Deals between "zombie" fund managers inevitable - Schroders CEO

By Iain Withers

LONDON (Reuters) - Britain's fund management sector is likely to see more takeover deals to put troubled companies out of their misery, the chief executive of asset manager Schroders said on Thursday.

Active fund managers have faced tough trading conditions in recent years as clients sought safer havens for their cash in volatile markets, with some mid-size firms continuing to bleed client cash.

"You've got an increasing group of zombie companies that are really struggling to meet the bar," Harrison told Reuters after Schroders reported full-year results for 2023.

"As they see outflows the business model gets more and more challenged. I think you're going to have to see some of those businesses consolidate, there's no way round that," Harrison said, without naming names.

However, Schroders' own preference was to focus its investment on growth areas such as private markets rather than to try to "bang the old businesses together," he added.

Schroders saw its assets under management edge up in 2023, in a sign some active managers are beginning to stem the flow of client cash shifting to passive rivals.

Several of Schroders' smaller rivals, such as abrdn, have continued to report outflows of client cash, and have pledged deep cost cuts in a bid to improve performance.

Wealth manager St James's Place, meanwhile, has seen its shares tumble in recent months amid regulatory scrutiny of its charges on customers.

'RISK RETURNING'

Schroders reported total assets of 750.6 billion pounds ($950 billion) at the end of last year, up 2% on 737.5 billion pounds at the start of 2023.

It also reported net inflows of just 1 billion pounds, but this compared to net outflows of 7.6 billion pounds in 2022.

Schroders' shares were up 1.4% at 0938 GMT.

Analysts at JPMorgan said Schroders missed analyst forecasts for operating profit, adding that investors would want clarity on its ability to control costs in 2024.

Schroders booked restructuring costs of 86.2 million pounds in 2023, which contributed to a 9% dip in operating profit to 661 million pounds in 2023, down on 723 million pounds the prior year.

It said the one-off charge related to job losses, reducing office space and technology changes. It pledged to pay shareholders a final dividend of 15 pence per share.

Harrison said markets remained unsettled ahead of a year of electoral change in many countries, but the firm also saw opportunities, with the prospect of interest rates falling and clients moving back into risk assets.

"We started the year with a definite feel in the retail sector there is risk returning," Harrison said, adding that recent deals in private markets also provided encouragement. ($1 = 0.7898 pounds)

(Reporting by Iain Withers, editing by Sinead Cruise and Keith Weir)