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The author has written several books about the City and Wall Street and is a former investment banker
I worked at Schroders in the 1990s and was closely involved in the sale of the investment bank to Citigroup in 2000. It was a hard-headed business decision by the board and the Schroder family, who control the company, but I could see at first hand the angst it caused everyone close to it.
The decision to sell the remaining asset management business for £9.9bn to the US-based Nuveen, part of Teachers Insurance and Annuity Association of America, must have involved a similarly difficult reckoning.
The old Schroders was a business with a heart and soul. It had a culture deeply rooted in the City of London. There was a staff canteen. Bruno Schroder, the patriarch, would often join us there for a self-service lunch. Although there were outside shareholders, the family still owned its controlling interest and it felt like a family business. Letting go was difficult for everyone despite the money on the table but there was a strategic view that it was the right time to sell. In the end, there was no room for sentiment.
It was another chapter in the progressive demise of London’s independent investment banks and the replacement of old City values — not all of which were admirable — with what was sometimes characterised as harder-charging Wall Street practices. I wrote about it in my first book The Death of Gentlemanly Capitalism. Reading today about the proposed sale of Schroders, by now a pure asset management business, I wonder if we are seeing history repeat itself.
There are similarities. As before, this will not have been an easy decision for the Schroder family. Family board representation is through Claire Fitzalan Howard and Leonie Schroder: both are descendants of John Henry Schroder, co-founder of the Schroders business in 1804. Their fathers were closely involved in the business and there is a sense in which they are selling the family birthright. I do not know either personally but I would be surprised if these considerations have not weighed on them over the past few weeks.
But just as with the sale of the investment bank, there are industry trends in asset management which are hard to resist. Whereas it was the demand for capital in investment banking that led to that decision to sell in 2000, in asset management the threat of index-tracking asset managers, the rise of private markets and the transformative threat of AI are a challenge to Schroders’ existing business model. It has tried to keep up with these trends but some of its acquisitions, for example in private equity, look poorly timed and the scale required to compete in the new world is daunting.
And as before, it’s another American buying up a venerable City institution. Nuveen is a very different style of institution to Sandy Weill’s Citigroup and is not much larger than Schroders, with assets under management of $1.4tn compared with £824bn for the UK manager. But it is hard to ignore the domicile of Schroders’ new prospective owner. Active fund management at scale is at risk of becoming a US-dominated industry in just the same way that investment banking did at the end of the last century. Yet again, Schroders is just another brick in the wall.
This matters for the status of the City, just as did the sale of the investment bank. Assuming it goes ahead, the London Stock Exchange would lose a prominent listing. Both companies say that London would have the combined group’s largest office and that the Schroders brand would be retained. But while Schroders would exist as an identifiable London entity, it would not be the seat of power in the combined business. That’s what happens if you sell to a foreign business.
Beyond nostalgia, does any of this matter? The sale of the investment bank worked out well for the acquiring shareholders and for most of the Schroders staff who went across to Citigroup. The selling shareholders, both family and institutional, also felt happy with that deal — the way the industry shaped up would have made it hard for Schroders to compete without complete restructuring. The City had long since gone American and survived the loss of its independent merchant banks.
I have a feeling, and I sincerely hope, that the same will prove to be true of the latest proposed deal. The die has already been cast in the direction of US domination of the financial services industry. The City of London has a role to play in a hub-and-spoke model centred on New York and a vital role to play as Europe’s financial services capital. An independent Schroders could have been a part of that. But irresistible trends in the asset management industry, just as in investment banking a quarter of a century ago, make the decision to sell inevitable.