Will 2007, markets permitting, mark a definitive turnround for traditional UK fund managers? A strong set of results from Schroders on Friday certainly suggests a turn for the better. The group managed a 26 per cent jump in pre-tax profits, in spite of further outflows.

Its £3.8bn net outflow is the result of steady losses of balanced fund mandates – the big institutional pension portfolios given to asset managers to invest. Traditional fund managers have suffered as pension funds have split their assets between high-margin specialist managers and low-margin index-trackers and the like. Schroders has, in fact, held on to more of its balanced mandates for longer than many of its competitors. That this shift is now near the end of its course – Schroders’ residual balanced book is a mere £8.5bn – is rather good news.

Schroders has also done a fairly good job of transferring a portion of traditional clients’ money into specialist funds, and its margins have benefited accordingly: for the business as a whole, gross margins have reached 59 basis points, compared with 54 basis points in 2005 and 41 basis points in 2001. Improved margins also partly reflect Schroders’ push into private banking, aimed at wealthy rather than super-rich clients. This now accounts for 10 per cent of profits, a contribution that the management expects to rise further.

Schroders has emerged from the turmoil caused by the demise of balanced funds with a new business model, but more change is afoot. UK managers have a fair geographic spread. But the success of foreign competitors, such as Alliance Bernstein, makes UK fund managers look rather small for comfort.

Schroders may be building its business, in private banking and elsewhere, but it has been slow to deploy its surplus cash. If a global fund management bulge bracket is emerging, UK fund managers have some work to do to win a place in it.

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