Schroders avoids dividend cut despite hit to new business

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British investment group Schroders avoided a dividend cut despite a hit to profits last year because of a fall in new business as the pandemic prevented face-to-face meetings with clients that dented growth.

The fund manager’s payout remained unchanged at 114p for the third year in succession as pre-tax profits fell 2.2 per cent to £610.5m last year. Adjusted pre-tax profits rose 0.2 per cent to £702.3m, above forecasts.

Net investor flows dropped to £42.5bn in 2020, just shy of 2019’s record haul of £43.4bn, while assets under management ended last year at a record £574.4bn, up 15 per cent.

Peter Harrison, group chief executive, said Schroders had delivered a “strong financial performance in 2020 despite the challenging environment”.

Shares dropped 2 per cent to £35.19 by mid-morning on Thursday in London trading, still up 5 per cent this year and a 67 per cent rebound from lows in March 2020.

Harrison said Schroders had enjoyed “strong demand” in the higher-growth areas of private assets, wealth management and solutions that account for more than half of the group’s total assets under management.

The company’s US business also reached the milestone of more than $100bn of assets for the first time by the end of last year.

But growth for Schroders’ institutional business stalled, with no net inflows in 2020 and retail clients pulled £3.1bn from its mutual fund range last year, reflecting the tough competition active managers face from low-cost index-tracking funds.

Tom Mills, an analyst at Jefferies in London, said more timely data for 2021 indicated that new inflows from retail investors had “turned the corner” with an improvement in the first two months of this year.

Wealth management, a higher profit area that Schroders has been expanding into, reported a disappointing decline in net new business to £1.7bn last year compared with £14.7bn in 2019.

Staff working in Schroders wealth management operations were unable to meet clients face-to-face for most of 2020 due to coronavirus restrictions, which hit new business growth.

Schroders Personal Wealth, a joint venture with Lloyds Bank that was launched in the fourth quarter of 2019, suffered net outflows of £0.2bn after client referrals were interrupted by the pandemic.

Harrison said that the “hard yards had been completed” in the set-up of the business and that SPW was “seeing a pick-up in demand” for advice with more client referrals from Lloyds that should translate into stronger new business growth in 2021.

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