Market developments
Long-term trends in Asset Management
Massimo Tosato
Executive Vice-Chairman
We have seen
a number of
long-term trends
through 2015
which we expect
to continue
to grow in
importance.
Changing client demand
As clients look to provide for retirement, offset
liabilities or build capital, we have continued
to see a material shift in client demand,
away from funds aiming to outperform a
benchmark and towards products designed
to meet a specific outcome.
This change requires asset managers to
build closer relationships with their clients,
to fully understand their changing investment
objectives and to construct products which
are best suited to achieving these. We have
achieved success in recent years with
outcome oriented solutions across all asset
classes but most notably in Multi-asset,
where our product range is specifically
designed by outcome.
Public policy and regulation
We welcome regulation that increases
transparency, improves trust, enhances market
stability and results in better outcomes for clients.
Led by our Head of Public Policy, we seek to
actively engage with policymakers at all stages
of regulatory development to help promote the
best outcome both for our clients and for the
Group. We have been actively engaging with
the Financial Conduct Authority in respect of
the Asset Management Market Study, which
is taking place in 2016.
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Opportunities in evolving sub-channels
As global pools of assets continue to
grow, opportunities for growth in specific
sub-channels have developed.
The pre and post-retirement space remains
one of the largest opportunities for Schroders.
We have already developed a number of
strategic partnerships with insurance
companies across the globe as they have
become increasingly important distribution
partners. More information on our team
dedicated to client service and sales in the
insurance sector, and how it is focused on
further developing partnerships and expanding
our presence, can be found overleaf.
Strategic report Strategy & Business review
Defined benefit (DB) schemes have continued
to mature. Trustees are seeking to improve
funding levels at relatively low risk, with many
employing liability driven investment (LDI)
strategies. This is a growing area and we
have seen £2.6 billion of net inflows into LDI
mandates in 2015.
As corporate pensions move away from DB
schemes, the industry has seen a growth
in defined contribution (DC) plans. The vast
majority of assets under management in
DC schemes are invested in the default
option provided. The opportunity for asset
managers is in working with scheme providers,
platforms and consultants to provide
appropriate solutions. The UK market has
seen a charge cap imposed on DC workplace
schemes of 75 basis points, so the challenge
for asset managers is to develop innovative,
outcome focused, competitively priced
solutions in an increasingly fee sensitive
channel. Details on our product launches
in this space can be found on page 28.
The shift of responsibility for savings to
the individual, and the inadequacy of DC
saving levels, has also led to growth in
the complementary savings market, with
a growing trend of clients wishing to invest
in products directly provided by the
asset manager.
In order to access this portion of the market,
a number of asset managers are adapting
their business models to one of vertical
integration. This allows a closer relationship
with the end client and greater control
throughout the value chain, but may pose
regulatory questions over potential conflicts
of interest as the lines between investment
and advice can be unclear.
Changing relationships with clients
These changes, and increasing competition
from passive providers, mean that active
asset managers must demonstrate the
value they are providing to their clients,
whether through investment performance or
innovative product design, such as outcome
oriented solutions or developing areas like
liquid alternatives.
Our relationships with our clients are also
changing. Our value added is not just in
the provision of investment products, but in
sharing information and producing insightful
content to support, educate and inform our
clients. This year we launched the Schroders
IncomeIQ tool, which educates both advisers
and end clients on behavioural biases
exhibited when investing.
Digital innovation and improving
client experience
Adoption of new technology could have a
significant impact on the industry, having
already changed how we interact with
clients and construct portfolios.
The improvement of the client experience lies
at the heart of many of our digital projects.
This year saw the roll out of our new web
platform globally which has been optimised
for smart phones and tablets and includes
personalised content.
Insurance
A focus within Distribution has been to develop our
business and strategic partnerships with insurance
companies around the world. We have a number
of key relationships, including with Prudential and
MetLife Advisors, LLC in the US, Zurich Financial
Services in the UK and Nippon Life in Japan.
Our specialist Insurance Asset Management team
is focused on expanding our presence in this
channel and have had a successful year.
Our approach towards product development
has also evolved this year. We established the
Market Intelligence team which consists of
individuals experienced in data science,
investment and product development.
They analyse global trends and changes
in client demand to ensure new solutions
are developed to meet clients’ evolving
investment objectives. More information
on this team can be found on page 30.
Within Investment, we also looked for
innovative ways to analyse new and
unstructured data points. There are
huge pools of data being produced every
second of every day and the real winners
in active management will be those that can
structure and use data to generate alpha,
complementing our fundamental research.
More information on the work of our Data
Insights team can be found on page 27.
While there are many internal initiatives
ongoing throughout Schroders, we are also
engaging with financial technology (Fintech)
externally. Through our shareholding in
Nutmeg and our seat on the board, we
continue to learn about the millennial
generation, their expectations of client service
and their approach to investing. This year has
been marked by an explosion in robo advisors
with challengers appearing in the US and
throughout Europe. We believe the winners
in this space are going to be those that build
a hybrid model, combining digital service
with traditional face to face advice.
In the UK many insurance companies are looking
to outsource their core asset management function,
driven by the need to modernise the investment
proposition for policyholders and to manage
capital efficiently.
New solutions we have developed using our
innovative Advanced Beta Multi-asset and Fixed
Income investment capabilities had particular
appeal and we have been appointed on a number
of significant new mandates this year.
Schroders | Annual Report and Accounts 2015
33
Market developments
Long-term trends in Wealth Management
Philip Mallinckrodt
Group Head of Wealth Management
We offer a
combination
of investment
expertise, wealth
planning and
banking services.
There are a number of developments in the
Wealth Management sector which we see as
important and which will influence the future
direction of our business. As a result of
demographic changes, pools of assets
globally are growing, but the investment
environment remains challenging. Client
expectations are increasing, asset class
returns have been at the lower end of
historical norms and regulation continues
to develop.
Investment
Although we have recently seen a rise in
interest rates in the US, we still remain at
historically low levels which, along with
subdued global growth and heightened
market volatility, have led to a gradual shift
in client demand. Many of our clients have
moved away from focusing on a benchmark
relative return and towards specific, tailored,
outcome oriented solutions which reflect
their own circumstances.
Our focus on maintaining and developing
strong client relationships allows us to
understand their investment aims and to
construct portfolios best suited to them.
To help us in this process, we have access
to Schroders’ global investment expertise, not
only in Equities, Fixed Income and Multi-asset,
but also in growing areas such as Alternatives
and constructing ESG portfolios.
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Schroders | Annual Report and Accounts 2015
Technology
Evolutions in technology mean that
expectations of client service have greatly
increased over recent years. Our clients
demand greater transparency, increased
personalisation and improved speed and
ease of access to online services.
We have continued to develop our online
portal, which allows clients access to their
portfolio information at any time and on any
device. We continue to invest in technology
to complement, but not to replace, our
personalised market leading client
relationship management.
Regulation
As we continue to see regulatory developments
across the industry, we seek to engage with
regulators globally and to develop open and
cooperative relationships. We aim to conduct
our business in an ethical, compliant and
controlled manner. In 2015, a conduct risk
framework was fully implemented and all
regulatory change initiatives were either
implemented on time or are at an
appropriate stage of preparation.
In this rapidly changing environment,
Schroders is well placed to continue to grow
due to our global resources, investment in
technology and, most importantly, our
continued focus on client service across
wealth planning, investment management
and banking and treasury services.
Strategic report Strategy & Business review
2015 Charity
Investment
Manager of
the year.
Charities Investment Management
Cazenove Capital Charities, our specialist
team that manages assets on behalf of
UK registered charities, foundations and
endowments, is the largest investment
manager of charity assets in the UK. A
dedicated team of 25 manage £7.9 billion
of assets across the sector.
We offer investment management services
to the full range of potential charity investors,
from smaller charities to large foundations,
and from those charities focused on holding
reserves against any income shortfalls to
those grant making charities with a multigenerational time horizon.
We have been working with charities since
the 1930s, and are delighted that we still
look after a number of clients who have
been with us since we started to build our
expertise. We offer one of the broadest range
of investment management services to the
charity sector and are pleased to work with
almost 800 charities, which range in size,
investment approach and charitable purpose.
Our success is dependent on continued
strong investment performance for our
clients and the team is able to access a
broad range of investment resource from
across Schroders. Investment strategy is
tailored to the individual charity’s investment
objectives, and we offer both segregated
and pooled approaches.
Clients can choose to have a portfolio
consisting of entirely Schroders funds or
adopt a broader open architecture approach
which allows the Multi-Manager team to
select funds across the market, whether from
Schroders or third party managers. In addition
to our segregated portfolio service we also
manage five Common Investment Funds
(CIFs) across a range of asset classes which
further reflects our commitment to the sector.
Our charity investment specialists understand
the sector, the regulation and the fiduciary
duty of trustees, and many are trustees
themselves. We regularly collaborate with
industry bodies, such as the Association of
Charitable Foundations, to produce original
research to promote and enhance best
practice in charity investment management.
Our most recent publication drew on the
largest survey of UK charity investors and
considered the increasing popularity of
responsible investment (RI) approaches
in the sector.
Our expertise in both the governance and
implementation of RI approaches has been
widely recognised, as has our RI team’s
engagement in the fossil free and living
wage campaigns.
We are proud to have won the 2015 Charity
Investment Manager of the year award from
Charity Times and were commended for
our ‘leadership over many years through
various forums, sponsorships and policy
development’. We look forward to building
on that success in 2016 and beyond.
Schroders | Annual Report and Accounts 2015
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