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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. This was a tough business decision by the board and the Schroder family that controlled the company, but I could see firsthand how much it angered everyone close to it.
A similar difficult calculation may have been involved in the decision to sell the remaining asset management business to US-based Nuveen, part of the Teachers Insurance and Annuity Association of America, for £9.9 billion.
The old Schroders was a business with heart and soul. Its culture was deeply rooted in the city of London. There was a staff canteen there. Bruno Schröder, the Vice-Chancellor, often joined us there for self-service lunches. Although there were outside shareholders, the family still owned a controlling interest and it felt like a family business. It was difficult for everyone to leave despite there being 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 emotion.
It was another chapter in the progressive decline of London’s independent investment banks and their replacement by old City values ​​– not all of which were admirable – with what was sometimes characterized as hard-charging Wall Street practices. I wrote about it in my first book death of gentleman capitalism. Reading today about the proposed sale of Schroders, until now a pure asset management business, I wonder whether we are seeing history repeating itself.
There are similarities. As before, this may not have been an easy decision for the Schroder family. The family board is represented through Claire Fitzalan Howard and Leonie Schroder: both are descendants of John Henry Schroder, co-founder of the Schroders business in 1804. His father was closely involved in business and it seems he is selling the family’s birthright. I don’t know personally, but I would be surprised if these thoughts haven’t had any effect on him over the past few weeks.
But like investment bank sales, there are industry trends in asset management that are hard to resist. While it was the demand for capital in investment banking that led to the decision to sell in 2000, the threat of index-tracking asset managers in asset management, the rise of private markets and the transformative threat of AI continue to pose 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, have been poorly timed and the scale required to compete in the new world is challenging.
And like before, it’s another American buying a venerable downtown institution. Nuveen is an institution of a very different style to Sandy Weill’s Citigroup and not much bigger than Schroders, which has $1.4tn of assets under management, compared with £824bn for the UK manager. But it’s hard to ignore the residence of Schroders’ new potential owner. Large-scale active fund management is in danger of becoming an American-dominated industry, just as investment banking did at the turn of the last century. Still, Schroders is just another brick in the wall.
This matters for the state of the city, as for the sale of an investment bank. Assuming this goes ahead, the London Stock Exchange will lose a major listing. The two companies say the combined group will have the largest office in London and the Schroders brand will be retained. But while Schroders will continue to exist as an identifiable London entity, it will not be the seat of power in the combined business. The same thing happens if you sell a foreign business.
Beyond nostalgia, does any of this matter? The sale of the investment bank went well for the acquiring shareholders and for most of Schroders’ employees who joined Citigroup. The selling shareholders, both family and institutional, were also happy with that deal – the way the industry took shape made it hard for Schroders to compete without a complete restructuring. The city had long been Americanized and had survived the loss of its independent merchant banks.
I think and I fully expect the same to be true of the latest proposed deal. The die has already been cast in the direction of American dominance of the financial services industry. The City of London has a role to play in the hub-and-spoke model centered on New York and an important role as the financial services capital of Europe. An independent Schroders could be part of that. But irresistible trends in the asset management industry, as in investment banking a quarter century ago, make the decision to sell inevitable.
