March 28 (The following statement was released by the rating agency)
Fitch Ratings says that the acquisition of Cazenove Capital (Cazenove) by Schroders plc
is unlikely, in isolation, to impact Schroders Investment Management's (Schroders IM)
'M1' Asset Manager rating and Schroders plc's 'A+' Long-term Issuer Default Rating (IDR).
Fitch considers that the proposed acquisition will increase Schroders' scale and
capabilities in private banking and wealth management. The acquisition also
strengthens Schroders' already well established presence in the UK intermediary
business, with key additions in UK small and mid-caps, Multi-manager and
absolute return strategies. The transaction preserves the company's global,
diversified business profile. Growth in strategic regions (Asia and US) and
client segments (Sovereign Wealth Funds and private saving pools) is now more
likely to be organic.
In the agency's view, the integration of Cazenove will be facilitated by a
strong cultural fit between the two companies. Key Cazenove portfolio managers
have been identified and incentivised to stay in the new structure. Cazenove's
investment processes and Front Office team's organisation are not expected to
change to provide continuity of service to investors. Nevertheless, Fitch would
expect some medium-term adjustments in the two UK Equities teams, following the
impending departure of Schroders' Head of UK Equities in June 2013. Finally,
Fitch expects Schroders' scalable operational and technology platform to absorb
easily the GBP5.8bn Intermediary assets that Cazenove managed as at end February
2013. For comparison, Schroders net inflows in 2012 were GBP9.7bn.
Schroders' IDR of 'A+', the highest among its asset manager peers, reflects
factors including its diversified franchise, strong profitability, conservative
risk management processes, absence of leverage and high cash position and
generation. If completed, Schroders' proposed acquisition of Cazenove could
further benefit business diversification and should not require the group to
take on any debt. Fitch also acknowledges the potential for benefits of scale to
accrue to the private banking business via the indicated synergies, which could
further improve cash flows.
However, the proposed GBP395m cash consideration does not come without risks and
would reduce Schroders' surplus cash resources and investment capital buffer,
albeit from a currently very high level and potentially (partially) mitigated by
interim profits. Although not Fitch's expectation, downward pressure on the IDR
could arise from an increase in leverage or material reputational damage
resulting from the acquisition. Fitch will continue to monitor all these factors
as the proposed transaction progresses.
Schroders IM's 'M1' rating, the highest asset manager rating, is based on the
company's global, diversified, long established franchise and a solid risk
management framework. Disciplined, research driven investment processes across
asset classes and a robust operational infrastructure also differentiate
Schroders from peers. The Asset Manager Rating covers the London-based
investment activities of the company with the exception of the alternative asset
management business and does not include the private banking business.
Schroders IM, which is the core subsidiary of Schroders plc ('A+'/Stable/'F1'),
is a global asset management company with GBP212.8bn under management as at
end-December 2012 (63% institutional, 37% retail, excluding private banking),
45% of which is invested in equities.
Cazenove is an independent asset management business substantially owned by
current and former employees. Cazenove's assets under management were GBP17.2bn
as at end 2012 (GBP5.1bn in investment funds, GBP12.1bn wealth management).