- Net operating revenue, excluding performance related fees, increased by 1% demonstrating the strength of our business.
- Operating profit, a key performance indicator (KPI), was robust at £723.0 million. These results were achieved in the face of challenging markets and lower performance fees.
- Statutory pre-tax profit of £586.9 million was impacted by mark-to-market movements on balance sheet items and acquisition related costs including amortisation.
- Our three-year investment performance KPI remained strong, with 73% of assets outperforming.
- Schroders Capital, our private assets business, achieved record fundraising of £17.5 billion. Similarly, our wealth management advice businesses delivered strong organic growth of 6.6%.
- Net new business (NNB) was resilient at £(1.6) billion (excluding joint ventures and associates) given the volatile fourth quarter. 2023 has started positively, particularly in Schroders Solutions.
- The Board has recommended a final dividend of 15.0 pence per share, making a total dividend of 21.5 pence per share.
Peter Harrison, Group Chief Executive, said:
”The market challenges of 2022 provided a stress test for our strategy. I am encouraged by our resilient performance and that our strategy is working. The businesses we have been building in recent years – across wealth management, private assets and solutions - performed strongly. They are all playing an increasingly important part in our growth and now represent 53% of the Group's AUM.
Schroders Capital, our private assets business, had a record year with £17.5 billion of fundraising, with particular strength in real estate and private equity. Despite the market dynamics, our wealth management advice businesses had a good year, delivering strong organic growth of 6.6%, while we also continued to build scale in Schroders Solutions.
Our strength more broadly is underpinned by our approach to sustainability. We were early investors in ESG and the technology that underpins our capabilities in this area. This has proven to be the right decision and we will continue to invest in 2023 and beyond.
2023 has started positively, particularly in Schroders Solutions. We are confident about our trajectory: our clients require broad, actively-managed solutions and we have built the capability to meet that need.”
Our successful pivot towards higher growth areas meant our revenues were more resilient during what was a challenging year for our industry. As a result, our financial performance was robust as it benefitted from strong growth generated in Schroders Wealth Management and Schroders Capital.
We hit multiple key milestones in sustainability in 2022. We are the largest investment manager by AUM to have its greenhouse gas emission reduction goal formally validated by the Science Based Targets initiative (SBTi). Our award-winning Engagement Blueprint was published at the start of the year to reinforce further our firmwide active ownership ambitions going forward. We’re also proud to have topped the list of financial institutions in this year’s Global Canopy Forest 500 report, a ranking of companies and global financial institutions deemed “powerbrokers of zero deforestation” and to be placed 5th in ShareAction’s 2023 report ranking 77 asset managers on their approach to responsible investment.
We made progress on our governance ambitions this year as we successfully completed the enfranchisement of our non-voting shares in September 2022, we now have only one share class, and we have equal gender representation on our plc Board. Dame Elizabeth Corley became Chair of the plc Board in April 2022.
2022 was a challenging year for markets, which inevitably affected our revenues. Despite this backdrop, our net operating revenues excluding performance fees and net carried interest increased by 1%, demonstrating the strength of our business and the success of our strategy. Our Wealth Management segment performed particularly strongly with net operating revenues up 10%, reaching £394.3 million (2021: £360.0 million). Despite the high-water marks set in 2021, we generated better than expected performance fees of £43.0 million (2021: £94.4 million) and net carried interest of £16.5 million (2021: £31.9 million). Overall net operating income remained stable at £2,475.5 million (2021: £2,520.0 million). This includes our share of profit from our joint ventures and associates of £77.6 million (2021: £88.2 million).
Operating expenses were £1,752.5 million (2021: £1,679.0 million) across the Asset and Wealth Management segments. The increase reflects the additional operating costs of the three strategic acquisitions which also contributed to an increase in headcount this year. However, we were able to manage compensation costs well and operating staff costs were lower than the previous year at £1,121.2 million (2021: £1,136.3 million).
Operating non-compensation costs increased to £631.3 million (2021: £542.7 million) as we continued to invest in our business. This was principally driven by the acquisitions we made in 2022 and the organic build out of our businesses in high growth markets. We also accelerated our cloud migration programme, which we now expect to deliver cost savings earlier than anticipated. Travel and marketing expenditure normalised post-pandemic as we increasingly met clients in-person. The underlying effect of inflation on our cost base was only 2.5%, as a result of our focus on cost efficiencies. This meant an operating cost to net operating income ratio of 71% (2021: 67%) and an operating compensation to net operating income ratio of 45% (2021: 45%).
These movements meant that operating profit reduced to £723.0 million (2021: £841.0 million). Profit before tax was £586.9 million (2021: £764.1 million) and profit after tax was £486.2 million (2021: £623.8 million) as they were further impacted by mark-to-market movements on balance sheet items and acquisition related costs including amortisation.
AUM ended the year 4% lower at £737.5 billion (2021: £766.7 billion). Market and foreign exchange movements reduced AUM by £73.6 billion, while acquisitions contributed £52.0 billion. After a strong first half, volatility in the fourth quarter led to net outflows for the year of £7.6 billion (2021: inflows of £37.3 billion) including associates and joint ventures.
Providing excellent investment performance to our clients through active management is what drives our financial performance. Our KPI held up well, with 73% (2021: 79%) of assets outperforming their relevant comparator over three years. 86% of our public market AUM had a better SustainEx™ score than their benchmark (2021: 77%).
The Board has recommended a final dividend of 15.0 pence (2021 final restated dividend: 14.9 pence). This will bring the total dividend for the year to 21.5 pence (2021 total restated dividend: 21.4 pence4), representing a payout ratio of 57% of operating earnings per share. The final dividend will be paid on 4 May 2023 to shareholders on the register on 24 March 2023.
We successfully pivoted towards higher growth areas and higher longevity, primarily through Schroders Wealth Management, Schroders Capital and Schroders Solutions. One key priority is to get closer to the consumer to avoid disintermediation and increase client longevity.
We are achieving this by growing Schroders Wealth Management through:
- expanding Cazenove Capital outside of London and the South East;
- growing Schroders Personal Wealth; and
- increasing Benchmark’s market share in the UK adviser market.
We have been expanding Schroders Capital, our private assets and alternatives brand. We now have a complete private markets capability offering across all four private markets asset classes: private equity, private debt, infrastructure and real estate. We will increase its operational leverage by:
- using Schroders global client group to bring all capabilities to clients; and
- being a key provider of tailored private markets solutions for clients.
We have established Schroders Solutions, a market-leading offering. We will grow our market share by:
- becoming the fiduciary manager to more clients in the UK;
- integrating our global private assets expertise into solutions for clients; and
- expanding our solutions leadership internationally.
Schroders Investment Management, our public markets business, also offers growth opportunities. We are aiming to grow this business through:
- geographic expansion including in India, China and South America;
- broadening our thematic range following the success of our energy transition, disruption and other strategies; and
- maintaining our leadership in sustainability and active ownership.
The combination of these efforts effectively pivots our business towards higher margin, higher growth and higher longevity areas, which will lead to higher and more resilient earnings over the medium term. Our growth has become self-reinforcing as the ability to serve clients in one area enhances our ability to serve clients in other areas.
The merits of our strategic choices and diversification were demonstrated in 2022. Although our Schroders Investment Management business, including Asset Management associates, came under pressure with the fall of public markets, Schroders Wealth Management and Schroders Capital performed well, delivering £12.0 billion of NNB combined (2021: £13.0 billion). Schroders Solutions successfully navigated the gilt crisis and ended the year broadly flat with net outflows of £0.2 billion (2021: net outflows of £1.5 billion).
Across our strategic growth areas of Schroders Wealth Management, Schroders Capital and Schroders Solutions, AUM rose 4% from £374.4 billion in 2021 to £389.9 billion in 2022. These businesses now represent 53% of our total business compared to 49% in the previous year.
Wealth Management segment
Our wealth management business saw particularly strong growth, with our advice businesses generating organic growth of 6.6%, and exceeding the target for the year. Our high-net-worth (HNW), ultra-high-net-worth (UHNW) and charities businesses and specifically our Cazenove Capital advised business in the UK were key factors behind this, generating strong organic NNB growth of 8%, a confirmation of the success of our strategy. The principal drivers were: the successful build-out of Cazenove's business-owner franchise across the UK regions where we attracted talented advisers in Birmingham, Leeds, Bristol and Manchester; strong investment performance in volatile markets, which continued to reduce attrition and led existing clients to add to their portfolios and refer new clients; and Cazenove Capital’s leading reputation in sustainable investment which attracted new UHNW clients, family offices and charity clients. Since winning the "ESG Olympics", a public tender showcasing the specialist expertise of 59 wealth managers, Cazenove Capital has seen flows from sustainable mandates grow significantly, representing gross flows of circa. 80% for our charity business this year. Benchmark also performed well and generated NNB of over 6% in 2022 and increased the number of adviser firms by 16 to 171. Schroders Personal Wealth, our partnership with Lloyds Banking Group, also generated encouraging gross new business of 9%. We will hold an investor session focusing on Schroders Wealth Management on 13 June 2023.
Net operating income increased by 6% to £406.8 million (2021: £382.5 million). This was supported by the higher interest rate environment which led to a rise in net banking interest, increasing from £11.1 million in 2021 to £36.9 million in 2022. AUM closed the period slightly lower at £98.1 billion (2021: £101.6 billion), due to the impact of market movements. This comprised £60.4 billion (2021: £61.4 billion) of advised AUM, £17.3 billion (2021: £18.7 billion) of platform AUM and £20.4 billion (2021: £21.5 billion) of managed AUM. Schroders Personal Wealth AUM ended the year at £13.3 billion (2021: £14.7 billion).
Operating expenses came in at £276.9 million (2021: £254.2 million) as a result of our continued investment in our people and technology platforms. The segment therefore ended the year generating £129.9 million (2021: £128.3 million) of operating profit. The net operating revenue margin before performance fees increased by 2 basis points to 40 basis points (2021: 38 basis points), largely due to changes in the interest rate environment during the year.
Asset Management segment
Over the past six years we have built a comprehensive private assets business, Schroders Capital, through a targeted program of bolt-on acquisitions. In total, we have acquired £24.6 billion of private markets AUM since 2016 which we have almost doubled to £47.4 billion. Our acquisition of Adveq in 2017 is a good example of how we have successfully grown a new capability. We acquired a high quality business, which was led by an impressive management team but needed access to a strong brand, an effective product development machine and a global distribution network founded on strong, deep client relationships. It managed £6.0 billion at the time of acquisition, but by leveraging our global reach we have grown the AUM by 90%. Today, Schroders Capital's private equity capability manages £11.4 billion. This included winning some sizeable private equity mandates across Europe last year.
In 2022, we further strengthened Schroders Capital and completed the acquisition of a 75% stake of Greencoat Capital, a leading European renewable infrastructure manager, and Cairn Real Estate in the Netherlands. The two transactions added a combined £8.8 billion of AUM. Schroders Capital now has a full private market offering and our focus will turn to increasing the operational leverage of the business over the next few years, increasing its NNB and revenue contribution.
Fee earning AUM increased by 32% during 2022 to £68.3 billion (2021: £51.7 billion), whilst AUM plus non-fee earning dry powder increased from £54.2 billion in 2021 to £72.3 billion. Non-fee earning dry powder stood at £4.0 billion (2021: £2.5 billion) at the end of 2022. This was supported by fundraising of £17.5 billion (2021: £12.4 billion). Strong fundraising throughout the year meant Schroders Capital generated NNB of £6.4 billion (2021: £6.9 billion), with strong demand for our real estate capability which saw net inflows of £5.0 billion. The revenue margin excluding performance fees and carried interest reduced by 1 basis point to 61 basis points (2021: 62 basis points) as we transferred our emerging market debt desk to our Institutional business area in order to better align with our management structures.
Schroders Solutions benefitted from acquiring River & Mercantile’s Solutions business at the beginning of 2022. The enhanced capabilities of Schroders Solutions enabled two sizable mandate wins in the first half. In the third quarter, the segment was inevitably impacted by the gilt crisis. Despite only having acquired River & Mercantile’s Solutions business at the start of the year, we navigated the crisis well and delivered the liquidity our clients needed to meet their collateral calls. In total, NNB was broadly flat at £(0.2) billion (2021: £(1.5) billion). The interest rate rises contributed to a reduction in the value of our AUM. However, this generally benefitted our LDI clients as the value of their liabilities reduced, helping them move closer to their objective of achieving a buyout.
Solutions AUM rose by 2%, ending the year at £210.2 billion (2021: £206.4 billion), driven by the acquisition of River & Mercantile’s Solutions business, which added £43.1 billion of AUM. Net operating revenue increased by 6% year-on-year to £292.2 million (2021: £276.4 million). Schroders Solutions now represents 29% of our Group AUM and 12% of net operating revenue. Solutions net operating revenue margin excluding performance fees fell by 1 basis point to 13 basis points (2021: 14 basis points), reflecting a shift towards bigger, more scalable mandates.
Schroders Investment Management, our public markets business, continued to invest in the development of our product offering. We have enjoyed a successful history of partnerships which has provided us with access to high growth markets via a strong domestic brand. This is the case in North America, where we have partnered with Hartford Funds to access the vast US intermediary market. The Hartford Schroders International Stock Fund saw the highest net flows of any product within Mutual Funds in 2022 and led to the Hartford Schroders range delivering £750 million of NNB. The range closed the year at nearly £11 billion of AUM. In total, this partnership has contributed £5.8 billion of NNB over the last five years and grown its AUM at a compound annual growth rate of 19%.
Despite these successes, our Mutual Funds business area saw net outflows of £5.9 billion (2021: net inflows of £8.1 billion) as it was impacted by risk-off client sentiment across most regions. AUM in Mutual Funds was £100.8 billion (2021: £116.9 billion). Mutual Fund revenue margin dropped by 1 basis point to 71 basis points (2021: 72 basis points), due to a change in business mix as the adverse market conditions had a greater impact on our higher margin products.
Institutional generated positive NNB of £0.3 billion in the second half of 2022, which was helped by our WMC (Wealth Management Company) in China, which generated positive NNB of £2.3 billion. However, this was offset by two one-off mandate losses in the first half of the year, leading to net outflows of £7.3 billion (2021: £2.5 billion of net outflows). AUM closed the year at £139.1 billion (2021: £159.0 billion), reflecting the impact of the market decline in the year. The business area generated £520.5 million (2021: £601.0 million) of net operating revenue. The net operating revenue margin excluding performance fees and carried interest increased by 3 basis points from 31 basis points last year to 34 basis points at the end of 2022, helping to partly mitigate the impact of the broader headwinds.
Our Asset Management associates have delivered cumulative NNB of over £35 billion over the past four years. Being a cyclical high-growth business, our Fund Management Company venture in China with Bank of Communications was impacted by the fixed income dislocation towards the tail-end of 2022. As a result, Asset Management associates ended the year with net outflows of £6.2 billion (2021: net inflows of £20.2 billion).
Across the Group, our purpose is to deliver excellent investment performance. We do this whilst also focussing on delivering exceptional client service and offering distinctive solutions that help us to increase client longevity and differentiate us from the rest of the market. This is a key driver of future organic growth. Excluding joint ventures and associates, our gross outflow rate as a percentage of opening AUM was 20% in 2022, compared to 25% when we set our strategy six years ago. In real terms, this means that instead of replacing the entirety of our client base every four years, this is extended to every five years, improving our ability to generate long term growth and more resilient earnings due to higher longevity.
Forecasts for markets and the global economy in 2023 remain mixed. Our strategy is working, and we firmly believe that current industry dynamics will only accelerate the trends that we have been repositioning the business for. Our strategic growth areas of Schroders Wealth Management, Schroders Capital and Schroders Solutions are an increasingly important part of our future success. Our continued efforts have been rewarded and 2023 has started positively, particularly in Schroders Solutions. In addition, we believe that leadership in sustainability will be a critical success factor going forward.
We are confident in the businesses we have built for the long term. In uncertain times, our diverse business model enables us to focus on the long term interests of our clients and shareholders.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.