Schroders is shaking up the way it reports its annual results on Thursday in a move described as providing more clarity on the business for analysts and shareholders, but it has been warned over not losing sight of delivering returns and value for end investors.
Instead of dividing performance between wealth management and asset management, the FTSE 100 listed asset manager is expected to split results between five sections of the business: wealth management, illiquid or private assets, retail fund management, institutional fund management and risk management.
It is understood the switch up, first reported by the Sunday Times, is to give shareholders and analysts more granularity and transparency over the individual components of the asset management business.
Under the old model, the asset management segment included intermediary and institutional business, as well as solutions such as fiduciary management and private assets, including Blue Orchard purchased in July last year. Wealth management, meanwhile, included the firm’s UK wealth manager, Cazenove Capital, and its global wealth management business Schroder Wealth Management.
Schroders declined to comment when contacted by Portfolio Adviser.
Disappointing performance, high fees and the increasing popularity of passive funds have ramped up pressure on active asset managers. At the end of last year Schroders said it was realigning its resources to continue investing where it sees “strategic growth opportunities”, including a “targeted restructuring of teams” that would lead to about 200 jobs being cut globally.
Revamp will show the diversity of Schroders’ business
Seven Investment Management senior portfolio manager Peter Sleep said the new divisional split should offer more clarity, describing the old disclosure method as “pretty hopeless” because it did not really show the diversity of Schroders’ business.
“I think segment disclosure should be relevant, meaningful and indicative of the way management thinks about the business, otherwise any discussion is meaningless. It is meant to help investors and potential investors understand a business and not hide things.”
Sleep said having five segments will give investors a better insight into both the fast and the slow-growing parts of the business and their relative profitability.
He added: “More importantly for investors, they will probably be able to see how Schroders is reacting to the industry fee pressure by moving into higher growth areas like wealth management through the link up with Lloyds, private assets, which cannot be replicated by passive, and solutions, which is probably a higher margin business.
“With the five segments the bad news does not disappear, but the more robust parts of the Schroders business are clearer.”
Focus on delivering returns that justify fees
AJ Bell investment director Russ Mould said reporting its results in a different way makes no difference to Schroders’ day-to-day business and what it must do to generate profits and cash flows and dividends that are attractive to investors, especially in such a tough market.
He added: “Good governance can help earnings but reporting structures alone cannot. What Schroders has to do is provide the best portfolio returns that it can, according to its mandates, on a risk-adjusted basis, to provide investors with returns that justify the fees involved. If it fails, investors will take their money away to another active manager or a passive one. Reporting lines do not change that.”
Mould said while transparency is helpful and should be lauded, Schroders must avoid the trap of managing its share price rather than its core business.
“Focusing on the day-to-day operations of helping customers to grow and protect their wealth will do more in the long run for earnings and the valuation – because if Schroders starts to lose funds to active or passive rivals then earnings would come under pressure and it is unlikely that the uplift in the profit that could result from greater transparency would be enough to offset the drop in the earnings.”
