“Every decision we make is based on what it means for the next five years.”
You have been the Chief Executive of Schroders PLC for 14 years. Can you describe Schroders?
It is one of the oldest merchant banks in London. It started in 1804 and has evolved over two centuries.
Is Schroders still a family owned business?
48% of the company is owned by the family, and this provides stability and the ability to think long term. Bruno Schroder is on the Board as a non-executive, and his nephew Philip Mallinckrodt is on the Board as an executive responsible for the wealth management business. This is very important to our long term success.
Do you think that family companies are more successful than others?
On balance yes, because of long-term thinking, continuity and stability. The family here is completely committed to the business, has supported the management and a meritocratic performanceoriented culture where the development of talent has been key. For many years the company has not been run by the family.
How has the business changed in the 21st century?
Fifteen years ago the key strategic decision was made to focus exclusively on asset management. In 2000 the firm sold its investment banking business to Citibank and since then we have made important progress. This was a very good and far-sighted decision, to exit a business where we competed against companies of the scale of JP Morgan. Now asset and wealth management is what we do.
What is your role as CEO?
It is multi-faceted. I was privileged to join a very successful company that I had always admired and competed against when I was at Morgan Grenfell and Deutsche Bank. When I came in 2001 the firm was a strong business with great talent, but after the sale of the investment bank it was a rocky time and we were temporarily facing a number of challenges.
What did you do?
We reduced costs and focussed on our core strengths, and made it very clear that we would take our time to improve and adjust. I said it would take five years to shape the firm. I always felt a great growth opportunity was ahead of us. We stopped some activities and we started new investment strategies where we decided to invest behind our multi-asset and fixed income business. Both have been big growth drivers.
What size of business is Schroders now?
We manage close to 300 billion pounds sterling, and we are the largest independent firm in Europe with funds and assets under management. We are listed on the London Stock Exchange, have an £8 billion market capitalisation and are number 55 in the FTSE 100.
What kind of a bank are you?
When we act for private clients our offering is the investment capability of the firm supported by a private banking capability. We do not provide checking accounts; we manage discrete portfolios for private individuals. Worth £32 billion in total, private clients, individuals, families and family offices are 10% of our total business. In 2013 we bought Cazenove Capital Management, now a wholly owned part of Schroders.
What about the other £270 billion?
60% is institutional and 30% is retail mutual funds. The institutional business is pension funds and sovereign wealth funds, and is the biggest part of our business.
Do you operate all over the world?
We have 37 offices around the world, in 27 countries. 65% of our clients come from outside the UK. In the Asia Pacific region we have offices from Sydney to Tokyo. We have investment managers on the ground, managing money for international and local clients. We have diversified the business and have categorised it by asset class, by client type, and by region. Care has been taken to build a diversified business that is not reliant on any single region. We are strongest in the UK, which is 40% of our business. Asia and Europe are each about 20 – 25%, and the USA is about 12%.
Why is the US operation smaller?
The US is a big opportunity for us and over the next years it will grow from 12% to 20%. Organic growth will come from some very strong investment strategies required by institutions, because our US business is focused on institutional and mutual funds. We don’t have American resident private clients and we don’t plan to.
What other challenges have you faced during this 14 years?
We made a sharper focus on performance and exiting areas where we didn’t have a competitive advantage. We have added talent and made new relationships with banks. We have not been pushed off course by the volatility in the markets. We think long term.
What does this mean?
We differentiate how we manage our business and our clients’ portfolios. When the market pulls back it generally creates an opportunity. Every decision we make is based on what it means for the next five years, not for the next quarter. This is a core part of our culture.
How do you handle the superpower that is the Fed today and its setting of interest rates?
Central banks have become more important and influential to short term market movements. In the UK the Bank of England surprised us by pushing expectations back a long way. It’s one element of a set of data that we look at. We have 250 or more analysts looking at macroeconomic and microeconomic data. We have a big research capability here.
Do you think that the Fed will raise its rates this year?
The expectation now is for a rate rise in December. In the UK it has been pushed back to the end of next year, and in Europe it is even further out.
What are investors looking for?
They are looking for income. You get zero on a bank account and a government bond. You need to find other sources of income. It is a real challenge to deliver acceptable returns in a low interest rate environment. The design of our products is to find areas where despite these incredibly low rates we can perform to generate income to meet our clients’ long term financial needs.
What do you consider a good income?
3 – 4 % in this environment. A total return of maybe 7 – 8% would be a good result this year.
What is your view of this troubled world?
There is an unusually high level of uncertainty around right now. China’s slowdown had a deflationary impact on the rest of the world. I believe the leadership can manage the transition from 15% to 6% growth successfully. We are not looking for a hard landing. I think the price of oil will remain low for a long time.
But how do you deal with the unpredictable?
Leaving aside the unpredictable, good work on research and good insights lead to opportunities to select the undervalued. The ability to do that is even more important now; to find opportunities over and above the market itself to generate a successful return.
Do you retain your clients for a long time?
That depends. In wealth management we tend to have long standing client relationships that in many cases survive generational change. That’s what we want. On the institutional side the average client relationship is six to seven years. Changes happen for all sorts of reasons. We must have thousands of institutional relationships.
What do you achieve by travelling?
You learn an enormous amount by seeing clients, staff, governments, central banks. For example, we have 250 people in Shanghai in a joint venture. When I go there next I am expecting to see quite a lot of positive developments. Singapore has seen slower growth recently, but I am also expecting to find people there looking forward to making longer term plans. I will be interested to see if my expectations are correct.
And what about the UK? Will it stay in Europe or not?
Relative to Europe the UK is doing well. As far as Brexit is concerned, I wait to see what is on the table when the referendum comes round. There’s too much emotion in the debate, both polarised Eurosceptics and Europhiles use too emotional language about a decision which should be made on facts and good information. I think it unlikely we will vote to leave. If we do, we will reach an accommodation with the EU after a couple of years, one that works for both sides. Talk of economic suicide or catastrophe is very wide of the mark.
In this world of technology do you still value job applicants who have studied the humanities?
We want engineering or mathematics or science skills, but we don’t turn our back on people who have studied humanities. We look for people who really care, who are curious, passionate about what they do. We want diversity, a very diverse range of backgrounds. That diversity goes into making a very strong collective talent pool. Going to university is the last chance to do something interesting that is not necessarily to do with a career. Reading Voltaire is not a useless activity. We are very open-minded. We are investment managers more than bankers, and I think working here is a fascinating, broad opportunity.
Are you satisfied?
I have been very fortunate and I have had a very interesting career.
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12th November 2015