Good morning, everyone, and welcome to the Schroders first half results for 2021. I'm joined today, as usual, by Richard Kears, our Chief Financial Officer. I'm afraid we're doing this remotely again. I keep saying to you that hopefully next time we'll be back at 1 London Wall Place. I'll say it again.
Hopefully next time, we'll be back at 1 London Wall Place. We will stick to the usual format. I'll talk briefly about the business and strategy, and Richard will then provide more detail on financials. I'll come back and talk about outlook, and then we'll do Q and A. So turning to the overview.
As you can see, we had a strong first half, net income up 24%. Our business is growing, and we're gaining operational leverage. That means we've improved our costincome ratio, which fell by three points to 67%. Profits were up 33% compared to the 2020 and reached a new record of £407,500,000 That's an exceptional result, I want to emphasize that almost all of this is driven by organic investments that we've made in the past. I'll give you a few examples of that later on.
Assets under management, including JVs, are also up 15% on last year, and we've now surpassed the £700,000,000,000 mark. Net new business was solid with £17,900,000,000 of inflows, and we saw good client demand throughout the first half. Our basic EPS before exceptionals increased 38% to 118.5p. As you can see, the first half has gone well. And given the strong performance of the business, the Board recommended a dividend increase of 6%, which brings the interim dividend to 37p.
Now obviously, one thing which is key to the success of our business is investment performance. Our investment teams ensured they repositioned themselves well as economies changed and the vaccine announcements came out. And that means that our full year performance numbers improved even further. One year, 87% of our assets outperformed. Over three years, it's 75%.
And over five years, it's 82%. That's an excellent result, but I'm pleased that in those areas where performance is really important to net sales like equities and fixed income, we delivered particularly strongly for clients. The numbers of these in equities, we delivered outperformance of 84% in funds over one year, 75% over three years and 84% over five years. And in fixed income, the numbers are particularly strong. 97 of assets outperformed over one year and 96% over both three and five years.
Over the short term, we'll certainly see fluctuations, but the long term numbers are looking strong. Turning to assets. I've already mentioned that AUM growth, but it's good to see where it's come from on this chart. And I'm particularly pleased we've been able to grow the assets we manage on behalf of clients to over £700,000,000,000 which is up 6% on last year. And our AUM in JVs and associates was up 11%, which reached 98,000,000,000 Turning to net new business.
Starting with our Asia Pacific business, it delivered strong flows of £7,300,000,000 which was driven by solid flows in both Hong Kong and Singapore, but also our JVs, in Asia were very strong contributors. In Continental Europe, flows were positive across every jurisdiction, and particularly strong in Italy, Switzerland and Germany. Total flows in Europe Continental Europe were £5,300,000,000 of net new business. We continue to invest heavily in sustainability in Europe, and we repositioned our product set to make the right changes ahead of the SFDR regulation. And that should really help our competitive position.
In North America, we saw positive flows from both The U. S. And Canada, totaling GBP4.6 billion. Pounds The U. S, The Hartford Runge, sold very well, and we also saw small net inflows from our joint venture with A10.
Now I told you a few years ago that we were investing organically to build our presence in Latin America. So it's particularly pleasing to see that come through. Every country in the region contributed positively, and we saw a total of £1,000,000,000 of net new flows from the region. The U. K.
Actually had a good first half, especially in Intermediary. We did suffer from the runoff of the swift book, which I'll come back to in a moment. However, on a net new revenue basis, we were positive as low margin assets were replaced by higher margin mutual funds. Turning to our joint ventures and associates. Both our Bank of Communications and Axis Bank joint ventures performed very strongly in the first half.
Combined, their assets under management continued to grow at a compound annual growth rate of 8.4% since 2016. In China, markets regained their strength in the second quarter, which supported flows in AUM as the business has shifted more towards equity strategy. There's a lot happening in the background in China, particularly the work that we're putting in to launch our wealth management JV with Bank of Communications, which hopefully we will get launched this year. In India, our JV with Axis Bank is now the fastest growing asset manager in the country, and we're the largest manager of Indian equities in the country. It picked up the Asset Manager of the Year Award and the Equity Manager of the Year Award, which was particularly pleasing.
It's remarkable how well these businesses are performing, particularly in India, given all the challenges. And I know Richard was going to talk you through the financial contribution later, but it's really great to see those coming through. Now turning to our key business areas. I've already mentioned full year results. We saw flow momentum pick up strongly in Q4.
This has continued throughout the first half of the year. So in aggregate, net flows of CHF17.9 billion, but excluding joint ventures, that number is still GBP 10,500,000,000.0. I'm going to go into more detail on each segment, but the key point I want to draw out here is the concentration of flows into higher margin areas like wealth management, private assets and mutual funds. And even within mutual funds, there's a strong bias towards equities. So if I just go into those areas in order, starting with wealth management, There's an awful lot of momentum here.
Net operating revenues were up 13% to $2.00 £4,000,000 of revenue contribution, and net operating revenues, are at a new record high. Net new business came in at £1,000,000,000 so assets up 6% at £76,300,000,000 In Casanova Capital, we completed the integration of Sandair, which, as you recall, creates a global family office service. We're also investing in regional expansion, which is on track. Again, we're incurring the cost of that in this period. There isn't a revenue contribution yet, but we are confident that, that will follow.
Within Benchmark, we recently launched the Schroeder Investment Solutions, which offers IFAs a range of managed portfolio services, both with a strong track record but also with very competitive pricing. Benchmark contributed GBP 300,000,000.0 to net inflows. Now within SPW, Shorter Personal Wealth, there's an awful lot happening. Very good to see the business turning the corner into net positive flows. You'll recall that we made a lot of changes at the end of last year under Mark Duckworth's leadership.
The run rate of cost today is running 26% lower than it was at the end of last year. So net operating profit swung positive in March, which was three months ahead of our expectations. And we're seeing a good level of referrals coming through from Lloyd's Banking Group. It's about 1,000 referrals a week going into that business. Now because there's so much to talk about, rather than unpack it here, we will hold another deep dive in October as we did with our private assets business in June.
So turning to private assets. We set out some ambitious targets for you, and I'm pleased to say that we are on target for that. The business is highly profitable. It contributed £157,000,000 to net operating revenues in the first half, which was an 11% increase compared with the first half of twenty twenty. Assets increased by over GBP 2,000,000,000 despite the fact that in the alternatives area, we're in small net outflow of GBP 400,000,000.0, mostly our externally managed Gaia third party fund platform.
We expect Schroders Capital to generate GBP 5,000,000,000 to 8,000,000,000 of net new business per annum. And year to date, we feel we're on track to deliver that. We've also said that we expect assets under management to double by 2025. Now in this period, our private markets business delivered net flows of £2,900,000,000 Demand was particularly strong in securitized credit and private equity. And in addition to that £2,900,000,000 there was a further £2,700,000,000 of dry powder, which was won, but which we're not yet earning a fee on, so we don't include in our assets under management figure.
Now moving on to Solutions. Had a solid first half, contributed over £130,000,000 of net operating revenues, up 9% from the first half of twenty twenty. Now as you know, the nature of this business is lumpy, so we're focused here very much on long term revenue growth and operational leverage. During the first half, we did see the headwind from SWIFT, as you would expect. The outflows were £800,000,000 from SWIFT, and this will be an ongoing feature given the maturity of that book.
But in aggregate, assets under management, was up slightly and closed the period at £194,000,000,000 Now moving on to the mutual fund sector, which was particularly strong. Therefore, I thought it might be quite helpful just to break it out by region. In total, that was £6,400,000,000 of net inflows, positive across all regions. I did mention earlier that some areas are more performance sensitive, and that was certainly a key driver here, particularly in the equity area, which was a standout performer. Now I've also talked in the past about revamping our product set, making it more thematic, putting seed capital to work, ensuring a strong range of sustainable funds.
That was really helpful during the period. I mean our thematic range was particularly strong in Continental Europe, particularly Italy and Benelux. In addition, in The U. S, we saw strong demand from Hartford Schroders, which their assets now surpassed £10,500,000,000 of AUM. So in total, mutual fund assets up 10% to nearly £115,000,000,000 And finally, Institutional Business.
In aggregate, generated £1,000,000,000 of net inflows, and the positive momentum we saw at the end of last year has continued into this year. Here, the regional picture is slightly more mixed. We saw outflows in Asia Pacific, old chestnuts in Australia and Japan, offset by inflows in Institutional Clients, particularly in The U. S. Now I've talked in the past again about making that organic investment in our sales distribution effort in The U.
S, and you've seen a regular pattern now of good strong flows there. And I think that's particularly pleasing reward for that organic investment. In aggregate, our institutional assets under management was up 6% to nearly GBP 170,000,000,000. Going into the second half, we've also got a pretty good unfunded but one pipeline. Now I'm going to hand you over to Richard, and then I'll come back to talk you through the outlook.
Richard?
Thank you, Peter, and good morning, everyone. Today, we are reporting a very strong set of results. They reflect the successful delivery of our strategy with good organic growth across our priority areas. Our mutual fund business has performed particularly strongly, demonstrating the continued value of our core asset management business. At the same time, both our Schroders Capital and Wealth businesses have made good progress as they provide an increasing contribution to the group.
As a result, we have been able to grow our AUM to GBP 700,000,000,000 and to deliver pre exceptional profit before tax of GBP 407,500,000.0. That's an increase in profit of more than GBP 100,000,000 or 33% since H1 twenty twenty. Let me explain how we have delivered that growth, starting with the drivers behind our segmental net income, which increased to CHF 1,300,000,000.0. As I mentioned, our AUM increased to 700,000,000,000, including CHF 98,000,000,000 of assets managed by our associates and JVs. But what matters most to our revenues is average AUM.
Excluding associates and JVs, our average AUM increased 17% from the same period of 2020. The increase in value of our AUM due to markets increased revenues by CHF 118,000,000. That includes an FX headwind of approximately GBP 35,000,000. Net new business increased net operating revenue by GBP 30,000,000. That's predominantly driven by net flows in the 2020 and the continued momentum we have seen in the first half of twenty twenty one.
In addition, our strong investment performance has enabled us to generate GBP 25,000,000 of higher performance fees and carried interest compared to H1 twenty twenty, taking us to GBP 43,000,000 for the half year. At the start of the year, we guided to GBP 70,000,000 of performance fees in carried interest for the full year. As always, it's difficult to predict the final outcome. However, given the performance to date, we could see some upside to this. Let's now look at how this breaks down by business area.
I'll then come back to the other key movements in net income. Our Wealth Management business continues to show good growth. Peter has already mentioned the GBP 1,000,000,000 of net inflows we have seen in H1. Looking at this chart, you can see how that has contributed to strong growth in our annualized net new revenues. This is especially important given the higher longevity of our wealth clients.
Together with good investment returns, the positive flow momentum increased average AUM by 16% compared to same period of 2020. As a result, net operating revenue increased GBP 24,000,000. That was despite a GBP 3,000,000 reduction in net banking interest due to the low interest rate environment. The net operating revenue margin, excluding performance fees, was 56 basis points. This is a bit lower than we guided to due to lower initial advice fees.
We expect the margin to be around the same level for the year as a whole. Moving on to the business areas within our Asset Management segment, starting with Private Assets and Alternatives. Our average AUM increased 5% to GBP 47,000,000,000 in the first half of the year. And as Peter said, this growth was largely driven by flows in Schroders Capital. In the half year, net operating revenue increased 11% to GBP 157,000,000, including CHF12 million of carried interest and CHF2 million of real estate transaction fees as the real estate market opened up again.
Taking account of these fees, which are an important part of this business area, our net operating revenue margin increased from 64 basis points to 67 basis points. Excluding carried interest, the margin was 61.5 basis points. As we deploy some of the GBP 2,700,000,000.0 of dry powder that Peter mentioned earlier, we expect the full year margin to increase to 62 basis points. Next, let's look at our Solutions business. Average AUM is 18% higher than H1 twenty twenty, principally due to the significant wins we generated during the course of last year.
As a result, net operating revenue has increased to CHF 132,000,000. We had a net operating revenue margin of 14 basis points. That's in line with my guidance for the full year, and we expect this to remain stable for the remainder of the year. Now moving on to the more traditional business areas of mutual funds and institutional, which continue to make an important contribution to the group. Starting with mutual funds.
As I mentioned earlier, our mutual fund business has performed very strongly. We ended 2020 with positive flow momentum. And as you've heard from Peter, this has continued in the first half of this year. You can see on the slide the impact of these flows to our annualized net new revenue. This has grown significantly, helping offset the ongoing margin pressures.
Together with good investment returns, these flows helped to increase average AUM by 18% to CHF110 billion. As a result, compared to H1 twenty twenty, mutual funds net operating revenue increased CHF72 million to CHF402 million. Our net operating revenue margin was 74 basis points. That's three basis points higher than the guidance I gave you at the start of the year. This is driven by the demand for equity products, together with the impact of markets on the mix of our AUM.
We expect this margin to remain flat for the full year. Finally, to our Institutional business. Average AUM increased to 164,000,000, and net operating revenue was GBP $284,000,000, up GBP 57,000,000 from H1 twenty twenty. This includes performance fees of GBP 28,000,000. Our net operating revenue margin, excluding performance fees, was 31 basis points.
That's zero five basis point higher than my guidance. We expect the margin to remain stable for the rest of the year. Let's now return to our net income slide. As explained, private assets are an increasingly important part of our group. This asset class often requires us to co invest alongside our clients.
We also continue to deploy seed capital in the development of new products. As a consequence, returns from our balance sheet are an increasingly important component of our results. This is illustrated by the GBP 40,000,000 of net gains on financial instruments we have made in the first half of the year. This is up GBP 50,000,000 from the same period last year when we experienced short term unrealized losses due to the depressed asset prices as a result of the pandemic. Moving on to returns from our associates and JVs.
Developing our strategic partnerships is a core part of our group strategy, particularly as we continue to expand our geographic footprint. As Peter has mentioned, our associates and JVs have again delivered strong growth for the half year. AUM has increased to 98,000,000,000, and our share of profits increased 88% to GBP 38,000,000. That excludes SPW, which is included within the Wealth results I talked through earlier. Our partnership with Bank of Communications in China is the largest contributor, which nearly doubled its profits compared to the same period last year.
This was driven by the growth in AUM and an increase in revenue margins as the business continues to develop its higher margin equity products. The revenue margin across all our associates increased from 32 basis points to 42 basis points. Bringing all of this together, our segmental net income was up GBP $245,000,000 to GBP 1,300,000,000.0. Now let's turn to costs. Starting with the compensation costs, we have accrued these at 46%.
As I said in March, that represents 45% on a like for like basis for 2020 and an additional 1% investment in the organic build out in China, The U. S. And UK regional wealth. As always, bonuses will be finalized later in the year based on market conditions. Non comp costs were GBP $265,000,000, That's up GBP 17,000,000 compared to H1 twenty twenty, largely driven by depreciation of the IT investments we have made in recent years.
To help you, and as I explained last year, a better way of understanding our non comp costs and the operational leverage of our business is to look at them as a percentage of our average AUM, excluding JVs and associates. This is approximately nine basis points compared to 10 basis points in the first half of twenty twenty. There have been some COVID related savings, mainly in relation to travel, but you should note the reduction also reflects the benefit of the increased scalability of our platform. For the full year, we expect non compensation costs of around $545,000,000. Now a quick look at our capital position.
As you can see, we continue to maintain a strong capital position with a capital surplus of CHF 1,300,000,000.0. So in summary, we generated profit before tax and exceptionals of CHF 407,500,000.0. With exceptional items of GBP 33,600,000.0, these are acquisition related principally amortization of intangible assets. And for the full year, we still expect these to be around GBP 70,000,000. Profit after these exceptional items was 373,900,000.0.
The tax rate after exceptional items was 18.5%, resulting in a post tax profit of CHF 304,600,000.0. That represents an increase in our post exceptional EPS of 37%. Reflecting our progressive dividend policy, we have declared an increase in the interim dividend of 2p per share, meaning an interim dividend per share of 37p. As always, we will assess the final dividend in light of the full year results. Overall, we see this as a very strong set of results.
I now hand you back to Peter.
Thank you, Richard. Now as you can see, the business is performing very nicely. And I think importantly, this year, it hasn't stopped performing in mid June as last year, since everyone seemed to disappear off. So we've actually seen good activity through to the July. I'm acutely aware that there is a tussle going on at the moment between the easing effects of low interest rates, lots of quantitative easing and a historical belief that inflation is transitory.
So on the one hand, I'd worry that inflation is a bit more sticky. And on the other hand, we've got this fear that growth isn't gonna come through. And I think with that tussle going on, there is a risk of some market volatility. Set against that, if I look at the strength of our investment performance, the amount of organic investments that we've got coming through and a number of areas where we're incurring costs but not yet seeing the revenues, I am confident about the fact that long term growth and diversification of our business does leave us pretty well placed going into the second half of the year. And obviously, going into 2022, we've got the benefits, for example, of the Wealth Management JV coming through with Bank of Communications.
There are plenty of opportunities for future growth, and I think we're very much focused on continuing to invest the surplus profits we're making in some of those areas of growth back into long term organic growth rate to get that virtual circle going. With that, I'll stop and move on to Q and A. If I could ask you to speak, just name your organization and name, that would be really helpful. Thanks so much. Thank you.
The first question is from Nicholas Herman. Nicholas, please unmute yourself. State the name of the organization you're calling from before asking your question.
Yes. Hello. It's Nicholas Herman from Citigroup. I'm I'm gonna just I'm gonna be cheeky and ask four questions, if that's okay. Firstly, on on wealth.
It looks like the fee margin, although although the overall net operating margin, excluding performance fees, has fallen, it looks like the fee component has been rising despite, as you said, lower advice. So just kind of curious if, one, if that's correct, and secondly, what is driving that particular component? Because I would have thought Sande would have been dilutive. The second question is on compensation. Just sorry if I missed this, but would you be able to decipher here, please, how much of the increase in compensation was investment versus increased variable comp on the improved performance?
The third question is on ESG. It looks like your ESG flows have been really quite strong. Could you provide an outlook on the pipeline there and what's going on there, please? And then the final question, just on your investment performance. It's incredibly strong, so so kudos there.
I I guess I'm just a bit I'm a I'm a little bit also surprised because I guess you're you are traditionally a a value player, would therefore and value has been underperforming versus, let's say, momentum growth strategies. So I'd be interested to understand what is driving the really strong investment performance, please.
Thanks, Nicolas. I'm going to get Richard to take the first two, and I'll pick up the second two. Richard, wealth fee margin?
Yes. There's not much more to add to your question. You're quite right. There's obviously a blend going on there. The initial advice fee is slightly down from what we anticipated at the start of the year.
Sander is slightly dilutive. But in a mix, it's broad. It's not far off where we thought. And it's a very narrow difference from my expectations at the start of the year. So there's no real single key driver.
It's a very narrow change from what we saw, what we forecast in February. Compensation? Compensation. Again, I think the answer is I've always described the in February, described accrual as 45% on a like for like basis. The extra investment really is a step change, and that's the additional 1%.
And that is, as I mentioned just now, in relation to China, UK regional wealth and into The U. S. In improving our distribution capability. So that is extra investment. There's always some going, but the real step change is those three areas.
I think that's how you we wouldn't anticipate that level of additional investment over the underlying rate in a normal year, but this year is a bit exceptional in terms of the real deployment of organic capital in those areas.
If I just take the ESG question, an update on the pipeline. We've obviously done a lot of work in anticipation of SFDR. Our current estimate is that about 75 of our funds in Europe will be Article eight zero nine compliant. So that's a big number, and we think will put us in a strong competitive position. We've also done a lot in terms of creating a range of thematic products as well, and we saw good flows in there, global climate change being the biggest winner, but across a range, ESG fund, particularly popular.
And also the sustainability components, ability to win business against competitors was also strong. On investment performance, I think, look, our teams have navigated the change in markets very well. I mean we've obviously had value doing well immediately post vaccines and then growth doing well of late. And I'm very nervous about making predictions about whether short term performance will be sustained. But the we've seen our fixed income performance, 9697% of our funds outperforming over one year and five years.
So the longer term metrics are much more important here. But I'm really pleased. And the investment we made in things like data science were very helpful when there was a lot of noise in the last eighteen months. Data was poor. Being able to get good reads on unstructured data was very helpful, which I'm sure would have helped our investment performance.
But I should probably keep going because I know you guys have got a busy day, Yes. But
Can I just add one further point to that, 46,000,000 versus pounds 45,000,000 The reason why it's a one year effect is that, clearly, we anticipate strong revenue growth from those initiatives? So it will be self funding in 'twenty two, so that additional 1% will drop away.
That's an important point. That's an important point. Can I take the next question?
Next question is from Arnaud Giblat. Arnaud, please unmute yourself. State the name of your organization before asking your question, please.
Yes. Good morning. It's Arnaud Giblat from Exane BNP. I've got three questions, please. Firstly, on the private assets business.
Could you talk a bit about fund launches that are coming up in the coming quarters? You also indicated GBP 2,700,000,000.0 of dry powder. What sort of pace of investment should we expect for the money to be put to work? Secondly, in terms of the JVs, are you seeing any further opportunities to launch further JVs? And more specifically, on your on the BFC one in China, I was wondering if you could take advantage of the rules to up to increase your ownership.
Is that something we could think of? And finally, more generally, on the M and A side, I suppose we've seen quite a lot of consolidation happening amongst private asset managers now that you've got an established position there. Do you think that there's opportunities to do some incremental bolt ons in private assets?
No, thanks so much. So first of all, on private asset fund launches, we've got launches coming up in securitized, in private equity, in insurance linked securities and a couple of debt funds raising money, just closing off junior infrastructure debt fund. So lots of activity there. And I think we gave some guidance at our last Capital Markets Day. We said between 5,000,000,000 and 9,000,000,000 a year of net flows.
And we think that's reflected in the pipeline of new launches we've got coming through. Nervous about giving it for any one short period, but the long term growth rate seems clear and expecting to double assets by 2025. In terms of the use of dry powder, I haven't got the aggregate number in my head, but a number of the funds have got quite big implementation schedules for second half of twenty twenty one. So we would expect that to run down. But equally, a number of the wins that we will get will create further dry powder into 'twenty two.
But that lead and lag will be a feature of future results. But it is nice to have that dry powder building up. On JVs, Richard might want to add something here. We announced a new partnership, slightly different partnership with Lou International, which is one of the big China tech businesses outside of in working in Singapore, Thailand, Malaysia on digital wealth, which is a different sort of partnership but an interesting one. Increasing our stake with Bank of Communications actually works incredibly well where it is with our 30% stake in the FMC.
And we also have a controlling stake of the WMC, and that feels like a good balance. And we're always we have a number of talks of other partnerships. I think it would be inappropriate to disclose them until they're rather baked. Richard, do want to add anything?
No. Think you've covered it, Peter. Okay.
M and A, you're absolutely right, Arnaud, in your observation on M and A. We've seen a lot of activity. We've also seen it at very high prices. And I have to say that we our moves have been characterized by not trying to overpay, by getting good cultural fit. So yes, we're looking.
We do believe that we want to continue building out both our wealth and private assets businesses. But right now, we see much more a much better return from doing that organically than we do seeing it inorganically. And that won't be true of everything, broadly speaking, prices where they are at the moment, inorganic organic investment seems a better route to go. Thanks, Arnaud. I'll move on to the next question.
Next question is from Hubert Lam. Hubert, please unmute yourself. State the name of your organization before asking your question, please.
Hi, guys. Good morning. It's Hubert Lam from Bank of America. I've got three questions. Firstly, on finance gains and JV and Associates.
They were all well above expectations. How sustainable are they, or have they benefited from the strong market environment in the period? And how should we think about these lines going forward? First question. Secondly, on SPW, inflows were only about 100,000,000 in first half.
Is this what you expected, and how much do you expect this to improve over the next months or year? And then last question is also on SPW. Can you talk about the hiring of new advisers, where we are where are we today? What's the growth been? And how should we expect adviser hiring to accelerate as things get back to normal?
Thanks thanks, Hubert. I'll get Richard to take the question on financial gains.
Yes. So JVs and financial gains. On financial gains, I comment we're clearly deploying more co investment capital, so you should anticipate stronger returns looking forward than we have enjoyed historically. On JVs and is that sustainable? Two of the key JVs we got are Axis and BoCom.
And clearly, we've talked about those in some detail before. They are enjoying strong monthly AUM flows and there's a compounding effect on that. And consequently, the profits are growing and it's no surprise whatsoever in terms of what we delivered in those areas. And in essence, a very significant marked change in the flow environment, I would expect those numbers to continue to improve this year.
I think worth bearing in mind that both the India and China markets are growing savings markets. And that makes the dynamics of getting those long term businesses really, really important. But we are operating in a growth market, albeit with cyclical volatility around that. And they have a good market share. And particularly in China, we've got particularly strong investment performance.
But our we're now the largest manager of Indian equities. Our overall market share, I think, is about 6.3% of an important growth market. So I think that's important looking forward.
And I also highlighted in my presentation, Hubert, the very substantial increase in revenue margin from the JVs as well. Again, the quality of the business has been written that we again, we talked about at the year end, it's the same trend. It's a very positive mix of business that's being sold.
Coming on, Hubert, on SBW inflows. The inflows turned positive about three months earlier than we expected. So this is the legacy book is quite an old book in terms of the age profile. So you've obviously got assets coming in, assets going out, but I think going positive. And you've seen a very strong increase in referrals into the business.
So I think looking forward, we'd expect that number to keep growing. I think the other pleasing thing is that the non referred business, so that's this business which hasn't come through referrals into Lloyd's, has also started to see a good rise. And I think that is an extra leg of growth. So I'm pleased with the progress there. Hiring advisers, our academy is pretty full.
I'm going have the number wrong, but of the order of 70 advisers are in the academy and working through. So an important growth engine for the future. Next question. Sorry, I just sorry, I'll just give one advert. We will be sending you an invitation for a wealth deep dive, which obviously included a lot of detail on SPW, which will be in October.
So we can unpack that in some more detail then. Sorry, next question.
Next question is from David McCann. David, please unmute yourself and state the name of your organization before asking your question, please.
Yes. Most of my questions have actually already been asked. There's only really a couple of more technical ones. Just firstly, performance fees in the first half, obviously, if had any expectations for the full year given where you're at the moment, where they're accruing, that would be handy even if it's just a range. And then just on the tax rate, again, it looked a little bit lower than might have been expected.
Why was that? And what should we forecast in the outlook, at least for the time being, until the corporation tax, I guess, changes in a couple of years. But actually, any thoughts on that? So we'd
also be, too.
Thanks, David. Delighted you're we're answering the right questions. So Richard, go on performance fees.
Performance fees, as I mentioned in the presentation, we forecast at the start of year, 70,000,000. That's a three year rolling average. Clearly, last year was GBP 95,000,000. It's always hard to predict. Clearly, they're much stronger at the half year than we anticipated.
As I indicated, there's clearly some upside potential from the CHF 70,000,000. But it is so dependent on the next six months. So it's really difficult to forecast, but I would anticipate them being on the right side of 70,000,000, not a reduction.
I think the other more general point, bit like Richard made the point on co invest, as the nature of our business changes and the proportion of performance fee earning assets, particularly in carry assets in private markets changes, that's helpful for the long term, which is why we upgraded the portion of assets performance fees a couple of years ago, and we're seeing that validated now, which is pleasing.
Yes. So yes, as Peter mentioned, we used to forecast 50%, improved to 70%. Yes, the three year rolling average at the end of the year might be I wouldn't it's always difficult, David, in terms of forecasting that number, but upside potential, not downside. Tax rate? Tax rate.
The tax rate pre exceptional is 17.5%, tax rate post exceptional is 18.5%. That sounds really low. But the one key ingredient that you need to understand is associates, we bring in our share profits post tax. So as our associates generate strong profit growth, that has the impact of depressing that disclosed tax rate. And I would anticipate the tax rate that we have in 2022, I.
E, next year is not dissimilar to this year's. It's difficult to look out to 2023. Clearly, there is some underlying increase in The UK rate, but it is so dependent on where those revenues accrue and the future growth rates of our associate share of our profits. But I'm very confident on 17.5% for 2021. And all things being equal, with the same mix of business, 17.5% next year.
Thanks, David. Next question?
Next question is from Bruce Hamilton. Bruce, please unmute yourself. State the name of your organization before asking your question, please.
Yes. Bruce Hamilton from Morgan Stanley. Can you hear me? Yes. Excellent.
Yes, most of my questions have been asked. And maybe just on the sustainability side. Pete, you mentioned quite a lot of investment ahead of SFDR, and clearly trying to move or get funds classified as escalator nine. How else are you sort of trying to differentiate? Because I guess most players are saying we'll try and funds into eight to nine.
So thinking around sort of use of data and proprietary data and that sort of thing, what are the other things you're sort of pushing on to differentiate? And should we expect that the costs some of the costs incurred in the first half linked to sustainability fade? Or is this just going be an ongoing area of investment? Secondly, slightly linked, and you've probably given us this, Richard, so I apologize. But you mentioned the temporary sort of 1% increase in the comp ratio linked to investments.
Should that fall away by 2022? Or is it slightly longer as the revenues build in some of those new areas? And then third point, finally, on the sort of outflows from the swift area in Solutions, GBP 800,000,000.0, is that a sort of sensible run rate to assume? Obviously, you'll get wins on the other side, but is that the sort of the natural drag on a six monthly basis? Thanks,
Bruce. Yes. So I think the point on SFDR is an important one. But what I would say is that sustainability happens across the whole portfolio, and we're very focused on European mutual funds in this conversation. But I think there's some much bigger things going on elsewhere.
You've seen Biden's executive order in The U. S, which is was potentially a big change. A lot of Asian regulators look at this. So it impacts the institutional business and our competitive position there. A couple of things that we're doing.
Measurement tools is really important. We've got a our SustainX tool has won loads of awards, which is all about measurement. So as this thing from hand waving or using MSCI ratings, etcetera, I think measurement is going to be key, data is going to be key, and we've had a big investment in there. Reporting, I think impact reporting will get a bigger part. And again, if you can measure it properly, you can then report on it well.
So that's a big change. Will costs fade? I don't think they will. I think this is a I've talked in the past about our industry used to be about two factors, which was risk and return. I think it's now about three factors, risk, return and impact, and being able to really be clear about that impact and be engaging with policymakers, engaging with companies is going to become a bigger and bigger part of our industry and a huge point of competitive advantage.
So I think on that one, Bruce, expect us to keep running very hard at it. But we've got you're absolutely right in calling out data as a key leverage point. A couple of other points. You saw us take a stake in a natural capital measurement business, and it's got the same mindset. But I think we've talked a lot about listed equities.
Private markets is going to become ever more important. And thinking about science nature based solutions to climate change, think, is going to be another item on the agenda. So again, plenty of fast flowing water to be investing in here. So I'm sure we'll spend more time talking about sustainability at future results, but it's a big part of my time and the organization's time at the moment. Comp ratio for 2022, I think we are saying we should expect it to fall off, but Richard, do want to?
Yes, Bruce, absolutely. That 1% uplift is temporary. It's 'twenty one issue only. And I think there's no upside pressure to that additional 1%. In fact, quite reverse.
It is in a call at the moment. But clearly, net income is somewhat higher than we forecast at the start of the year. So there's some downward pressure on that additional 1%, and we're that up as we always do in setting that when the bonus accrual turns into bonus payments, I think there would be some upside in terms of reduction in our cost base rather than any further pressure on that 46%.
I think the other point to make is that you've got quite good visibility on the way in which you hire sales teams and the way the revenue build out. So we've seen the impact in The U. S. We'll see the impact with a high degree of probability in the regional wealth initiative. And China, we're hoping to launch at the back end of this year.
So it's there's quite a lot of clarity around the revenue side, which makes it easier to predict the cost side. On the SWIFT number, is £800,000,000 the right number? I think it's probably a tad low. It's a mature book, but it's really hard to get good visibility on it. So we're I would say that on balance, we'd expect it to be probably slightly higher in the second half, it's a guesstimate.
Bruce, hope that answers your question. Perhaps we'll go to the next question.
The next one is from Mike Werner. Mike, please unmute yourself. State the name of your organization before asking your question, please.
Sure. It's Mike Werner from UBS. Thank you. Two quick questions, as most have been asked. Number one, on the Lloyd's relationship, they have another GBP 30,000,000,000, which is currently being managed, I think, by Aberdeen.
And you have obviously gained a large portion of the previous mandate. And I was just wondering, as we look out into early next year when that mandate the lockup on that mandate expires, if that's something that you expect to win a large portion of? And if so, you know, my understanding is that your solutions business is very leverageable. There's a lot of capacity there. So my understanding is that it would cost very little for you to take on that mandate.
If you could confirm that, that'd be helpful. And then second, in terms of your data science, you indicated how this has been an important part of, some of the performance that you've been able to rack up over the past one and three years. Is the data science team, in terms of investments, is there much in terms of incremental investment that you expect going forward? Or is this
Mike, thanks for your questions. First of all, on the Lloyd's monies, most of that £30,000,000,000 is actually passive money. And if I remember correctly, is basic I think there's £4,000,000,000 ish of real estate funds which will flow to us. And the balance, I believe, will go to a passive manager. So and I'm not certain of the timing on the passive inflow.
I think our flow is next year, if I remember correctly, on that. So I'm afraid to disappoint you, it's only four of the 30, but probably rather more of the revenues. The solutions business is lumpy. We are constantly in the chase for big mandates. And you're absolutely right, that is very leverageable.
And so when it comes in, it tends to come in at the same profit margin as the rest of the group and potentially even a bit better as that business scales up more. Your question on data science, it's really hard to attribute performance. But what we do believe is that the infrastructure is there. It's been particularly helpful actually on applying it to ESG thinking. I would say there's not any further incremental investment required there.
Where we are making incremental investment is on digital marketing, client insights. So we've directed the science at markets, but obviously, directing the science and understanding client behavior is another big piece. So we'll make I mean, won't notice the numbers, but that's, from my perspective, getting data science and product intelligence and in client intelligence is important. I hope that answers your question, Mike. I'm not sure if there's any more questions, but there are.
Yes. Another question, Gergit Cambo. Gergit, please unmute yourself and state the name of your organization before asking your question, please.
Hi. Yes. So it's Gergit here from JPMorgan. Hope you can hear me. Just two questions.
Firstly, on Asia, what's the momentum in Asia in terms of client demand? And what are the sort of key products that clients in Asia are looking to buy from traders? That's the first one. And then just just in terms of, you know, organic growth, that feels like the strategy for the business, you know, in this sort of net near term. What are sort of two or three major kind of organic growth initiatives that you're undertaking at the moment?
Thanks, Gurjit. On Asia, so look, I think we saw good inflows into, all Asian markets with the exception of two two old chestnuts being Japan and Australia. But Japan was net new revenue positive, first half, particularly good growth in Intermediary. And Australia, we're actually seeing good development in private markets there. So overall, the theme in Asia is positive.
And I think the both in equities and income products and multi asset institutional in North Asia, again, continued nicely, as has Intermediary. And on organic growth initiatives, I would the big ones that spring to mind, and Richard's already mentioned U. S. Sales. He's mentioned Kasnov Regional Wealth.
Obviously, China is a big piece. Digital, I think, a digital wealth is a big piece. Digital marketing is a big piece. European intermediary, we think we can do more in those markets. So I think solutions, we see more opportunities for growth there.
So oh, sorry, we've got a number of private debt initiatives which are maturing as well. So we're running pretty we feel that at the moment here to run pretty hard at organic growth. And so we've got seven or eight different strings that we're investing very deliberately into over and above the steady incremental investment to sort of maintain the business in the background. But those are probably the main ones, Gurjit. Next question?
If there's any more questions, please raise your hand. And we've got another question from Nicholas Herman. Nicholas, please unmute yourself, restate the name of your organization before asking your question.
Yes. Sorry. Just a follow-up, please. Nicholas Allen from Citigroup. Just a follow-up on an early question regarding the amount of investment in H1.
You you delivered a 46 comp ratio in line with with that guidance. I mean, it therefore give give at the same time, revenues presumably were a bit better. So is it fair to assume that you're, let's say, 50% to two thirds deployed in terms of that incremental investment for this year?
Thanks, Douglas. Richard?
Yes. No. As I said, I think there's we it is unlikely when we come to the end of the year that we're going to need the full additional 1%. So I would anticipate it being slightly lower, but difficult to predict that with certainty at the moment. So we continue to accrue at 46%.
I don't see any upward pressure on that 46 going north. It's more likely to come down because it's based on a larger net income number than we anticipated at the start of the year. But we're very confident in let me reemphasize. Within the 45%, we always have always invested organically in our business. The reason we talked about the additional 1% was those three areas were very significant organic developments because we saw real value within a relatively short period of time, and we've gone for it.
Yes. I think the other I mean, Richard's right, the revenue picture has been better. And if you think about the way mutual fund fits into high margin mutual funds and private assets have spread right the way through the fourth quarter of last year but also all the way through the first half, that gives you a pretty good following wind coming into the second half. And it's so it's a judgment about your revenues as much as about your costs. And I think Mitch is pointing out the revenue picture, which is an important
part Yes. Of And just to reemphasize that, the quality of the revenue that we delivered in the first half, there's a compact and as Peter said, there's a compounding benefit of the trend we saw in Q4 in October, November, December, January, February, March, April, May, June, the first March of July, they all compound. And a lot that equity mutual fund flow dynamic is really, really valuable, and it's a high quality revenue flow. And that so a fair degree of confidence that the second half is subject to very significant market changes, second half should be quite encouraging.
I hope that helps, Nicolas. Any more questions?
Yes. If you have any further questions, please raise your hand.
No. Well, listen. Thank you for much, everybody. Wish you all the well all the best for a very good summer and for a very busy busy couple of days before that. But thanks ever so much, and look forward to seeing you in person hopefully soon.
Thank you.
Thank you.