UK fund manager Schroders remains on the lookout for acquisitions in private markets, which would add to the roster of diversifying deals that it credits with insulating its business against "headwinds" so far in 2018.
Peter Harrison, the fund manager’s chief executive, told analysts on July 26: "We continue to look for other capabilities to drive [our private assets business] forward."
But he also warned that strong interest from investors for off-market assets — such as infrastructure, debt and real estate — had driven an M&A frenzy among fund managers specialising in these areas, which made it hard for Schroders to find deals at a reasonable price.
"The prices of private market assets are high," he said. "A couple of acquisitions that we looked at in the first half of the year just went for silly numbers. That is a potential brake on our strategy in this area, if we can’t acquire because other people are prepared to pay monopoly money."
Schroders has bought a £1.6bn hotels management business, Algonquin Capital, and taken a 20% stake in a US real estate debt manager, A10, this year. It said on Thursday that the diversification of its business model was behind a "pleasing" set of results for the first half, in which net inflows and profits rose despite withdrawals by retail clients.
The group, which manages £449bn, said that pre-tax profits rose 8% in the first six months of the year, compared with the same period a year ago, to £371m.
It was buoyed by £1.2bn of net inflows into its £60bn wealth management business, with a particularly positive contribution from the technology-led wealth firm it acquired in 2016, Benchmark Capital. Harrison also said the private equity firm it acquired the same year, Adveq Capital, had performed strongly.
After a strong 2017 for stock markets, analysts and commentators have been watching this year for signs for caution from retail investors in particular, as US-China trade tensions and rising interest rates weigh on sentiment.
On July 25, the German fund manager DWS blamed “volatility in the capital markets” for €12.6bn of net outflows so far in 2018. In a note on July 23, looking forward to UK asset managers’ first-half results, Jefferies analyst Phil Dobbin forecast further outflows from retail-focused Jupiter Asset Management when it reports on July 27.
Schroders said it had suffered £200m of retail outflows at its £389bn asset management division during the first six months of 2018, but these were perfectly offset by £200m of inflows from institutional customers, such as pension funds.
Schroders, once known for its 75% dependence on equity funds, has diversified over the past few years via a string of acquisitions in wealth management, private equity, index funds and real estate. It now manages £36bn in private and "alternative" assets, such as property and securitised credit, making for 8% of its total. Equity assets have dropped as a proportion to 39%.
Dobbin said Schroders was his “poster boy for diversity of product and distribution channel, and we have long held the view that its institutional assets are undervalued by the market”. Reacting to the results on July 26, he observed Schroders had “a good operating performance, less good net flows and better investment performance than we had forecast”.
Despite the positive tone, Schroders’ shares dropped this morning, amid a generally flat market. Shares in the fund manager were down 3.7% to 3,103.9p as of 10.04 BST, while the FTSE 100 was down just 0.08%.
To contact the author of this story with feedback or news, email Mark Cobley