Retail: Competing in the New World J.P. Morgan UK Financials Conference Wednesday, 8 December 2010 James Cardew Global Head of Marketing Schroders plc
Agenda Schroders Global business Schroders UK intermediary business Challenge 1: regulatory change, and specifically the RDR Challenge 2: changing demands of our clients Summary and Q&A 1
Overview of Schroders 181.5bn funds under management Founded in 1804 Over 450 investment professionals worldwide 32 offices in 25 countries Bermuda Cayman Islands Mexico City New York Philadelphia Amsterdam Copenhagen Frankfurt Geneva Guernsey Gibraltar Jersey London Luxembourg Madrid Milan Paris Rome Stockholm Zurich Beijing Hong Kong Jakarta Mumbai Seoul Shanghai Singapore Sydney Taipei Tokyo Buenos Aires São Paulo Dubai 2
Our strategy Investment led, organic growth Exclusive focus on asset management Organic growth Bolt-on acquisitions Deliver superior performance for clients Highly diversified business model: growth and defensive characteristics Financial strength 3
Our focus Key drivers of performance Client led Broad product range International diversification Strong distribution capability Financial strength 9 months to end September 2010 net inflows: 21.5bn of which 5.9bn in Intermediary 4
Putting our Intermediary business in context Total funds under management 181.5bn; Intermediary 68.5bn Total: by channel Intermediary: by region Intermediary: by product 8% 54% 9% 25% 9% 12% 54% 38% 34% 25% 32% Institutional Intermediary Private Banking UK Asia Pacific Continental Europe Americas Equities Alternatives Private Banking Fixed Income Multi-asset 5 By client domicile
Schroders UK Intermediary assets: diverse by channel Funds under management September 2010 Sub Advisory, 1,707m Direct, 6% GFIG, 29% Discretionary, 40% Retail Branded, 15,713m Advisory, 25% 6
Intermediary channel routes to market Developing new propositions Schroders For instance Schroders solution Discretionary Wealth managers, Private banks, Multimanagers, Packagers Component funds Sub advised mandates Wholesaler Independent Advisers Tied Advisers End client Fund supermarkets Life companies Banks Bank and insurance tied Agents, Independent Financial Advisers Predominantly HNW and Mass affluent Unit linked and non-linked funds, Sub-advised mandates Asset allocation services Distributor Influenced Funds, Multi-asset, structuring solutions Third way (VA-style) solutions Outcome oriented structures / funds 7
A market leading position with Discretionary managers Overall relationship with investment house Very Poor / Poor Very Good / Excellent Schroders -7 44 2 Feb 10 M&G -4 40 6 Invesco Perpetual -2-4 31 10 F&C Investments 31 8 Market Average -3-4 25 4 Henderson New Star -3-7 20 3 Jupiter -3 20 3 Fidelity -3-6 19 3 BlackRock -5-2 15 7 Neptune 21 Artemis -3-7 20 Gartmore -7 19 First State Investment -3-8 14-20 -10 0 10 20 30 40 50 8 Q9e: How would you rate the following companies in terms of the overall relationship with investment house? BASE: All DAM supporters. * = Caution small base (n<50)
We have broken into the top 5 in the Advisory market Overall rating IFAs Very Poor / Poor Very Good / Excellent Invesco Perpetual -2 42 28 Feb 10 Fidelity -1-2 42 12 Jupiter -1-3 37 11 M&G -3 33 14 Schroders -1 29 4 BlackRock -3-5 24 2 Gartmore -1-4 19 2 First State Investment -3-8 17 3 Neptune -2-7 16 3 Artemis -2-7 14 1 Henderson New Star F&C Investments -2-14 -2-16 14 11 1-30 -20-10 0 10 20 30 40 50 60 70 80 9 Q4a: How would you rate the following companies as providers in the investment market? BASE: All IFAs (188)
Agenda Schroders Global business Schroders UK intermediary business Challenge 1: regulatory change, and specifically the RDR Challenge 2: changing demands of our clients Summary and Q&A 10
Challenge 1: Regulation not only a UK issue Operating in a more regulated environment Retail Distribution Review UK Alternatives Investment Fund Management (AIFM) Directive Review of MiFID UCITS IV...and UCITS V Packaged Retail Investment Products (PRIPs) 11
Challenge 1: The Retail Distribution Review (RDR) Objectives To remove product and provider bias (fees replace commissions) To improve professional standards To improve consumer choice 12
Challenge 1: Changing the shape of the advice market in the UK Fund managers/providers costs increase, decreased longevity DAMs + PBs 5,000 Increased influence, but also competition Independent Platforms 19 increased influence IFAs 30,000 shrinks to c. 20,000 Tied / multitied 3,000 grows as become more attractive Bank Advisory / sales 8,000 grows New entrants? End consumers more transparency, but potential reduction in advice? 13
Challenge 1: The Retail Distribution Review (RDR) 25% to 30% of IFAs could leave the industry Implications: Market Banks could re-enter the lower end of the advisory market We expect IFA s to continue the trend to outsource Investment Management We expect to see increasing demand for low cost passive / quasi-passive Funds We expect non-advised execution only business to significantly increase We will need to launch multiple unit classes to accommodate legacy assets, new business flows and advisory platforms Implications: Products / Strategy We are launching a limited range of low cost core products We expect a reduction in longevity as a result of an increase in discretionary business We have increased our resources dealing with UK FIGs in the run up to RDR to maximise any opportunities arising 14
Challenge 2: The changing demands of clients Drivers Demographics and ageing population Shift from Government and corporate risk to individual risk for retirement products Growth of Defined Contribution High correlations between markets Disappointment with strategic asset allocation Market volatility Lasting client risk aversion Lack of confidence in financial institutions/ active managers Rise of emerging markets Slower economic growth Globalisation Implications New products don t drive net flows track records very important Future of flows is global, across all asset classes Flexible, unconstrained products taking share from benchmark-relative strategies Demand for passive continues Outcome oriented products i.e. income solutions Demand for diversifying strategies offering uncorrelated returns, selectively Pricing pressure Inflation concerns 15
Challenge 2: How has this impacted the UK? Traditional favourites less dominant H1 2010 2009 Gross % Net % Gross % Net % UK Equity Growth 10 Strategic Bonds 16 UK Corporate Bonds 17 UK Corporate Bonds 29 UK Corporate Bonds 10 Property 12 UK Equity Growth 11 Absolute Return 9 Strategic Bonds 7 Cautious Managed 11 Strategic Bonds 6 Strategic Bonds 8 Asia Pacific (ex Jpn) 6 Absolute Return 11 Asia Pacific (ex Jpn) 5 Asia Pacific 7 North America Global Growth Absolute Return Property 6 5 5 5 Global Bonds Global Growth North America Global Emerging Markets 9 7 7 6 2008 Gross UK Equity Growth Property % 15 12 Net UK Corporate Bonds Global Growth % 56 19 UK Corporate Bonds 12 Property 14 UK Equity Income 10 North America 12 2007 Gross % Net % UK Equity Growth 17 Property 20 Property 15 UK Equity Growth 17 UK Equity Income 13 Cautious Managed 12 UK Corporate Bonds 9 UK Equity Income 11 Source for industry data: Investment Management Association 16
Schroders & Industry funds under management UK Bonds and multi-asset have grown significantly Industry AUM by sector Industry AUM by sector Schroders AUM by sector September 2005 September 2010 September 2010 4 11 5 1 3 3 6 45 4 6 2 1 4 3 9 33 4% 4% 5% 3% 4% 10% 40% 8 14 8 10 20 5% 5% 5% 7% 8% UK Equities UK Bonds US Equities Global Equities European Equities Commodities Structured Property Other Multi asset / Multi manager Global Bonds Japan Equities Asia Pacific Equities UK funds under management are dominated by Retail Branded Equity products Source for industry data: Investment Management Association 17
In summary Schroders: well placed for continued growth UK RDR: viewed positively Strong brand Established Discretionary relationships Strength of International Distribution network Broad product range Range of long term growth opportunities 18
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Forward-Looking Statements These presentation slides may contain forward-looking statements with respect to the financial condition and results of the operations and businesses of Schroders plc These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by those forward-looking statements and forecasts. Forward-looking statements and forecasts are based on the Directors current view and information known to them at the date of this presentation. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this presentation should be construed as a profit forecast. 20