high yield and investment grade indices providing strong positive returns.

Although equity markets were largely unaffected by macro and geopolitical concerns, this was not generally the same in fixed income markets, particularly in government debt. As European political risk grew at the start of the year, yields rose in French and Italian government bonds ahead of elections. However, both ended the year positively as political concerns subsided.

There was some volatility within major currencies at the beginning of the year but trends became clear through the second quarter. The US dollar weakened against most major currencies throughout the second half, when measured using effective exchange rates, while the euro strengthened. Sterling fluctuated throughout 2017 but ended the year having strengthened slightly due to some positive progress in Brexit negotiations.

Currency returns

Changing client demand

Although markets have largely dealt well with macro concerns, uncertainty remains and it is possible that the investment environment will become more challenging.

Against this backdrop, many of our clients face difficulties in deciding where to invest. Increasingly, they are looking to us to provide more than just component building blocks for their portfolios. Instead, they require complete solutions that help them achieve their financial goals.

Our solutions are designed to take advantage of positive returns but to also provide protection in more challenging environments, consistently delivering specific outcomes.

We have adapted our business towards a more client-centric proposition. In 2016, we created an independent Product division and a Solutions team who focus on institutional clients’ objectives across asset classes.

We continue to focus on responding to changing client demands and in 2017 we reshaped the way we look at our product range. We have restructured our product offering to provide a more complete, solutions-based view of our range. This new approach moves away from a traditional asset class view and instead focuses on delivering specific outcomes designed to meet a broad range of client needs.

We have assessed the strategies run by our 41 investment teams and identified 10 key themes. These strategic capabilities are centred on areas of significant or growing client demand, existing investment strength and persistent demand for active management.

Our strategic capabilities are listed below and cover a wide range of areas, from delivering a consistent income to providing for retirement or focusing on sustainability and strong governance.

Strategic capabilities

Our strategic capabilities are centred on areas of significant or growing client demand, existing investment strength and persistent demand for active management.

Find out more

Our strategy for 2017 and beyond

Our strategy is focused on sustainable, profitable growth over the long term. This means identifying and investing behind opportunities for future growth, while retaining focus on cost discipline with a continual drive for improved efficiency.

Develop and maintain long-term client partnerships

Why it's important

We focus on helping our clients achieve their financial goals and building their future prosperity.

Building close partnerships with our clients and intermediaries enables us to gain a deeper understanding of our clients’ financial needs.

This in-depth understanding allows us to continue to develop solutions, leading to greater client longevity and increased new business opportunities.

We deliver the whole of the firm to our clients, utilising the most relevant capabilities or products to provide a solution that meets their goals.

We also continually look to develop new relationships globally, across regions and sales channels.

Progress through 2017

  • Total net new business of £9.6 billion
  • In North America, growing momentum through our strategic relationship with Hartford Funds
  • In Wealth Management, acquisitions of the wealth management business of C. Hoare & Co. and other acquisitions including within Benchmark Capital
  • Completed acquisition of Adveq, expanding our capabilities in private assets and alternatives

Growth opportunities

  • Seek to further increase client longevity
  • Continue to attract and retain business with clients, specifically in strategically important growth areas, such as North America, Japan and China
Net new business
Offer a range of innovative products

Why it's important

Innovative product design is crucial to our continued future growth.

An increasing number of our clients are looking for products that seek to provide a financial outcome, which could be a level of income, an absolute return or derisking of their financial positions such as an employer pension obligation.

We are continually looking to expand our offering and diversify into new areas of investment expertise.

Progress through 2017

  • Restructured our product range around 10 distinct strategic capabilities
  • Continued expansion into private assets through the acquisition and integration of Adveq
  • Seed and co-investment capital at a record level of £392 million
  • Launched new strategically important products including absolute return, income and inflation-linked strategies

Growth opportunities

  • Further develop our strategic capabilities approach
  • Maintain a commitment to seeding new products
  • Continue expansion into private assets
Net new business
Consistently deliver outcomes for clients

Why it's important

As an active manager, we are committed to delivering consistent, repeatable outcomes for our clients.

Whilst many of our strategies seek to outperform a stated benchmark or peer group, client demand is increasing for outcome-oriented solutions.

Sustained outperformance or achieving a predefined outcome increases value for our clients, builds trust and is a driver of new business.

Progress through 2017

  • 74% of our assets outperformed their stated comparator over three years
  • Integrated Solutions team, constructing bespoke solutions to meet institutional clients’ financial needs

Growth opportunities

  • Maintain high levels of outperformance
  • Continue to provide value for money and build clients’ future prosperity
Client investment performance Net new business
Develop leading technology

Why it's important

Active asset management is inherently about processing and analysing data to achieve outperformance or desired outcomes.

It is critical to our ongoing success that we have leading technology across the firm.

Better use of technology can be employed to innovate and automate while improving productivity and efficiency.

Our focus on investing back into the business comes with a strict cost discipline and a continual effort to improve efficiency.

Progress through 2017

  • Invested in technology solutions throughout the business including:
    • Expansion of data insights teams
    • Ongoing implementation of new front office technology platforms
    • Upgrading Client Relationship Management system
  • Maintained cost discipline to drive efficiency, improving ratio of total costs to net income from 64% to 61%

Growth opportunities

  • Continue to invest in technology across the firm
  • Invest in further automation and robotics
  • Maintain focus on cost discipline through the ratio of total costs to net income
Ratio of total costs to net income

* Before exceptional items.

Develop and retain a diverse pool of talent

Why it's important

Our ongoing success is driven by our people.

Developing and retaining a diverse and talented workforce is key to the stability of our business and the delivery of all aspects of our business model.

Diversity of thought is part of our heritage and it is one of the reasons we are able to attract high quality talent.

We invest heavily in our people, offering opportunities to grow their knowledge, skills and capabilities.

In order for them to succeed we need to provide them with a working environment that supports productivity, innovative thinking and collaboration.

Progress through 2017

  • 43% of our employees have been with us for more than six years
  • Female representation in senior management roles ended the year at 29%
  • 94% of employees proud to be associated with Schroders
  • 94% retention rate of highly rated employees

Growth opportunities

  • Maintain high rate of retention of highly rated employees
  • Target 33% of female representation in senior management roles by 2019
  • Move to new London-based headquarters
Retention of key talent

Our business model

A client-centric value proposition

What we offer

We offer actively managed investment solutions which help build our clients' future prosperity.

We differentiate ourselves from our competitors by:

  • Our long-term focus
  • A collaborative culture
  • Our diversity of thought
  • A data-driven approach
How we do it
Outperformance for clients
Investment teams
41
Countries
29
People
4,619
What we deliver

Our client-led approach allows us to deliver for a range of global stakeholders, including our shareholders, people, wider society, regulators and suppliers.

Dividend per share

113p

Employees proud to be associated with Schroders

94%

Company engagements on environmental, social and governance (ESG) issues

1,014

Contact Schroders

Schroders is a world-class asset manager operating from 29 countries across Europe, the Americas, Asia and the Middle East.