- We delivered strong results in 2021, with profit before tax up 25%, reaching £764.1 million.
- Our three-year investment performance[1], a key performance indicator for the Group, was strong again as 79% of assets outperformed their relevant comparator.
- We generated net new business (NNB) of £35.3 billion, representing an annual organic growth rate[2] of 5%. Our assets under management (AUM) increased by 10%, up from £663.0 billion at 31 December 2020, to a new high of £731.6 billion.
- Our strong financial performance reflects the benefit of the investments we have made in recent years. We have developed capabilities in the strategic growth areas of Private Assets and Alternatives and Wealth Management, expanded our geographic reach and evolved our product range.
- The Board has recommended a total dividend of 122.0 pence per share, representing an increase of 7% on the previous year.
Peter Harrison, Group Chief Executive, commented: “2021 was an important year for Schroders. Our pre-tax profits were up 25%, earnings per share were 28% higher and we generated net new business of £35.3 billion. These results benefitted from the strategic decisions we took several years ago, improving both the resilience of our business and its long-term growth potential.
Delivering excellent investment performance is always our primary focus; it was pleasing that 79% of assets outperformed on a three-year basis.
Importantly, the areas where we have invested for growth have delivered strongly. Performance across our partnerships, wealth, private assets and our sustainability franchise accelerated and enabled us to better serve a wider group of clients.
We continue to invest for the future. Most recently we have further expanded our capabilities. As a renewable energy manager, Greencoat Capital reinforces our leadership position in sustainability and will help enable our clients' net zero responsibilities. River and Mercantile's Solutions business enables us to expand our fiduciary management capabilities. These businesses will enhance our resilience and contribute to future growth.”
Management statement
Our diversified business model has again demonstrated its advantages, as we have delivered our strongest results to date reflecting the benefit of the investments we have made in our business in recent years. Profit before tax and exceptional items increased to £836.2 million (2020: £702.3 million). Profit before tax but after exceptional items was £764.1 million (2020: £610.5 million). Profit after tax and exceptional items was £623.8 million (2020: £486.0 million).
Our strategy has delivered robust organic growth, with strong contributions from our Private Assets and Alternatives and Wealth Management businesses, our range of mutual funds and geographic expansion, as well as our Asian joint ventures and associates.
Our financial performance is driven by our ability to generate competitive investment outcomes for our clients. Over one, three and five years, 74%, 79% and 78% of assets outperformed their relevant comparator respectively. We can achieve these outperformance figures because of our strong culture of collaboration, which helps to create an environment that is more likely to generate outperformance. This environment is further supported by the investments we have made in our Data Insights Unit and a growing team of sustainability specialists.
The Group generated NNB of £35.3 billion (2020: £54.9 billion, £26.7 billion excluding the Scottish Widows mandate) during 2021, of which our joint ventures and associates contributed £20.2 billion (2020: £12.4 billion). This is a pleasing result and represents an annual organic growth rate of 5%. Our AUM increased by 10% to a new high of £731.6 billion (2020: £663.0 billion), consistent with our longer-term five-year compound annual growth rate (CAGR) of 10%. The AUM of our joint ventures and associates grew from £88.6 billion at the end of 2020 to £116.4 billion at the end of 2021, representing an annual growth rate of 31%.
Reaping the rewards of our organic investments
Our strategy is focused on three clearly defined priorities to drive future revenue growth. Firstly, we are getting closer to the consumer to avoid disintermediation and are actively growing our Wealth Management business. Secondly, we are tilting our Asset Management business towards the fast flowing waters of our industry and, thirdly, we are expanding our Private Assets and Alternatives capabilities.
Many of the investments we have made over recent years are now bearing fruit. We invested resources and seed capital into our new product ranges and now have a comprehensive range of Thematic products which closed the year with £10.3 billion of AUM, having generated £4.4 billion of NNB in 2021.
We have made continued progress in building a leadership position in sustainability and impact investing. Over the course of 2021, we successfully completed the transition of the majority of our Continental European fund range to include sustainable investment features. The funds now classified as either ‘Article 8’ or ‘Article 9’ under the EU’s Sustainable Finance Disclosure Regulation (SFDR) have £60.5 billion of AUM and gathered NNB of £5.7 billion in 2021. We launched a further 14 such funds in Europe last year with more planned in 2022.
Last year, we became a founding member of the Net Zero Asset Manager Initiative. We believe asset managers have a fundamental role to play in supporting companies in their transition to net zero. We have now published our own path to net zero, not only for our business, but also for our clients’ investment portfolios. We intend to use science-based targets to demonstrate a clearly defined pathway to net zero.
We continue to invest organically to expand internationally. The AUM of our North American business reached nearly £90 billion following net inflows of £3.2 billion in 2021. Our Latin American expansion plans are also progressing well and we have now reached £11.1 billion of AUM with the region contributing £2.1 billion of NNB. Our Asian business has grown to £102 billion of AUM, supported by strong NNB contributions from Hong Kong (£2.3 billion) and Singapore (£0.8 billion), as well as China and Taiwan (£1.0 billion). These are high-growth markets, and we expect inflows to accelerate over the coming years.
We participate in a number of high-growth markets by partnering with a local champion. In North America, our partnership with Hartford had another strong year, generating £3.1 billion (2020: £0.6 billion) of NNB and closing the year with £11.2 billion (2020: £7.5 billion) of AUM. We have long-standing strategic partnerships with Bank of Communications (BOCOM) in China and with Axis Bank in India. Both operations are growing at a rapid rate and are contributing meaningfully to our AUM and profits. The total AUM across our joint ventures and associates, excluding Schroders Personal Wealth, reached £116.4 billion (2020: £88.6 billion), representing an increase of over 31% year-on-year. This was supported not only by investment returns but also by positive NNB of £20.2 billion (2020: £12.4 billion).
Growing our Wealth Management business has been a focus for several years. At our capital markets event last year, we presented our ambitions for the business to generate at least 5% NNB per annum and reach £115 billion of AUM by 2025.
Net operating revenue increased by 17% to £2,403.1 million (2020: £2,059.6 million). Our strong investment performance meant that we generated performance fees of £94.4 million (2020: £86.9 million). Given the growth of our private assets capabilities, we also generated higher carried interest than in the previous year of £31.9 million (2020: £8.8 million). Combined, performance fees and carried interest were £126.3 million (2020: £95.7 million). Net income was up 18%, reaching £2,568.8 million (2020: £2,179.2 million) which includes the strong performance from our joint ventures and associates, with our share of profit contributing £88.2 million (2020: £64.1 million).
Investing for the future
We believe that using positive cash flow to invest in further growth initiatives propels the business into a virtuous circle of strong performance. Taking a long-term view, we continue to expand our operations in China and are building our wholly owned Fund Management Company under our own brand. In January 2022, we also gained approval from the Chinese regulator for our Wealth Management Company venture with BOCOM to commence its business operations. We own 51% of the business and, given the domestic wealth management market is the largest sector in China’s asset management industry, we foresee good growth opportunities for this business.
We announced three strategic acquisitions in Q4 2021. These businesses give us new capabilities, all in high-growth markets with attractive revenue growth outlooks.
To further enhance our Solutions offering, we announced the acquisition of River and Mercantile’s UK Solutions business, which will add approximately £43.1 billion of AUM to our existing Solutions business. The transaction will provide us with increased access to the UK’s high-growth pension fund market which will in turn enable us to further grow our AUM and revenues. Please refer to the press release for further information.
We also announced the expansion of our real estate capabilities in one of the key European growth markets by acquiring Cairn Real Estate, a Dutch real estate specialist manager with €1.3 billion of AUM. This provides Schroders Capital, our private assets business, with a true pan-European real estate capability to offer to our clients. Please refer to the press release for further information, both transactions completed in January 2022.
Finally, we have reached an agreement to acquire a 75% interest in Greencoat Capital, a leading European renewable infrastructure manager with £6.8 billion of AUM as at the end of 2021. This transaction is expected to complete in Q2 2022. This is an exciting investment and will not only enhance our leadership position in sustainability, but will enable us to support the energy transition towards net zero. Given the structural demand for this asset class, Schroders’ global distribution reach and Greencoat’s historic revenue growth trajectory, we foresee significant growth opportunities in the US and Europe in particular. Please refer to the press release for further information.
The acquisitions of Cairn Real Estate and Greencoat Capital will further strengthen our existing private assets platform. In June 2021, we launched Schroders Capital which united our private assets investment capabilities under one brand, in order to deliver an enhanced service for our clients. Schroders Capital encompasses the existing range of private equity, securitised products and asset-based finance, private debt, real estate, infrastructure, insurance-linked securities and BlueOrchard (impact specialist).
We decided last year to make another step change in technology investments to future-proof our business and ensure we have access to market-leading cloud technology. Once completed in the next few years, our cloud transition will make our business more secure and facilitate operational leverage in the future.
Despite these investments, we maintained cost discipline and as a result our cost income ratio fell by 1% to 67% (2020: 68%). Compensation costs were £1,168.1 million (2020: £974.7 million), which represents a total compensation ratio of 45%. Non-compensation costs were £564.5 million (2020: £502.2 million).
Asset Management
Asset Management net income before exceptional items was £2,138.0 million (2020: £1,786.9 million). The net operating revenue margin before performance fees and net carried interest was 37 basis points (2020: 36 basis points). The segment benefitted from increased performance fees of £94.2 million (2020: £85.8 million) and net carried interest of £31.9 million (2020: £8.8 million). In total, Asset Management performance fees and carried interest reached £126.1 million (2020: £94.6 million). Joint ventures and associates contributed £73.9 million (2020: £49.5 million). Profit before tax and exceptional items was £713.2 million (2020: £573.3 million). Profit before tax was £673.0 million (2020: £543.5 million).
Private Assets and Alternatives
The positive momentum in our Private Assets and Alternatives business area continued throughout last year. AUM increased by over 16% year on year and ended the period at £53.7 billion (2020: £46.1 billion). Schroders Capital generated £7.4 billion (2020: £1.7 billion) of NNB whilst our liquid alternatives business saw net outflows of £0.5 billion (2020: net outflows of £1.2 billion), bringing the total to £6.9 billion (2020: £0.5 billion) in 2021. This demonstrates the strength of our private assets capabilities which we have built over the past five years. We saw strong demand for our securitised credit, private equity, and real estate capabilities. Revenue margins excluding performance fees and carried interest remained flat over the year at 62 basis points (2020: 62 basis points), as higher margin inflows into Private Equity were offset by inflows into securitised credit. Given the strength of our Private Assets and Alternatives business area, we foresee continued strong client demand over the coming years.
Solutions
Our Solutions AUM grew by 3% and ended the year at £198.1 billion (2020: £192.3 billion). It now represents 27% of our group total AUM and generated £276.4 million (2020: £253.0 million) of net operating revenues. Its revenue contribution increased by 9% year on year. We experienced net outflows of £1.5 billion (2020: net inflows of £43.4 billion), which was mainly driven by the natural attrition of the Scottish Widows mandate, which experienced net outflows of £1.0 billion in 2021 and ended the year with AUM of £75.0 billion (2020: £71.2 billion). Solutions net operating revenue margins excluding performance fees and carried interest fell by 1 basis point to 14 basis points (2020: 15 basis points).
Mutual Funds
The year was characterised by strong client demand for our Mutual Fund ranges, which saw net inflows of £8.1 billion (2020: net outflows of £3.1 billion) driven by competitive investment performance from our thematic equity products. AUM in Mutual Funds were £116.0 billion (2020: £104.2 billion), representing an increase of over 10% compared to 2020. The demand for higher margin equity products offset industry fee pressures and led to net operating revenue margins excluding performance fees increasing to 72 basis points (2020: 71 basis points).
Institutional
The Institutional business saw net outflows of £2.5 billion (2020: £nil). AUM increased £6.4 billion to £166.2 billion (2020: £159.8 billion), reflecting our strong investment performance. Despite the net outflows, Institutional generated £601.0 million (2020: £514.5 million) of net operating revenues, a 17% increase compared to the previous year. Institutional net operating revenue margins excluding performance fees and carried interest remained flat at 31 basis points (2020: 31 basis points).
Wealth Management
Our Wealth Management segment saw continued good momentum throughout the year across its four franchises: Cazenove Capital, Schroders Personal Wealth, Schroders Wealth Management and Benchmark Capital.
Wealth Management closed the period at £81.2 billion (2020: £72.0 billion) of AUM and generated NNB of £4.1 billion (2020: £1.7 billion), which represents an annual organic growth rate of 6% based on its AUM at the beginning of the year.
Net income increased by 13% to £433.7 million (2020: £382.7 million). Profit before tax and exceptional items increased by over 16% year-on-year to £128.6 million (2020: £110.5 million), and profit before tax increased to £96.8 million (2020: £64.8 million). The net operating revenue margin before performance fees declined by 1 basis point to 55 basis points (2020: 56 basis points), largely due to the interest rate environment during the year.
Cazenove Capital had another strong year and generated NNB of £3.1 billion (2020: £1.3 billion). Contributing to this growth were new hires in London and the UK regions as well as the strength of our sustainability offering. We foresee growth opportunities through our new regional offices in Birmingham, Manchester and Bristol where we successfully attracted 16 top advisers who are already contributing to our NNB. We completed the integration of Sandaire and are now well placed to capture opportunities through our leading family office franchise.
Schroders Personal Wealth, our joint venture with Lloyds Banking Group, ended the year with £13.4 billion (2020: £12.2 billion) of AUM. NNB turned positive during the year at £0.3 billion (2020: net outflows of £0.3 billion) reflecting the benefit of an increasing number of referrals from the Lloyds banking branches. We are optimistic on the outlook for the business as it enters the next stage of growth.
Benchmark Capital completed another successful year, as AUM increased to £10.5 billion (2020: £9.4 billion) with NNB contributing £0.7 billion (2020: £0.7 billion).
Group
The Group segment generated a loss before exceptional items of £5.0 million in 2021 (2020: profit of £18.5 million), due to a reduction in interest income and an increase in compensation costs.
Dividend
Reflecting the Group’s strong financial performance, the Board will recommend a final dividend of 85 pence (2020: 79.0 pence). This will bring the total dividend for the year to 122.0 pence (2020: 114.0 pence), which represents a 7% increase compared to 2020. The final dividend will be paid on 5 May 2022 to shareholders on the register on 25 March 2022.
Outlook
We continue to broaden our business towards resilient and high growth areas, such as wealth management and private assets. We believe that leadership in sustainability will be a critical success factor going forward. Our recently announced acquisitions will help further accelerate the development of the Group.
After a period of benign markets there is a risk that the current turbulence will be with us for some while. In such uncertain times our diverse business model enables us to focus on the long-term interests of our clients and other stakeholders.
[1] Please refer to page 7 for more information about client investment performance.
[2] The organic growth rate is calculated as net new business divided by opening AUM.
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.