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Planning is well underway to ensure the smooth transfer of the management of £110 billion of Scottish Widows and Lloyds Banking Group insurance and wealth assets to our newly-selected long-term asset management partners, Schroders and BlackRock. We selected them as our new strategic partners last year (2018) following a rigorous selection process in one of Europe’s biggest ever fund mandate tenders.
Schroders will be the active investment manager of £80 billion of Scottish Widows Insurance related assets and Lloyds Wealth related assets while BlackRock, the world’s largest asset manager and a leader in index strategies, will manage £30 billion of passively managed assets. Our new partners have each demonstrated leading asset management capabilities and a deep understanding of insurance companies and our customers, and we expect them to deliver good investment outcomes for customers going forward.
In both cases the deals go beyond just the provision of asset management services and will leverage our partners’ specialist expertise. Schroders is entering into a strategic joint venture with our parent Lloyds Banking Group to create a market-leading wealth management offering. Lloyds will transfer £13 billion of existing wealth management business to the new joint venture. Scottish Widows and BlackRock will enter a strategic partnership on alternative asset classes, sophisticated risk management and investment technology.
There will be no immediate change for customers. Our firm focus in the run-up to the biggest change in our asset management arrangements for years is on ensuring we continue to receive good service and investment performance. Here is a snapshot of our new partners and the expertise they will bring to the table when the new arrangements take effect.
SCHRODERS AT A GLANCE
History: Founded in London in 1804 when Johann Heinrich Schröder became a partner in J. F. Schröder & Co. The London-based firm was founded by his brother, Johann Friedrich Schröder, in 1800. Two centuries later, despite its global stature and the fact it is one of the UK’s largest publically owned companies, the family still control 47% of voting shares, helping to promote stability and independence.
Group CEO: Peter Harrison
Assets Under Management (AUM): £449.4 billion (*as at 30 June 2018)
Schroders is a successful and innovative global financial services firm that has been investing and looking after other people’s money for more than two centuries, giving it deep insights into building clients’ long-term prosperity. It also has a significant track record in investing for retirement, having won the UK’s first pension fund mandate back in 1947.
The firm has extensive investment capabilities across asset classes and a growing private assets business. Its broad capabilities, track record in actively managed investment solutions, stable investment teams and historically strong performance across multiple asset classes were key factors in its success in winning the mandate to actively manage £80 billion of Scottish Widows and Lloyds assets.
It employs around 4,800 people across six continents, so that it can be close to the markets in which it invests. Product innovation is a key focus through its specialist market intelligence team, which has a track record of bringing successful new investment and savings products to market for customers.
Its reputation in wealth management led to the establishment of a wider partnership incorporating a new joint venture wealth management business which will be owned 50.1% by Lloyds and the remainder by Schroders. The rationale of the joint venture is to capitalise on the combination of Schroders’ investment and wealth management expertise and its technology capabilities and Lloyds’ large client base, multi-channel distribution and digital capabilities.
Five years ago Schroders acquired Cazenove Capital, a leading independent wealth management and investment business, which, like Schroders, traces its roots back to the 19th century, cementing Schroders’ position in wealth management. Lloyds will acquire a stake of up to 19.9% in the holding company of Schroders’ UK wealth management business and as part of the agreement refer some of its existing and future clients to it.
BLACKROCK AT A GLANCE
History: BlackRock was founded in the United States in 1988 by eight partners, including current CEO and Chairman Laurence D. Fink.
CEO: Larry Fink
Assets Under Management (AUM): $6.4 trillion (at September 30, 2018)
BlackRock has grown by a mix of domestic and international expansion and strategic acquisition to become both the world’s largest asset management firm and the largest manager of retirement assets. BlackRock’s partnership with Scottish Widows will be led from the UK through BlackRock’s long-established offices in London and Edinburgh. Its 2,800 UK professionals, in close cooperation with the rest of its global investment and technology teams, will offer Scottish Widows unparalleled capabilities and support.
BlackRock will manage £30 billion of Scottish Widows insurance-related assets, investing in index strategies which represent a relatively low-cost approach to ‘passive’ investment. As an investment approach, indexing has doubled in the last seven years and indexing strategies are evolving and becoming more sophisticated. Index funds seek to replicate the performance of specified market indices by investing in the underlying securities that make up a relevant index. This contrasts with the approach of ‘actively-managed’ funds that commonly aim to outperform an index by applying various stock-picking methodologies.
BlackRock pioneered index management over thirty years ago. Since then, they have continued to innovate and redefine indexing using technology, offering a large number of index strategies covering a range of different markets. BlackRock’s team uses skill and ingenuity to create precise and consistent exposures. Its teams build a deep appreciation of local markets and the complexities of the indices they manage against, alongside being able to identify inefficiencies and anticipate changes in order to design efficient trading strategies.
BlackRock’s strong risk management orientation and the substantial investment it has made in proprietary analytical systems strongly distinguishes it. The partnership with Scottish Widows also provides access to BlackRock’s risk management expertise including its proprietary integrated investment platform (Aladdin Risk) which offers a transparent way to model securities, identify and calculate risk and execute trades efficiently.
Investment markets and conditions can change rapidly and, as such, the views expressed in this update should not be taken as statements of fact nor be relied on when making investment decisions. Forecast are opinions only, cannot be guaranteed and should not be relied on when making investment decisions.