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Schroders/Cazenove deal: What will the combined business look like?

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Schroders’ acquisition of Cazenove Capital has been labelled a “natural fit”, with many predicting it will cause little disruption to Cazenove’s existing business. However, questions remain as to how the managing styles and teams will gel and, with inevitable cost-cutting still to come, what the groups stand to gain or lose from the merger?

As part of Schroders’ announcement of its £424m deal to acquire Cazenove, both sides have confirmed the full range of funds and fund managers from Cazenove will remain unchanged after the merger.

Cazenove’s pan-European team headed by Chris Rice and including UK managers Julie Dean, Paul Marriage and Matthew Hudson will remain intact although its name will be changed to the business cycle team.

Cazenove’s multi-manager team of Marcus Brookes, Robin McDonald and Joe Le Jehan will join Schroders’ multi-asset team, headed by Johanna Kyrklund, while the Cazenove credit team will also become part of its counterpart at Schroders.

The acquisition led to speculation that Cazenove fund manager Julie Dean may replace Schroders’ Richard Buxton, who is leaving to join Old Mutual Global Investors in June. However, it has since been confirmed that Dean will continue to run the £1.2bn Cazenove UK Opportunities fund at Schroders.

Advisers appear reassured by the news that the Cazenove funds will remain unchanged, with many including Chelsea Financial and AWD Chase De Vere confirming Cazenove funds will remain on their buy-lists.

However, there are areas where star fund managers will go head to head in the same sectors with similar flagship funds running alongside one another, potentially testing the ‘natural fit’ of both groups.

Schroders head of intermediary Robin Stoakley (pictured) says the two businesses have similar cultures along with a long-term investment approach. He says there is no “overarching house investment style” at Schroders.

Stoakley adds that Cazenove will run almost like a “boutique within a boutique”, with different styles co-existing within a team. In particular, he describes Dean’s Cazenove UK Opportunities fund as “complimentary” to the style of Schroders’ UK Alpha team.

Elsewhere, Stoakley says the addition of the “world class” Cazenove multi-manager team adds to an “area where we haven’t got a strong UK intermediary-focused multi-manager business”.

Chelsea Financial managing director Darius McDermott points out that the Schroders UK team already incorporates different styles. He says: “Schroders already has two UK teams with UK Alpha and a value team running side by side but doing things in different ways. I think Schroders is well set up for that type of structure.”

Charles Stanley head of investment research Ben Yearsley agrees that similar funds can run side by side although he highlights a potential issue within the UK small cap space.

He says: “You have more of a problem when you have got two UK small cap funds. It can be difficult to differentiate when you are in that kind of space. Invesco had a similar problem with the Perpetual merger and ended up merging a growth fund and a value fund in the small cap space.

“Cazenove UK Smaller Companies fund manager Paul Marriage has an excellent track record that is better than Schroders, so there is no reason why they should not be able to sell that fund quite successfully. Also, Schroders has not

really marketed its UK Small Cap fund for a while.”

The £406m Cazenove UK Small Cap fund is the second-best performer in the IMA UK Small Cap sector over three years, returning 98.7 per cent compared with

a sector average of 59.7 per cent. The £297m Schroder UK Small Companies fund, managed by Andy Brough, is also top quartile returning 74.7 per cent.

Hargreaves Lansdown head of investment research Mark Dampier suggests the possibility of merging the two similar UK Small Cap funds is not likely to suit the style of Marriage.

He says: “I would not have thought Paul Marriage will want to run a huge small cap fund because it will effectively be mid cap.”

Although the plan is for Cazenove funds to remain autonomous, some advisers caution over the effects of merging the funds at a later date.

McDermott says: “Where things will get difficult is if they are forced to integrate the range over time. The one thing you want to do when buying a business is to keep the fund managers happy.”

McDermott also says the fund manager talent and “IFA footprint” in Cazenove’s multi-manager team should benefit the Schroders’ multi-asset team.

He says: “Marcus Brookes and his colleagues are experienced individuals and they have a background in multi-asset, multi-disciplined investing both with a growth and income focus. What they will bring to Schroders is their significant IFA footprint.”

Dampier says: “Schroders should be able to take its retail business much wider with the Cazenove proposition, if it wants to challenge the likes of Jupiter in the multi-asset space. Schroders has marketing and distribution expertise, whereas Cazenove brings a good multi-manager team.”

BestInvest head of communications Jason Hollands argues the bigger story on the asset management side could be still to come from cost saving within distribution and marketing.

He says: “You do not need two marketing departments or two sales offices managing the same clients or fund administration.”

There is an argument that the biggest benefit of the deal for Schroders is Cazenove’s private banking offering. Cazenove’s wealth management business is set to add £12.9bn worth of assets

to Schroders’ current private banking AUM of around £16.3bn.

Hollands describes the asset management side as a “tiny add on”, with the real effect of Cazenove’s private banking arm giving Schroders “a pretty significant market share.”

Stoakley believes the addition of Cazenove’s private banking business will make Schroders a top player in private banking and wealth management.

He says: “In my view, we will certainly be a premier league player in private wealth management, in fact I would go as far as to say we are automatic qualifiers for the Champions League.”

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