Schroders looks to buy smaller rivals

Schroders, the struggling fund management group, yesterday officially put itself on the acquisition trail, saying it was eyeing opportunities to use its £694m cash pile to snap up smaller asset managers.

Michael Dobson, the 6ft-plus chief executive, said he intended to use the funds, gained when Schroders sold its investment bank to Citigroup, within the next two years to buy a smaller rival. He said: "With the industry continuing to be under pressure, valuations are coming down hugely. That makes it very good news that we have nearly £700m of surplus capital, which we would use if we got the right opportunity." Speaking as Schroders swung back into the black in 2002, with an £8.1m loss turning into a £18.9m pre-tax profit, Mr Dobson would not specify exactly what type of acquisition he was looking for.

There have been a number of opportunities recently. Jupiter Asset Management was withdrawn from the market last year after its owners, Commerzbank, failed to attract a high enough bid. But NM Rothschild sold its fund management business to HBOS in December. Henderson, Gartmore and Threadneedle are also rumoured to be on the market.

Schroders has been under pressure to use its cash for acquisitions or return it to shareholders. But Mr Dobson, who was hired to turn Schroders around in 2001, has concentrated on slashing costs and turning around the business's fund management unit, which dogged it in the late 1990s.

Schroders has shed about 700 jobs, or more than 20 per cent of its workforce, during the past two years. It cut its costs by £50m last year and said it would do the same again this year, but signalled that headcount reductions had ended.

"The cost story to an extent is over. We have made a big impact on costs and now we are talking about revenue growth," Mr Dobson said.

Schroders continued to suffer a net outflow of funds under management in 2002, which would continue in the first half of 2003, he warned. Funds under management, 69 per cent of which are in equities, slimmed to £88.3bn in the year to 31 December from £110.4bn. But net outflows of client assets were only £2.2bn against £6bn.

In the UK, net outflows of £3.4bn were a big improvement on the previous year's £10.9bn. However, poor performance continued to drag on its US business, which saw clients pull £3bn of funds.

The business has managed to turn around its performance on much of its retail and institutional funds, with 78 per cent of money Schroders manages performing ahead of their benchmarks. Schroders shares rose 8p to 430p.