Strategic report Strategy and business review Our business model starts with our clients. Our continued success is reliant upon achieving our clients investment objectives. It is only by demonstrating value for money and meeting their financial goals that we can continue to grow our business. Attract and retain clients We provide investment solutions to a broad range of clients including institutions, intermediaries, Consistent outperformance We actively manage investment solutions to build our clients future prosperity over the long term. high net worth individuals and charities. Our values How we earn revenue We earn fees charged as a percentage of clients assets under management and administration. We may also earn performance fees and transaction related fees. order to fully understand their financial goals. We build principled partnerships with our clients in Understand our clients needs We design innovative products to meet our clients changing needs over the economic and market cycle. Construct a product that meets their needs The successful delivery of our business model allows us to generate returns for: Our clients Purpose-driven design with exemplary client service. Strong, consistent outperformance. Our shareholders A progressive dividend policy has seen a 7% increase to 93 pence and a payout ratio of 50%. 94% proud to be associated with Schroders. 95% of highly rated employees retained. Society Act with integrity as stewards of capital. Proud to support the communities in which we operate. 24 Schroders Annual Report and Accounts 2016 See page 30 for more information on our approach to retaining and developing our people. See pages 32 to 35 for more on our approach to Corporate Responsibility, environmental, social and governance investing and our tax contribution.
Group Chief Executive s statement Market trends Strategy Key performance indicators Business and financial review Our impact Key risks and mitigations Business structure Our structure is designed to ensure that we deliver consistently globally, but with flexible local management. In recognition of the importance of product innovation to future growth, we have revised our structure to create an independent Product division within the Asset segment. Developing, managing and retaining our people is essential to the effective delivery of our business model. Our purpose We focus on helping our clients achieve their financial goals and build future prosperity. Asset We offer a broad range of products and solutions that meet the demands of institutional and retail investors throughout the economic and market cycle. We provide client service through offices in 29 locations globally. Investment Portfolio management, research and dealing functions across a broad range of asset classes. Product Innovative product development, marketing intelligence and communications. Distribution Sales and client service for institutions and intermediaries throughout the client life cycle. Wealth Our Wealth clients include high net worth individuals, family offices *, charities and clients introduced through a network of IFAs. We offer a complete wealth management service, including wealth planning, portfolio management and banking and treasury services. Infrastructure Infrastructure provides critical support to the business across Technology, Operations, Finance, Risk, Human Resources, Legal, Compliance, Governance, Internal Audit and Tax. Group The Group segment includes the offices of the Chairman, Group Chief Executive and Chief Financial Officer and employees involved in corporate strategy, corporate development and in the management of the Group s investment capital and liquidity. * See glossary. Schroders Annual Report and Accounts 2016 25
Strategic report Strategy and business review Asset Investment Over 50 teams of investment professionals in 20 locations globally run actively managed investment solutions, designed to build our clients future prosperity over the long term. Pioneering research insights help us to consistently outperform a benchmark or target agreed with our clients. By challenging conventional wisdom and interpreting real time data intelligence, we believe that active management can deliver value for money for our clients, generating significant value over the long term by compounding returns in excess of what can be achieved by investing in an index. Equities Equity investment in public markets includes single country, regional and global funds, small and mid-cap funds, growth, value and quantitative strategies, and defensive strategies to reduce market risk. Fixed Income Fixed Income employs fundamental and quantitative approaches and is based on research intensive, globally integrated credit and macro capabilities. Multi-asset Multi-asset combines different asset classes to offer a comprehensive range of customised strategies and pooled products. We specialise in providing a consultative approach for clients. Emerging Market Debt, Commodities and Real Estate Our real estate business manages a range of open and closed end funds. We manage absolute return emerging market debt, commodities and agriculture funds. 153.7bn (2015: 129.9 billion) 82.0bn (2015: 60.3 billion) 96.2bn (2015: 78.0 billion) 14.5bn (2015: 13.7 billion) 11% 5% 4% 1% 18% 4% 2%2%1%1% 31% 9% 4% 3%1% 5% 39% 8% 4% 17% 7% 15% 11% 14% 19% 21% 24% 75% Quantitative equities Global Emerging markets Japan US Australia Other US Global Securitised Credit Australia Convertibles Insurance linked Emerging Market Bonds Risk-controlled growth LDI traditional balanced Income Inflation protection Risk mitigation GAIA * Wealth preservation Real estate Emerging market debt Agriculture and commodities Private equity Infrastructure finance * See glossary. 26 Schroders Annual Report and Accounts 2016
Group Chief Executive s statement Market trends Strategy Key performance indicators Business and financial review Our impact Key risks and mitigations Asset Product Countries 19 operate fund ranges More than 610 funds This year, we have created a new Product division. It has brought together over 400 people globally from existing teams within Investment, Distribution and Infrastructure to define our value proposition and integrate purposeful design to our developing product strategy. The division specialises in product strategy, product development, portfolio solutions, product management, marketing and product operations. Our clients need sustainable investment returns, which are flexible enough to adapt to industry and market changes. Our investment products and strategies are designed to help our clients achieve their desired outcomes. Our products are robust, fit for purpose and built to stand the test of time. We achieve this through close collaboration with Investment and Distribution to deliver the best of the firm to our clients. We actively manage our product ranges to ensure that we meet our clients needs throughout the product and client life cycles. Our market intelligence team s analytical insights on global market trends, changing client demands and competitor research bring us an additional perspective that helps to inform our product strategy and support product development. They work closely with the product development team who manage the product life cycle from generation of ideas through to product launch and finally to product retirement. The product operations group is focused on ensuring that our processes are efficient and effective, our client reporting is relevant and that we can manage increasing regulatory expectations. Substantial fund services teams based in both the and Luxembourg support these activities. We have also brought together our alternative product capabilities to be managed under one division. This supports our commitment to have clear leadership to drive further development in our alternatives business. This year, our Solutions team was moved out from within Multi-asset to become an asset class agnostic function working with all investment teams across Schroders. We look to offer our clients expertise from across the whole Group and the Solutions team brings all of these capabilities together. Providing investment solutions is not new to Schroders. The Solutions team have a 16-year track record covering the spectrum of risk management, advice-led client engagement and asset and liability challenges. We have an asset class agnostic philosophy, the ability to combine capabilities into a fiduciary management solution and an established global footprint across multiple channels and geographies. Schroders Annual Report and Accounts 2016 27
Strategic report Strategy and business review Asset Distribution Our Distribution teams consist of over 500 people who are focused on forming principled partnerships with our clients. Close relationships mean that we can better understand their changing financial needs and recommend the solutions to build their future prosperity. Our reputation has been formed by over two centuries of building stable and prosperous relationships with our clients, recognising the responsibility entrusted to us both by institutions, intermediaries and investors in our funds. Institutional clients * We manage segregated accounts and assets in pooled vehicles for a range of institutional clients including local authorities, corporate pension plans, defined contribution * pension schemes, insurance companies and sovereign wealth funds. Intermediary clients * We manage collective investment vehicles across a wide range of strategies invested in by the clients of a variety of intermediaries including financial advisers, discretionary managers, private wealth managers and online platforms. 226.3bn (2015: 181.0 billion) 120.1bn (2015: 100.9 billion) 15% 14% 34% 18% 40% 24% 27% 28% Americas Americas * See glossary. 28 Schroders Annual Report and Accounts 2016
Group Chief Executive s statement Market trends Strategy Key performance indicators Business and financial review Our impact Key risks and mitigations Wealth We provide a full suite of wealth management services, including wealth planning, portfolio management and banking and treasury services. Our clients include high net worth individuals, family offices and, through Benchmark Capital, clients introduced through a network of IFAs. We are also the largest investment manager of charity assets in the. We operate from 15 locations globally. Our largest business is based in the and we have significant presences in the Channel Islands and Switzerland, as well as businesses in Frankfurt, Gibraltar, Milan, Madrid, Hong Kong and Singapore. Benchmark Capital operates from various locations in the. Forming strong relationships with our clients to understand their changing needs is at the heart of our client service proposition. Experienced relationship management teams aim to deliver an uncompromising quality of service. Our dedicated portfolio managers and, where appropriate, wealth planning advisers, allow us to develop close relationships and ensure that the investment solutions we provide are well placed to meet our clients financial goals. We take an active, long-term approach to Wealth clients AUM by portfolio size portfolio management. We recognise that our clients investment goals will change over time as their personal and financial circumstances develop and this is reflected in our flexible portfolio construction. Our banking and treasury services enable us to provide a range of deposit-taking and lending services to clients to assist in the overall management of their financial affairs. Our portfolio managers select best-of-breed products across the whole of the market, with both Schroders and third party strategies subjected to the same level of scrutiny and rigorous selection process. All of our clients benefit from the investment expertise of the whole Group as our portfolio managers have access to our 700 investment professionals. In December, we made a significant investment in Benchmark Capital, a technology-driven adviser support business based in the, which expanded our offering and has the potential to significantly enhance the service we provide to this channel. It also introduced a new category of AUA, with revenues linked to the provision of services to IFAs. Benchmark Capital brought AUA of 11.1 billion, in addition to increasing AUM by 3.4 billion. Wealth assets under management 39.6bn (2015: 31.6 billion) Wealth assets under administration 11.1bn (2015: nil) 17% 1 10% 9% 1 < 1m 1m- 5m 5m- 10m 10m- 25m 25m- 50m 50m- 100m 100m- 250m > 250m Schroders Annual Report and Accounts 2016 29