Schroders plc Full-year Results 2020
Schroders plc Full-year Results 2020
- Our diversified business model has enabled us to deliver a strong financial performance in 2020, despite the challenging environment, with profit before tax and exceptional items of £702.3 million
- We delivered strong investment performance1 with 75% of assets outperforming over one year, 72% over three years and 81% over five years, demonstrating the value of active investment management for clients
- We generated net flows of £42.5 billion and assets under management increased 15%, up from £500.2 billion in 2019, to a record high of £574.4 billion
- We delivered growth through our strategy, as we rebalanced the Group towards Private Assets & Alternatives, Wealth Management, Solutions and the United States
- Our partnerships, predominantly in Asia, generated a further £12.4 billion of net inflows which increased the total net flows to £54.9 Assets under management including our partnerships reached £663.0 billion
Peter Harrison, Group Chief Executive, commented: “The strength of our investment performance showcases the benefits of active investment management and our ability to deliver good outcomes for our clients. I would like to thank our employees for their hard work and ongoing dedication to our clients which helped us to deliver a strong financial performance in 2020 despite the challenging environment.
Assets under management increased 15% to reach a record high of £574.4 billion. We generated net inflows of £42.5 billion with strong demand in our Private Assets, Wealth Management and Solutions businesses. These higher growth areas now account for 54% of our assets under management. Our geographic diversification continued with our US business reaching a milestone of more than $100 billion of assets under management. We also continued to expand in Asia through our growing network of partnerships which contributed strongly to the Group in 2020.
I am proud of our continued progress in building a leading position in sustainability and impact investing. We now incorporate ESG factors into decision-making across our investment range. This fulfils a commitment we made in 2019. De-carbonisation is a critical issue. We are focused on supporting companies in their transition to net zero.
We are confident that our diversified business model will continue to generate value for all our stakeholders.”
1 Please refer to page 6 of the full press release for more information about client investment performance. The full release can be found on www.Schroders.com
In an environment where our clients and employees around the world are facing many demands, our diversified business model has again demonstrated its benefits. We have delivered strong results with a focus on cost discipline and have generated good client inflows, despite the challenging conditions.
Profit before tax and exceptional items increased to £702.3 million (2019: £701.2 million). Profit before tax but after exceptional items was £610.5 million (2019: £624.6 million). Profit after tax and exceptional items was £486.0 million (2019: £495.7 million).
Our strategy of delivering growth through building closer relationships with end-clients in Wealth Management, expanding investment capabilities in Private Assets, and growing Asset Management through geographical expansion, strategic partnerships and leadership in sustainable investing is the foundation of the results we delivered in 2020. The three higher growth areas of Private Assets & Alternatives, Wealth Management and Solutions now constitute 54% of our assets under management and 43% of our revenues, an increase of 3% compared to 2019 for both assets and revenues.
Providing excellent investment performance to our clients through active management is central to what we do and underpins our strong financial performance. Our investment performance over one, three and five years was strong with 75%, 72% and 81% of assets respectively outperforming their relevant comparator. The extent of the outperformance in Equities and Fixed Income was particularly significant, demonstrating our ability to deliver good outcomes for our clients. In Equities, 75% of assets outperformed over one year, 74% over three years and 83% over five years. In Fixed Income, 87% of assets outperformed over one year, 91% over three years and 95% over five years. This also demonstrates the benefits of the integration of data science into our investment process. Intelligent data interpretation is now essential for every investment decision.
We have made continued progress in building a leadership position in sustainability and impact investing. In 2019 we acquired BlueOrchard, a leading impact investor and pioneer in the world of micro-finance. During 2020 we incorporated ESG factors into decision-making across the assets we manage. This fulfils a commitment we made in 2019. Our clients are now able to understand the direct impact of their investments using our impact measurement tools. We have launched two new sustainable fund ranges, which include a number of funds with compelling long-term investment propositions. We continue to broaden our capabilities for our clients and the number of our sustainable funds is set to increase significantly in the coming months.
Last year we launched the British Opportunities Trust, providing support through the pandemic and beyond, as well as the BlueOrchard Covid-19 relief fund. In December, we also launched the BSC Social Impact Trust, which tackles social issues such as homelessness, youth unemployment or local social care in alignment to the UN’s Sustainable Development Goals. We believe that we have a fundamental role to play in encouraging and supporting companies in their transition to net zero. Schroders became a founding member of the Net Zero Asset Managers Initiative, committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. We committed to reducing our own emissions in line with a science-based target, not only for our business but also for the investments we manage on behalf of our clients. We are optimistic about the role finance can play to address these issues.
We generated net inflows of £42.5 billion (2019: £43.4 billion) during 2020. Our joint ventures and associates contributed a further £12.4 billion of net new business, bringing the total to £54.9 billion (2019: £52.8 billion). Assets under management increased by 15% to a new high of £574.4 billion (2019: £500.2 billion), equivalent to a five year compound annual growth rate of 13%. When the assets under management of our joint ventures and associates is included, total assets under management increases to £663.0 billion (2019: £569.4 billion).
Net operating revenue increased to £2,059.6 million (2019: £2,052.4 million). Our strong investment performance meant that 2020 was a record year for performance fees and carried interest, which reached £95.7 million (2019: £73.1 million). Net income increased by 3% to £2,179.2 million (2019: £2,124.8 million). This included a strong performance from our joint ventures and associates, which contributed £64.1 million (2019: £30.5 million).
We continued to maintain our strategy of investing for growth, while remaining disciplined on costs. During the year we were able to make Covid-19 related cost savings whilst continuing to invest in the business. Compensation costs were £974.7 million (2019: £927.3 million), which represents a total compensation ratio of 45%. Non-compensation costs were £502.2 million (2019: £496.3 million), resulting in a ratio of total costs to net income of 68% (2019: 67%).
Expanding our geographic reach through partnerships
Schroders has a longstanding history of expansion into growth markets and was an early entrant into North America, Central Europe, Latin America and Asia. Assets under management in our US business have exceeded $100 billion (£73.3 billion) for the first time with net inflows reaching £11.2 billion in 2020.
We have had a local presence in Asia for nearly half a century and are well positioned for growth. Our assets under management in the region reached £102.5 billion.
Much of our success in entering new markets is driven by our ability to create established, strategic relationships with partners, such as Bank of Communications (BOCOM) in China and Axis Bank in India. BOCOM Schroders generated net inflows of £7.7 billion as assets under management reached £68.4 billion. Axis Asset Management grew its assets under management to £19.3 billion, as it achieved £4.4 billion of net inflows.
The Chinese onshore market is one of the most attractive growth opportunities for asset managers. Schroders has been operating in China for more than 25 years. We launched our cross-border business in 1994 and in 2005 we formed a joint venture with BOCOM to start an onshore Fund Management Company (FMC).
Evolving regulation has provided new opportunities to access this market. We are one of a few international investment managers, and the first UK domiciled, to be in a position to apply for a wholly-owned FMC licence.
In addition to our existing joint venture with BOCOM, we have reached an agreement to establish a new joint venture for a Wealth Management Company (WMC). Schroders will own 51% of the new joint venture, which is expected to commence operations in early 2022. This new joint venture provides access to the domestic wealth management market, the largest sector in China’s asset management industry with nearly £3.0 trillion of assets under management.
The two additional licence applications, combined with our existing business, provide Schroders with a broad platform to grow in China, the second largest and fastest growing asset management market globally.
Asset Management net income before exceptional items was £1,786.9 million (2019: £1,781.2 million). The net operating revenue margin before performance fees, net carried interest and real estate transaction fees was 36 basis points (2019: 43 basis points). The segment benefitted from a higher contribution from joint ventures and associates of £49.5 million (2019: £23.5 million). Profit before tax and exceptional items was £573.3 million (2019:£606.9 million). Profit before tax was £543.5 million (2019: £565.5 million).
Private Assets & Alternatives
Over the past five years, assets under management within Private Assets & Alternatives grew at a compound annual growth rate of 21% and assets under management closed the year at £46.1 billion (2019: £44.2 billion) with net inflows of £0.5 billion (2019: £2.8 billion). We saw good client demand for securitised credit, infrastructure finance, real estate and private equity.
In 2020, we acquired Pamfleet, a real estate investment manager with a strong track record of investing in Asia. This allows us to expand our geographical capabilities within Real Estate into Asia, which contains some of the highest value, fastest growing and most dynamic real estate markets in the world. The team brings significant industry expertise and geographical knowledge of the Asian real estate markets.
Our deliberate action to invest in the technology platform over several years has positioned us well to take advantage of the demand for solutions strategies. Over the past five years, assets under management in Solutions grew at a compound annual growth rate of 21%, reaching £192.3 billion (2019: £142.8 billion). Net new business of £43.4 billion (2019: £34.5 billion) exceeded 2019 levels. We on-boarded £29.5 billion of assets under the Scottish Widows mandate. Net new business was also supported by an £8.3 billion mandate win in North America and demand from Continental Europe as solutions strategies continued to attract inflows.
Mutual funds saw £3.1 billion of net outflows driven by a risk-off environment in the first half of the year with limited demand from retail investors. Consequently, we saw first half outflows of £4.8 billion. The second half of the year saw a rebound in investor appetite which resulted in inflows of £1.7 billion with strong momentum at the end of the year. Assets under management closed the year at £104.2 billion (2019: £102.4 billion).
The Institutional business saw net inflows of £nil. Assets under management closed the year at £159.8 billion (2019: £144.1 billion). The increase of £15.7 billion was the result of strong investment performance.
We continued to see good momentum across Wealth Management, with strong revenue growth and continued client demand.
We generated net new business of £1.7 billion (2019: £14.7 billion). Of this, £1.2 billion (2019: £1.2 billion) of net inflows were from Cazenove Capital and £0.7 billion (2019: £0.9 billion) were from Benchmark Capital. Schroders Personal Wealth saw net outflows of £0.2 billion (2019: £12.6 billion) as the level of client referrals was impacted by Covid-19 restrictions. Total assets under management for Wealth Management were £72.0 billion (2019: £66.7 billion).
Net income increased by 24% to £382.7 million (2019: £309.6 million). Profits before tax and exceptional items increased by 26% to £110.5 million (2019: £87.5 million), and profit before tax increased to £64.8 million (2019: £52.9 million). The net operating revenue margin before performance fees was 56 basis points (2019: 59 basis points).
Growing our Wealth Management business has been a focus for several years. We acquired Benchmark Capital in 2016 and the firm has continued to expand its financial adviser network and has successfully migrated the majority of Schroders Personal Wealth clients onto its platform in 2020.
In 2019, we entered into a strategic partnership with Lloyds Banking Group and co-founded Schroders Personal Wealth, a financial planning business servicing mass-affluent customers in the UK. Good progress has been made in positioning the business for future growth with refreshed leadership and improved infrastructure.
In September 2020, we announced the acquisition of the UK-based multi-family office Sandaire. The acquisition expands Cazenove’s leading position in the UK ultra-high-net-worth sector and added £2.4 billion of client assets to our Wealth Management business. Cazenove Capital has also continued to expand its reach across the UK with the addition of four regional hubs.
The Group segment generated profit before exceptional items of £18.5 million in 2020 (2019: £6.8 million), driven by improved market conditions in the second half of 2020 and gains from our investment capital portfolios.
The group continues to maintain a robust capital position. Accordingly, and reflecting our resilient financial performance, the Board will recommend to shareholders a final dividend of 79.0 pence (2019: 79.0 pence), which is unchanged from 2019. This will bring the total dividend for the year to 114.0 pence (2019: 114.0 pence). The final dividend will be paid on 6 May 2021 to shareholders on the register at 26 March 2021.
Although political uncertainty has been reduced following the UK’s exit from the European Union and the transition of power in the US, the pandemic continues to pose macro-economic uncertainty and will provide an environment which is favourable for active investment decision-making.
The Group is increasingly balanced towards the higher growth areas of Private Assets & Alternatives, Solutions and Wealth Management. We believe the macro-economic environment will accelerate demand for these areas going forward and we are well positioned to service clients around the world with the solutions they need. We maintain a strong capital position and are confident our diversified business model will continue to generate value for our clients, shareholders and wider stakeholders.
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.