Schroders Plc: A Contrarian's Opportunity in Active Management's New Era

Schroders Plc (LON:SCH), the 220-year-old British asset manager, finds itself at a critical juncture. While its shares have languished—down 15% over the past three years—the company is executing a bold turnaround strategy that could position it as a beneficiary of secular trends in wealth management and private markets. For investors willing to look past short-term headwinds, Schroders presents a compelling contrarian opportunity. Let's dissect why.

The Underappreciated Wealth Management Engine

Schroders' wealth management division, anchored by Cazenove Capital, is a sleeper asset. Despite £4.7 billion in net outflows across the firm in 2024, wealth management delivered £6.3 billion in new business last year, with Cazenove alone contributing £4 billion. This division targets ultra-high-net-worth individuals and institutions, offering bespoke solutions that blend discretionary portfolio management with access to private markets—a rarity in an industry increasingly commoditized by passive ETFs.

The firm is doubling down on this franchise. Plans include expanding its portfolio management team, enhancing its adviser network via the Benchmark platform, and exploring acquisitions to boost scale. Crucially, wealth management's fee income is sticky: clients pay an average 0.8% fee, with retention rates near 90%. Yet, the stock's current valuation—trading at just 8.5x forward EV/EBITDA—suggests this growth engine is underpriced.

Cost-Cutting Progress and Strategic Focus

Schroders' restructuring is on track. The firm aims to cut £150 million in annual costs by 2027, with £20 million already realized in Q1 2025. A key move: shrinking its top-heavy executive committee from 23 to nine members, streamlining decision-making. Meanwhile, the business is sharpening its focus on high-margin segments.

Public markets are now concentrated in nine core strategies (equities, fixed income, multi-asset) that generate 85% of revenue. This “simplification” reduces complexity and frees capital to fuel growth in private markets and wealth management. The launch of European active ETFs in 2025 further underscores the shift toward hybrid products that blend passive cost efficiency with active expertise—a response to competition from index funds.

The Private Markets Tailwind

Private markets are Schroders' crown jewel. With £70.1 billion under management, this division targets sectors like small/mid-cap buyouts, infrastructure debt, and decarbonization projects, which offer 5-7% annual returns amid public market volatility. The firm's 2025 goal of securing £20 billion in net new private capital is ambitious but achievable: continuation funds (a liquidity tool for investors) alone hit record $71 billion in 2024, with Schroders well-positioned to capitalize on this trend.

The secular case here is strong. Private markets now account for 18% of institutional allocations, up from 10% in 2015, as investors seek diversification and yield. Schroders' focus on niche strategies—such as real estate refinancing and insurance-linked securities—aligns with this demand. Even better: these assets are less correlated with public markets, reducing risk for clients—a key selling point in uncertain times.

Risks to Consider

The family ownership stake remains a concern. The Schroder family controls 44% of the company, raising governance questions. While this hasn't derailed strategy thus far, concentrated ownership can slow innovation or deter activist investors.

Passive fund competition is another hurdle. Schroders' hybrid model—blending ETFs with active management—aims to counter this, but execution is key. The firm's recent £10.8 billion in outflows (excluding joint ventures) highlights lingering client skepticism.

Valuation: A Bargain at Worst-Case Scenarios?

Schroders' valuation assumes a worst-case scenario. At 1.1x book value, it trades at a 40% discount to peers like Man Group (LON:MNG) or Janus Henderson (LON:JHG). Even if earnings stagnate, the dividend yield of 3.8% offers a cushion. Meanwhile, £1.8 billion in net cash reduces balance sheet risk.

The catalysts? A rebound in public market inflows, cost savings hitting targets by 2027, and private markets delivering on their £20 billion growth goal. Management's 2025 goal of returning to top-line growth is achievable if wealth management and private markets outpace outflows.

Investment Thesis: Buy the Dip, Play the Turnaround

Schroders is a classic contrarian play. Its undervalued wealth management division, cost discipline, and exposure to high-growth private markets suggest a margin expansion cycle is underway. While risks like family governance and passive competition linger, they're already priced in.

For long-term investors, a 3-5 year horizon makes sense. Buy on dips below £17 (a 15% discount to its 52-week high) and hold through the near-term volatility. If Schroders can stabilize AUM and hit its cost targets, a rerating to 1.5x book value—closer to its historical average—is plausible, implying 30% upside.

In a world where active management is often written off, Schroders is proving that skill and focus can still deliver. This is a stock for those who trust in the long game.

Data as of July 2025. Past performance does not guarantee future results.