Illustration: Schroder's share price line graph with crown tumbling down it
When blue-blooded fund manager Schroders opened its new headquarters near the Barbican seven years ago, it invited a suitably regal guest to do the honours.
The historic money manager, which was founded during the Napoleonic Wars, invited Elizabeth II to cut the ribbon for the 308,000 sq ft office, making a major coup for the eponymous Schroders family, who have controlled the business for two centuries.
Flanked by Bruno Schroder, the 85-year-old family patriarch, and chairman Michael Dobson, the late Queen’s visit marked a new dawn for the FTSE 100 giant, which was attempting to reinvent itself as a modern-day asset manager.
Yet seven years on from the prestigious opening, the British financial titan is at a crossroads. Buffeted by an industry-wide downturn, Schroders is trying to plot a new course in a rapidly changing environment.
Schroders invited the late Queen to officially open their new City office in 2018 - Heathcliff O'Malley
Schroders’ problem had been a rapid sea change in investment markets, away from its bread-and-butter active stock picking model towards cheaper “passive” funds – like ETFs – and private capital.
It has tried to keep pace by buying numerous businesses that oversee private capital, but questions remain over the success of this strategy.
As a result, investors are growing weary. Shares in Schroders hit their lowest level in a decade last year, and despite a recent upswing, remain 45pc below their recent peak in 2021.
For the 15 or so members who form the 14th generation of the Schroder family, and still own 44pc of the group, the financial repercussions have been severe.
Their combined wealth has dropped from an estimated £4.6bn when shares peaked to about £2.4bn today – a loss of £2.2bn in under four years.
Bruno Schroder, who died in 2019, has since been replaced on the board by his daughter, the billionaire heiress Leonie Schroder.
Along with her cousin, Claire Fitzalan Howard, they represent the interests of the secretive Schroder family, who are no doubt keen to see the firm prosper once more.
“The family wants to see a share price which is going in the right direction rather than the wrong direction – and it had been going in the wrong direction for seven years,” says Rae Maile,​​​​ from Panmure Liberum.
Leonie Schroder is a member of the current board and represents the interests of the secretive Schroder family - Schroders
To arrest the slide, Richard Oldfield, the new chief executive who took the reins in November, has laid out a radical £150m cost-cutting plan and ambitious new financial targets.
Hundreds of jobs could go as part of the overhaul, with the City abuzz with questions over whether Oldfield and Meagen Burnett, his finance chief, can turn the Schroders ship around – or whether a more dramatic break-up is needed.
“Schroders has been trying to be all things to all people, but they have missed out on the scale game,” says one industry observer.
“Their clients are buying cheaper passive funds at one end, and private markets funds at the other – and Schroders is getting squeezed in the middle.”
Schroders had been Britain’s leading stock picker since the 1960s when it rode the occupational pension scheme boom by managing money for the likes of the Post Office and the Marylebone Cricket Club.
Such was its prestige that Michael Verey, the former chairman, once modestly declared that Schroders was “rather good at investments, having done it for a long time, and is not a bit ashamed of it”.
Struggled to maintain dominance
Yet despite its storied reputation, Schroders has struggled to maintain its dominance in the 21st century – as Wall Street machines like BlackRock and KKR have put the squeeze on the industry with their cut-throat American drive.
Peter Harrison, who left in November after a decade as chief executive, sought to expand more into more esoteric investments such as private credit and real estate – areas he dubbed “areas of fast-flowing waters” – to keep Schroders in the race.
As part of the strategy, he acquired numerous companies in a scattergun M&A offensive, spending significant sums on “alternative” fund managers like Benchmark Capital, Adveq, Blue Orchard, SPW, River and Greencoat Capital.
But up against a better-resourced American private credit managers such as Carlyle and Blackstone, Schroders never appeared particularly comfortable operating away from its main strengths of stock picking and wealth management.
Some say Harrison had the right idea, but the execution let him down because he didn’t put his foot on the gas.
“Harrison spent a lot of shareholder funds over a long period of time buying shiny new toys which then didn’t actually deliver,” says Maile​​​​.
“The areas where it has been doing well were being sidelined by Harrison, who was chasing the view of the world that said it’s all about private markets. If you did work in public markets at Schroders, you were the poor cousin.”
Schroders’ current predicament is ironic because it has rarely struggled for relevance in financial markets.
Blue-blooded, old school and part of the financial establishment, the history of the group is entwined with the history of Britain.
Founded in London by Johann Heinrich Schröder, a member of a prosperous Hamburg family, Schroders was for centuries a major British merchant bank, ranking alongside the Rothschilds, Kleinworts and Warburgs in terms of prestige.
But in 2000, the Schroder family, then led by George Mallinckrodt and Bruno Schroder, severed that link.
They sold the banking business to Citigroup, leaving it as a standalone fund manager. Despite the risks, their bold gamble paid handsome dividends.
Assets under management at Schroders swelled from £132bn in 2000 to over £300bn just before Harrison took over in 2015.
Since then, assets under management have jumped again to an astonishing £780bn.
Yet this increase has masked hidden issues threatening the business.
Last year, clients pulled more money than they put in, with many ditching their stock market investments for private capital.
That has raised questions over what Schroders wants to be and whether it has the right strategy.
“They’re not trying to be KKR. They’re trying to be like a version of Partners Group or Hamilton Lane in the US,” says one fund industry expert, referring to groups that sell private assets to deep-pocketed pension funds and charities.
Oldfield has pledged to get a grip on Schroders’ private capital units, known as Schroders Capital, training up the 40 or so specialist salesmen who explain the fiendishly complex products to investors to increase investment flows.
While assets under management have increased from £46bn in 2020 to £70bn today, inflows have slowed over the past two years.
He has also dialled down expectations, pointing to the likelihood of lower inflows into the private markets business over the next three years.
Fund management ‘runs through Schroders like a stick of rock’
But what if Oldfield’s plan to ride both horses in public and private markets fails?
As another option, David McCann, a Deutsche Numis Research analyst, says Schroders could ditch its in-house fund manager completely and become a standalone wealth manager.
Schroders added to its blue-blooded credentials a decade ago when it bought Cazenove Capital, a one-time broker to Elizabeth II and formerly chaired by David Mayhew, a former Etonian once dubbed one of Britain’s most respected bankers.
Today, Cazenove caters for the super-rich, with customers requiring a minimum of £3m just to get through the door.
Splitting off the fund managers and focusing on blue-ribbon Cazenove would leave Schroders as a “simpler, but market-leading wealth management business”, McCann says – with the cash generated from the sale handed out to shareholders.
Such a move would mirror Mallinckrodt and Bruno Schroder’s turn-of-the-century decision to ditch its banking business – a bold gamble that paid off handsomely.
Yet some are not convinced. “Fund management runs through Schroders like a stick of rock. It’s not as easy to do as it sounds,” says another City source.
Oldfield has also played down the idea, pointing out that Cazenove relies heavily on Schroders’ fund management division.
Yet Schroders needs to keep running to stay in the race. In 1901, banking scion Herman Kleinwort said of the group: “They are fond of big deals and do a lot of speculation.”
The Schroder family, its 6,200 staff and the City of London itself will all be hoping that Oldfield pulls off his ambitious overhaul to help the historic fund manager rediscover some of that former magic.
