Schroders lost £20.2 billion (€23.2bn) in assets from the division that includes its liability-driven investing business after the UK “mini” budget, an early sign of the impact wrought on asset managers by volatility in the UK government bonds market. The FTSE 100 asset manager said in a trading update on Thursday that assets at Schroders Solutions, which builds LDI, multi-asset and derivatives strategies for pension fund clients, dropped from £225.7 billion at June 30th to £205.5 billion at September 30th.
This period includes the week following former chancellor Kwasi Kwarteng’s September 23rd announcement of a £45 billion package of unfunded tax cuts, which sent UK gilt prices tumbling and yields soaring on the prospect of higher borrowing.
Schroders expanded its LDI business this year with the acquisition of River and Mercantile Group’s UK solutions division. Alongside Insight Investment, BlackRock and Legal and General Investment Management, Schroders is one of a handful of dominant players in the LDI market. These strategies use derivatives to help UK defined benefit pension schemes match their assets with liabilities.
The speed of the sell-off in UK gilts in the aftermath of the “mini” budget led to a rush of cash calls that wrong-footed many LDI managers. As bond prices fell, counterparties demanded more cash as collateral to keep the hedging arrangements in place. To raise the money, funds were forced to sell assets, including gilts, depressing prices further and risking a “doom loop”.
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Overall total group assets at Schroders, excluding joint ventures, dropped from £637.5 billion to £614.6 billion during the quarter. The asset manager’s shares were up 1.1 per cent in trading on Thursday.
Meanwhile, elsewhere in the City of London, the pace of fund outflows slowed at Jupiter Fund Management, as the company announced a new share buyback programme under recently appointed chief executive Matt Beesley.
Net outflows slowed to £600 million in the third quarter, Jupiter said, bolstered by a new mandate from a sovereign wealth fund bringing total assets under management to £47.4 billion.
The London-based manager has suffered from chronic outflows in recent years, largely driven by its retail investor base. As of September, the fund group has suffered net outflows in 17 of the past 18 quarters, according to analysts at Panmure Gordon. The company said it would buy back up to £10 million of shares by the end of December, leaving open the possibility of further capital return announcements in the new year. From January, the dividend policy will also be reset at 50 per cent of pre-performance fee earnings, but will no longer have a minimum set at the prior year’s amount.
“While we saw net outflows overall, retail outflows have slowed as we continue to focus on delivering a differentiated product set, which both meets our clients’ increasingly complex needs and demonstrates the value of high-conviction, active investment management,” said Mr Beesley.
Since his appointment, Mr Beesley has said he will set out plans to cut costs and to rationalise underperforming funds in a bid to stem outflows.
“The [third-quarter] numbers and outlook were slightly better than we expected, but clearly significant improvement is still needed. We think the new capital policy will divide opinion. We see it as sensible and more sustainable, [but] it may result in lower returns than some may have expected ... for in the short term,” said David McCann at Numis. — Copyright The Financial Times Limited 2022
