Earnings Call: H1 2020

Jul 30, 2020

Morning, everyone. Welcome to our results for the first half of 2020. I'm joined today by Richard Keers, our Chief Financial Officer. Unfortunately, for obvious reasons, we can't follow our usual routine of welcoming you to our offices at London Wall. We will follow the same format as usual. I'll give you a quick overview of the results and the flows, and strategic progress, and then I'll hand over to Richard to walk through the financials in more detail before coming back. A quick look at the outlook and then Q&A. If you're not logged on to the webcast, you won't be able to view the slides that we're sharing. These are downloadable from the website. Hopefully, you are logged on to the webcast. You'll all have seen the results that we released this morning. We consider these to be particularly resilient, given the extraordinary circumstances we've all lived through throughout this year. Our diversified business model has again performed very well and generated pre-exceptional profits before tax of just over GBP 306 million. We continue to see good levels of net new business. Our clients entrust us with a further GBP 38 billion, driven by two of the three strategic business areas, solutions, and wealth management. We again recorded a new high in assets under management, finishing the period at GBP 525 billion. Our strong capital base meant that we were in a position to declare an unchanged dividend at GBP 0.35 per share. Clearly, we've all experienced an enormous amount of upheaval through the first half as we transitioned to a new way of working. At our peak, over 99% of our people were working remotely. I have to say, I was really pleased by how well everyone's adopted. Through their efforts and thanks to the investment we've made in technology over recent years, productivity has remained high, and the business really hasn't missed a beat. These are extraordinary times, and I do believe we've got a responsibility not just to clients and shareholders, but to wider society and the communities in which we are operating. As an active manager, we've been very engaged with companies in which we invest, supporting them through either capital raises, corporate bond issuance, and through general governance activities. You may have also seen that we're launching an investment trust in the U.K. focused on COVID response. Within BlueOrchard, our impact investing group, we've launched a product to support COVID-affected developing economies aimed at maintaining jobs and building out healthcare systems. Assuming we reach our fundraising target of $350 million, this fund will look to protect 150 million jobs. There's plenty for us to do. Overall, a robust performance at the headline numbers, but let's look at them in more detail. At our full year 2019 results in March, we reported our business in a new way that split assets over five business areas that you'll be aware of. Wealth management, private assets and alternative solutions, mutual funds, and institutional. Turning to the first chart. You'll recognize this from that presentation, but I wanted to provide you with an updated version today. I've talked in the past about the three strategic objectives of moving closer to our clients through wealth management, expanding our investment capabilities in private assets, and growing our core business through solutions. These objectives remain unchanged and clearly map into the first three business areas. At the end of June, the strategic growth that we've achieved together accounted for 54% of AUM. That's up from just over half at the year-end. But if you look from the start of 2016, when we set this strategy out, it's grown from 35%. Similarly, their contribution to the group has grown over the period from 29% at the beginning of 2016 to 44% today. That's not to say that mutual funds and institutional are not an important and valued part of our business. They still account for over half our revenues, and we see growth opportunities across both. But moving forward, we expect these first three areas will be the primary drivers of future growth. I'd like to walk you through the highlights for the first half in each of these business areas, and I'll start with wealth management. Wealth continued to see strong momentum in the first half of the year. Richard will give you the details, but we've seen good growth in both revenues and profits. Client experience is obviously key in this area, and we've been helped by continued strong investment performance right across the business area. Over three years, 80% of our wealth management assets have outperformed their objectives. We also continue to see good client flows. We saw GBP 1.3 billion of net new business in the first half. Another good performance from Cazenove, GBP 0.8 billion of inflows. But we're also supported by GBP 0.4 billion of inflows at Benchmark Capital. Schroders Personal Wealth also saw positive flows, but these were somewhat more muted at around GBP 0.1 billion. You'll be aware that the growth of this business relies on client referrals from the network of Lloyds branches across the country. With these branches being forced to close as a result of COVID, we inevitably saw a decrease in the amount of referrals coming through. This is absolutely a short-term issue, and our confidence in the business model and underlying growth story remains unchanged. We've made very good progress at transitioning clients onto the new technology platform for future growth. Moving on to areas within asset management. Firstly, if we start with private assets and alternatives. Overall, we saw a small net outflow of around GBP 0.4 billion. But actually, we need to look underneath the underlying story to draw a distinction between private assets and alternatives. If you look at private assets, first of all, we continue to see good net inflows in real estate, private equity, and infrastructure, cumulatively around GBP 0.7 billion. What drove the outflows, however, were redemptions from the more liquid alternatives side, most notably emerging market, debt, absolute return strategy, and in our third-party managed GAIA fund range. We also saw some really good progress on future fundraisings, which are to close in the second half of this year, in real estate, private equity, and impact investing funds. It's worth considering that in many cases, the private assets business model relies upon client roadshows, getting out there and meeting investors to raise new capital. It's clearly not an environment which has been easy to do this, or in many cases, even possible. Against that challenging background, I'm reassured that we've seen both inflows in private assets and good levels of fundraising activity looking forward. You might also have seen that we announced an acquisition a few weeks ago. Pamfleet is a real estate manager with an exceptional track record of investing in Asia, and this allows us to expand our real estate capabilities and build yet further our global footprint of private assets. It joins the group with just under GBP 1 billion of AUM, and we expect it to complete in the coming days. Now on to our third business area, solutions. It's clear from the graph on the right that there's been another successful period for our solutions team, and really driven by bulk of new flows in the first half, with over GBP 42 billion of net new business. Of that, Swift accounted for GBP 28.7 billion of inflows, so there was good growth beyond that. We saw a number of other mandates, including a significant U.S. win, which we alluded to at the half year stage. There's also good momentum here and strong growth in both inflows and AUM. Solutions now accounts for one-third of our total group assets. Now, what could be considered the more traditional areas of the business, mutual fund flows and institutional. Clearly, the backdrop here has been more challenging, and we've seen a risk-off environment pervade across both areas through much of the first half, and particularly concentrated in a six-week period in March and April. I'll come back and look at the asset class view shortly, but we've seen across both of these charts is a move out of equities and into fixed income. In mutual funds, we saw net outflows of GBP 4.8 billion, the vast majority of which came in March as that global crisis first hit. The second quarter, while still slightly net negative, saw a good degree of stability of flows and indeed in many global markets. In institutional, there was small outflows of GBP 0.7 billion, despite some mandate funding across the U.K. and U.S.-based clients. If we look at the asset class view, we can immediately see there's a very clear picture of flows into multi-asset and to a lesser extent, fixed income, and some flows out of equities. Interestingly, this contributed from a risk-off environment, and the result in change in asset allocation rather than anything performance-related. Our investment performance in both equities and fixed income has held up really well. 69% of our equity assets outperformed, and bear in mind they're primarily judged against demanding market indices. And 79% of fixed income outperformed over the three-year period. To look at each in turn, multi-asset inflows of GBP 42.1 billion, largely driven by solutions mandates, largely in risk control growth and LDI. Fixed income saw GBP 2.2 billion of net inflows. Institutional demand for U.S. and global bond strategies and ongoing retail flows into European credit, we should expect. Private assets I have already discussed with 0.4 billion of outflows. Finally, on to equities, where risk off environment led to our outflows totaling 7.1 billion. We did have some positive inflows into global equities, but otherwise the crisis really hit across all regions and all desks. Finally on flows, a quick look at the regional view. The U.K. had a very good first half of the year with 34 billion of inflows. Going back, 28 billion of that obviously being Swift. Private assets and institutional business also produced good positive flows. In America, 9.4 billion of positive flows. Again, solutions was the largest contributor, and it is encouraging to expand that capability from outside our home market of the U.K. into the U.S. Latin America also had a good first half, 0.5 billion. I think what really encouraged me was the breadth of new product sales, which are now going into the U.S., in terms of the number of different strategies we have been able to export there. If we look across Europe, we saw 2.8 billion of outflows, which I think is to be expected given the cyclicality of the region and mutual fund redemptions, which impacted most of our region offices, with the notable exception of Spain. Asia Pacific, where, of course, the crisis hit first, it really was a case of risk off right across the region. We saw 3.7 billion of outflows, again, led by redemptions in Australia, which were offset with some positive inflows in our direct China business. Before I hand over to Richard, I just want a quick word on our joint ventures and associates, which are becoming increasingly important. They have been growing steadily over recent years and making a real contribution to results. I want to go into a little bit more detail on the main three. BoCom Schroders in China, Axis in India, and Schroders Personal Wealth in the U.K. First of all, BoCom has been a fantastic success story and continues to deliver really strong performance both, in investment terms and financially. Fundraising activity has been very successful this year. A number of oversubscribed IPOs. Net new business in the first half of the year was over £9 billion. The business in aggregate has now almost reached £70 billion. Neither of these numbers are included in our net new business or our assets under management figures. We have also seen good growth from our JV partner in India, Axis Bank. They saw over 2 billion of inflows in the first half, growing AUM to over £15 billion. Their market share continues to move upwards and is now over 5.5%, reaching, the eighth largest mutual fund complex in India and fourth largest in equities. I have already touched on Schroders Personal Wealth earlier, but to reiterate, it is understandably been a challenging period to raise inflows with bank branches being forcibly closed. But the process of moving clients onto a new technology platform continues apace and lifting that business out of Lloyds has We have made good progress on that. We remain very confident of the long-term growth story and the business potential. On that, I will hand over to Richard and come back and talk about the outlook in a moment. Thank you. Richard. Thank you, Peter, and good morning, everyone. As you just heard, the business has continued to function well in what are extraordinary times. This performance is reflected in the resilient results that we have announced this morning, which demonstrate the benefit of our diversified business. I will now talk you through the key components, starting with net income. Net income was GBP 29 million lower than H1 2019. You will remember that our segmental reporting now includes the proportional consolidation of SPW. Showing it this way reflects how we manage the business and provides more relevant information about the revenue margins we earn on the assets. Slide 7 shows how net income has moved on this basis. As you know, markets and FX impact both the value and mix of our AUM. Together with margin attrition, they have reduced revenues by around GBP 25 million. This reduction has been largely offset by net new business, which has increased revenues by GBP 20 million. That is the impact of flows from the second half of 2019, together with the net inflows we have generated in the first half of 2020. As you may expect, performance fees and carried interests are slightly lower but still reflect a strong performance. I will come back to the other items shortly, but first, let us look at how these movements in net operating revenue come through the business areas. Starting with wealth management. We have continued to see strong growth from our wealth business. We generated net inflows of GBP 1.3 billion in H1, with average AUM up 35% compared to the same period in 2019. As a result, net operating revenues increased to GBP 180 million, including GBP 35 million of revenues from SPW. This performance sustains the positive momentum we have seen over the past few years in this strategically important part of the group. Wealth management revenue margins excluding performance fees were 57 basis points. This is a bit lower than we guided to at the start of the year due to lower net interest margins and the impact of markets on the mix of business. The full year impact of these factors could cause the margin to reduce a little further, maybe half a basis point. Moving to asset management. Asset management net operating revenues decreased GBP 33 million compared to the same period in 2019. We generated performance fees and carried interest of GBP 18 million, reflecting strong investment performance in the context of the current environment. At the start of the year, we guided to GBP 50 million of performance fees and carried interest. But as always, it is very difficult to predict the final outcome for the year. Excluding these, net operating revenues were down GBP 24 million or 3%. Let us look at how that breaks down across the four business areas that make up asset management. Private assets and alternatives, solutions, mutual funds, and institutional. Starting with private assets. We have delivered strong growth in management fees as these increased 20% to GBP 140 million. That was driven by a GBP 7 billion increase in average AUM, which included the contribution from the acquisitions we completed in 2020, most significantly BlueOrchard. Peter has already mentioned that the current conditions have impacted fundraising activity. There has also been an impact on carried interest and the volume of real estate transaction fees, which fell from GBP 31 million to GBP 2 million, more than offsetting the increase in management fees. These fees are excluded from our net operating revenue margin, which was 63 basis points. We expect this to remain broadly stable for the year as a whole. This is slightly higher than the guidance we gave at the start of the year, as we have had outflows from lower margin alternative products. Next, let's look at our solutions business. As you've heard from Peter, we have generated net inflows of GBP 43 billion into solutions in the first half of 2020. That's greater than the pipeline I referred to at the year-end, and reflects continued client demand in this growth area. As a result, AUM increased to GBP 175 billion. This is the main driver of the net operating revenue increasing to GBP 121 million. We had a net operating revenue margin of 15 basis points. That's a bit higher than my guidance for the full year, but this is simply due to the timing of net inflows, and we still expect our margin to be around 14 basis points for the full year. As I explained in March, the nature and size of these assets means that whilst they typically attract a lower revenue margin, the incremental costs are low. As a consequence, the profit margin is similar to the group's overall margin, and the assets have significantly greater longevity. It's these characteristics that continue to make this business an important part of our growth strategy. So overall, a good performance across our three strategic growth priorities. Let's now look at the mutual funds and institutional business areas, which continue to make an important contribution to the group. As you can see on the slide, these more traditional parts of our business remain subject to wider market pressures. Starting with our mutual funds business. Mutual funds contributed GBP 330 million of net operating revenues in the first half, down 9% compared to H1 2019. Average AUM was down 6% as it was impacted by markets and the current risk-off environment. Our net operating revenue margin was 71 basis points, which is in line with the guidance I gave at the start of the year. That's three basis points lower than the H1 2019, as a result of longer-term pricing pressures and changes in mix. We may see the margin drop a bit further in the second half as the impact of markets on mix continues to come through. Maybe a bit. Finally, to our institutional business. Net operating revenues were GBP 227 million, a little down from the GBP 234 million we recognized in H1 2019. The decrease is principally a result of the current market conditions and the headwinds that I highlighted in March. We have continued to see clients de-risk their portfolios and move asset allocations further towards lower margin fixed income products. As a result, our net operating revenue margin has decreased to 31 basis points. That's one bit lower than the guidance we gave at the start of the year, due to the impact of falling markets on mix. The effect of that margin reduction has been partly offset by higher performance fees of GBP 17 million, demonstrating our strong investment performance in equities and fixed income, which Peter referred to earlier. Like mutual funds, we may see the margin drop a bit further in the second half to around 30 basis points for the full year as the mix impact continues to come through. Clearly, there will be some offset if equity markets perform strongly in the second half. Let's now return to our net income slide. As we've said before, targeted acquisitions have a part to play as we build our capabilities in line with our overall strategy. Acquisitions increased net operating revenues by GBP 20 million compared to the same period in 2019. That's driven by the acquisitions we completed in 2019, mainly BlueOrchard, Blue Asset Management, and the wealth management business of Thirdrock. You'll also recall that associates and JVs are an important part of our growth strategy. I've already talked about SPW as part of our wealth management business. Excluding that, our share of profits from associates and JVs increased by GBP 6 million for the half year. That was principally driven by the continued growth in our partnership with Bank of Communications in China. Given the increasing significance of BoCom on our results, we have set out some additional detail on this slide. Peter has just talked about the GBP 9.1 billion of record net inflows in the first half of the year. At the end of June, the business had GBP 69 billion of AUM. These flows have primarily been into higher margin products. This has helped to improve revenue margins from 22 basis points in H1 2019 to 29 basis points in the first half of this year, which has translated to increased profits. Now to wrap up on net income. Other income increased by GBP 17 million compared to the same period in 2019. This is largely due to fair value movements on financial instruments. They include unrealized losses of GBP 13 million on seed capital, co-investments, and investment capital. Whilst we have marked these positions down in line with accounting rules, the movements are considered temporary. So we have seen the recent market volatility impact the results in three areas. First, management fees, which are directly impacted by lower asset values and lower margins as a result of the changes in business mix. Second, lower cash interest due to falls in net asset value of the underlying investments. Although we have seen an offset from higher performance fees, which generally arose early in the year. Finally, our proprietary investments that I have just mentioned. Bringing all of that together with other movements, net income was down GBP 29 million to just over GBP 1 billion. Now let's turn to costs. Comp costs continue to be the biggest component of our cost base as they make up 65% of our total costs. We have increased our comp ratio to 45%, which brings it within our target range of 45%-49%. It means total comp is still down despite an increase in head count. Non-comp costs were GBP 248 million, up GBP 9 million compared to H1 2019, mainly due to acquisitions. This is better than I guided to at the start of the year, reflecting cost savings, principally in marketing and travel. We may see some return to more normalized cost levels in the second half, but this will be dependent on COVID-19 related developments as well as FX rates. You will recall the chart on the right from the year-end presentation. It shows our non-comp costs as a percentage of average AUM. The percentage increased over the last couple of years as we invested in our systems and technology, but as I previously highlighted, it is now starting to come back down. On an annualized basis, non-comp costs have fallen from 11 basis points in 2019 to 10 basis points in the first half of 2020. You will appreciate that this incorporates some of the cost savings I have just highlighted. But importantly, it also demonstrates the efficiencies we are able to deliver as we build scale and leverage our new operating platform. Our investments in systems and technology have also provided operational flexibility. In the current environment, that has been especially important in enabling a smooth transition to remote working and allowing the business to continue to operate as normal to deliver against our strategic priorities. As an illustration of this operational resilience, we have successfully completed a major operating model change by moving our U.K. transfer agency services to HSBC. That is a culmination of a two-year program, which completed in line with our plans, but whilst in lockdown. Now let us turn to the final section on capital. Notwithstanding the current market environment, you can see we continue to maintain a strong capital position. This is a key strength, particularly in the current environment. It means we can continue to invest in the future growth of the business and demonstrates, once again, the resilience of our business model. In summary, we generated profit before tax and exceptionals of GBP 306.2 million. We had exceptional items of GBP 26 million. As you know, these are typically acquisition-related, and are principally the amortization of intangible assets. Meaning a profit after exceptional items of GBP 280.1 million. The tax rate was 20%, resulting in a post-tax profit of GBP 222.7 million. Reflecting this resilient performance and our strong balance sheet, we have declared an unchanged interim dividend of 35 pence. Overall, we believe this is a robust set of results delivered against the extraordinary backdrop. I now hand you back to Peter. Thanks, Richard. A quick word on the outlook, and then we will move straight on to Q&A. We have clearly been through an extraordinary time in the first six months, and I do not think any of us could have predicted it. The end of the first quarter finished with extreme market volatility. We have clearly seen markets stabilize a little and volatility recede significantly. I do think there is uncertainty remaining. I think any recovery will be correlated with the effectiveness of containment measures taken by governments and efforts around the world. But as far as our business is concerned, we very much remain focused on delivering our strategy. We will continue to invest for future growth of the business, repositioning towards those areas of high quality and high client longevity. The resilience of the business model and diversity of the business model is really important to us. I think it's paid real dividends in this period and will continue to do so during further periods of stress. With this focused strategy and a highly diversified model, we do believe that we're well-placed to carry on delivering long-term value for both clients and shareholders. Particularly, delivering good investment performance, which at the end of the day is fundamental to active managers beating market indices. With that, let's go straight on to questions. I'm very keen that you should be free by 10:00 A.M. to be able to do the Man Group results. Let's move straight on to questions. Thank you. If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad now, and please ensure that your line remains unmuted. If you change your mind and wish to withdraw your question, please press star two. Okay. The first question in the queue comes from the line of Gurjit Kambo from J.P. Morgan. You are unmuted. Please go ahead. Hi there. Thank you for the presentation. Just a couple of questions. Firstly, just on the private asset side of things, can you give us a bit more color around, are you seeing more appetite with the liquid structures or are you seeing some of the closed-end funds seeing more demand? I think you mentioned a couple of launches in the second half, what sort of areas those are in, whether they're closed or liquid. Then the second one is just on the U.S., just on Hartford, any sort of update there, what sort of product ranges are being sold. Then one for you, Richard, just on the sort of that you gave at the full-year results stage, given we're clearly running below that, do you expect some acceleration in the second half or kind of back to more normal kind of second rate for Schroders too? Gurjit, thanks for the question. I got the first two clearly. We might ask you to repeat the third one. Yeah, sure. But let me just take the first two through. First of all, on private assets, fundraisings that we are seeing in hotels where we have just raised a fund, the timing of which looks very opportune if you think about what is happening in that sector, in infrastructure, and in helping developing economies, particularly there is a COVID-related fund, but there are also climate-related funds. So those impact funds, I think, are well-timed. But there is also a couple of securitized vehicles there. So a TALF product, which is a sort of response to what is going on in the U.S., and I think is opportune in its timing. The more liquid structures actually are the ones causing the challenge. I think in the short term, we have seen a real slowdown in liquid alts. There is a degree of cyclicality. I have to say, I was slightly surprised by that because our liquid alt strategies have really delivered to label. And the investment we have made, for example, in Helix, has done exactly what one would have hoped to do and limited downside drawdown. But I think what tends to happen is those things bounce back as markets normalize and people look at the compounded returns over time. But the private asset momentum is more in the longer-term fixed life stuff. On the U.S., Hartford has continued to deliver. We are seeing activity, particularly in international equity, but I think that is a market share game really in there. But activity in emerging markets and some in tax-aware bonds. I think for us, we are in a very decent position of taking share and exporting good products. The really interesting thing to my mind is what is it that we've been selling around the rest of the world that we can take to the U.S. institutional market? There you'll be aware that we've restructured our U.S. business a couple of years ago, and we're starting to see that pay dividends. The amount of business we're getting through the consultant channel has pretty well doubled as a portion of the total. Not only in the intermediary Hartford channel, but also institutional, it looks like a much better quality mix, Gurjit. Richard, did you get the third question? Gurjit, we lost you halfway through the third question. No, sure. Peter. Yeah, sure. Richard, thanks for the guidance around the margins. That's very helpful. Just in terms of the non-comp, I think it was 520, the number you'd given at the full-year results stage. Just given clearly we're running below that, and I suspect some of that is related to COVID, less travel, et cetera. Should we expect a normalization in the second half or a catch-up? Any guidance on that would be helpful. The full-year guidance was 525. Clearly we have seen in the first half an extraordinary drop in travel. We were looking to decrease our travel by 30%, but that was for doing the right thing for the environment and using our technology. Clearly we did not anticipate almost 100% drop-off post-February. Travel is an important part of the cost base. Where travel goes really depends on how well the market opens up. If it does, because there is not a significant second spike, I am not a predictor of the future, then we would want to get back in front of our clients, and we would see some normalization. I do not see that anytime soon, Gurjit, so it is not going to be immediate pickup. The same in some degrees to marketing activity as well. It sort of closely correlated. The quicker we can get back to normal levels is a good thing, but I would not anticipate it being a full impact in the second half. There are clearly savings that are going to be banked, but we are also looking. I think one thing this crisis has taught us is we can use our technology better. We can be more efficient in terms of how we see our clients, as Peter has referred to. This has been a quantum change in human behaviors and how businesses are going to respond. I think there will be some long-term savings that we bank as well. There were a few things that distorted the first half compared to the year before. In 2019, we did have a very significant compensation credit for the late delivery of our building. Largely, the increase against 2019 to 2020 is we have not had that GBP 12 million credit, and FX has hurt a little. I hope that gives some color. Yeah. Okay. It is quite difficult to be precise. It really depends on how quickly the global market opens up. Okay. But it feels probably fair that we could maybe trim a little bit of that 5.5 for the- Oh, definitely. Yeah. Definitely. Okay. But the less we deliver in terms of the saving, the more the market has opened up. Sure. So it's a catch-22, yeah. We want marketing activity and sit there. Get back to see our clients. Okay, understood. Thank you. Perfect. Thank you very much. We currently have five questions in the queue. The next question comes from the line of Nicholas Herman from Citigroup. Nicholas, you're unmuted. Please go ahead. Yes, good morning, and thank you for taking my questions. A couple of questions, please. Firstly, on the wealth side, particularly SPW. I think I heard you say that the net operating revenue for SPW was about GBP 35 million. That suggests it would be something in the range of about 100 basis points margin, if I got that right. But that's a fair bit lower than the 160, I think, that we were previously guided to. So interested to hear what's going on there, and if you could update us on the margin expectations for SPW, please. Secondly, also on SPW in terms of advisor build-up, I appreciate that it's been difficult to get flows given branch cuts, but can you also update us on your build-out of the advisor network in SPW? And then finally, on investment performance. You noted strong performance in equities and fixed income, but equally, it looks like your aggregate investment performance deteriorated in the first half versus in 2019. So where are you seeing weaker performance, please? Thank you. Great. Thanks, Nicholas. I'll let Richard take the first one. The first one in terms of those SPW margins, I think the difference is the 100 basis points is our share of those revenues. The 190 that you referred to was the aggregate fee, but clearly we only enjoy half of that, which is basically the 100 basis points you referred to. If I talk about the build-out of advisor network. We've been working incredibly hard to upgrade the technology platform and basically re-platform the whole of that business. So advisor numbers is not our short-term focus, although clearly getting the academy set up and running is critical. You'll see that we brought in Mark Duckworth, previously CEO of Openwork, who had an excellent track record of building out the advisor numbers at Openwork. So we remain very focused on it, but it wasn't the priority in the first half, nor is it the priority, actually, in the second half. The key is to deliver people the right technology platform and get the referrals coming through. Then we want to ramp up. There's just a phasing period of getting the pipelines full. On investment performance, it's a really important point you make. Talked about 69% of equities, 70% of fixed income. The big delta with the three-year number is the multi-asset performance number, which many of those funds have an absolute return or a CPI hurdle. We are down in the 20% of our multi-asset funds not beating the absolute return hurdle. That is a very tough measure. We do not report on narrow competitor numbers. But if you look at our competitive positioning of our multi-asset performance, we are still seeing good inflows. We are typically second quartile against peers, but we choose to report it against the absolute return benchmark. In this environment, it has hurt the reported numbers, but it has not really hurt our competitive position. Got it. Thank you. That is very helpful. It sounds like, therefore, you are not concerned either that it could actually impact at a future date either, then. No. Look, I think that if you take the very long-term view, you clearly want to beat those absolute return hurdles because that is what clients are in it for. But we think that almost 70% of clients beating market indices, that has been a really tough hurdle for active managers. The performance numbers that we are getting in are absolutely not a cause for concern at all. Great. Thank you. Okay. Thank you very much. Moving on to the next question from the line of Charles Bendit from Redburn. Charles, you are unmuted. Please go ahead. Thanks very much. A couple of questions from me. One more in regards to Schroders Personal Wealth. Clearly, flows rely on network referrals from Lloyds and therefore being impacted by branch closures. What are your expectations for the second half of the year around net new business now that things are opening up a bit? My second question on BlueOrchard, which you acquired fairly recently. How is progress there? You mentioned it being a game changer in regards to impact investing at Schroders. Have you noticed clients increasingly engaging on ESG over the past 6 months, particularly after COVID-19? Those are my two questions. Thanks. Yeah. Good question, Charles. Thanks. I think two things on the network referrals from SPW. Not only were the branches closed, but also within the branches, most of their senior advisors were focused on dealing with people's mortgage rescheduling, et cetera. They were not really focused on issues of wealth. It is really quite hard to call the second half. You can see from the high street that there is not a great deal of normality and people wandering around, so I do not want to predict that. Do I think that fundamentally the U.K. has a massive advice gap and a huge shortage of people now starting to think about their wellbeing and long-term financial planning? Absolutely. How that manifests in referrals, it is really quite hard to call. Fundamentally, the long-term is very bullish, but short-term, it is just hard to understand consumer behavior. Difficult to be much more precise than that, but I think that we are clearly working hard on it. I can see, I think probably by the back end of the year, we will get some good momentum, but it is very much guesswork, I am afraid, at this stage. On BlueOrchard, I think impact becomes a new paradigm. My personal view is that ESG will cease to be something we all talk about in 5 years' time. I think it will be just taken for granted, and we will all be focused much more on impact. That is clearly much easier to have in private markets than in public. There has been a huge amount of engagement on it. The notion of this whole area of blended finance where you work together with development agencies to have specific impacts, and they are often measured against UN SDGs, saying how can you affect change in quality jobs or whatever it may be. That has been a big area of discussion, and I think you are seeing clearly development agencies stepping up more and more around the world to address those problems. So good progress there. Also, we have just now got all the distribution agreements in place to get the full Schroders sales force being in a position to properly market the BlueOrchard product. So again, expanding that through the rest of the group will be an important part of it. But we have also benefited, I think, significantly from understanding their thinking and knowledge. These guys are real leaders in this area. The business was set up by the United Nations initiative, and that for me is they have been at it for 20 years. Most people have only just started out, and that knowledge base has been really important to helping our own thinking. Thanks very much. Thanks, Charles. Lovely. Thank you. The next question comes from the line of Arnaud Giblat from Exane. Arnaud, you are unmuted. Please go ahead. Arno? Great. Hello, can you hear me? Yep, we can now. Yeah. Sorry about that. I've got two questions, please. Firstly, on private assets. Clearly, that's doing very well. You gave a bit of color on where the focus is in the near term. I'm just wondering longer term, what sort of product initiatives agreements might you be working on? What sort of seed money is going there to try and develop what's coming over the next five years? Especially, a sub-question to that, when I look at what's going on globally, it seems to be that wealth channels are more and more pushing private assets. Is there an opportunity to leverage the ownership of both a wealth and a private asset, so business to put them together to try and expand growth there? My second question is on BoCom. Thanks for the incremental disclosure. Do you have any thoughts about the rule changes in China where you can increase ownership? Is that something you might be looking at? Thank you. Sure. Thanks, Arnaud. First of all, private assets. The product initiatives are We have seen them in a number of different areas. So infrastructure is really important to many insurance books, so there is several new initiatives there, and an infrastructure equity fund to follow the debt fund that we are about to close. We are just seeding a private debt capability in Australia, which we are quite excited about. We do see there is a number of opportunities in real estate in all sorts of different markets, but particularly in Europe. The other one I should mention is we are building out our secondaries team because I think one of the things out of this crisis is that secondaries are going to become a much, much bigger opportunity as people get holding things that they did not previously expect to be called on. So I think there is good opportunity in private asset space. Yes, we do see opportunities in our wealth channel. It is not something we have made the most of yet, because obviously the capabilities are relatively new to us, but we are just starting to introduce that. We have done one or two products thus far, but I think there is a long way to go in that, and you raise a very important point. On BoCom. Look, the first thing to say is we have spent 25 years building out our business in Shanghai. As you drive in, the BoCom Schroders brand is an important part. We are a 30% shareholder in that business. I do not see us taking majority control. I do not think it is what our partner wants. It is not a business which is for sale. Frankly, I do not think it is right. I think the business is working incredibly well as it is. The track record is absolutely top-drawer, and I think we should let that business continue to thrive as it is. But we are very involved in two other opportunities in China, which were coming down the pipe. You have seen those opportunities for us to have a wholly owned business, an FMC, which is the next stage of development from the PFM that we have got. There is also a change of rules at the end of last year after party conference whereby, you can take a stake in a WM, or wealth management company. We are not at the endpoint of any of that thinking yet, but we do see that given the brand and given what we have been able to deliver so far, there is considerable more opportunities in China beyond our JV. So plenty of work to do. We see this as second largest equity market, third largest bond market, is going to internationalize. It is highly digital. And it does play to a company with the breadth of our knowledge and critical mass. So I am hopeful we will be able to say more on that in due course. Thank you. Thank you. We have two more questions in the queue. The next question comes from the line of Hubert Lam from Bank of America. Hubert, you are unmuted. Please go ahead. Great. Thank you very much. A couple questions. Firstly, on the comp ratio, I think it was 45% in the first half. I think you guided to 44% at the start of the year. How should we think about it for the rest of the year and also into 2021? Second question is on your real estate exposure. Just wondering if you can give us a little color in terms of your fund's exposure to retail, shopping malls, commercial, et cetera, and how these funds have been performing. Thank you. Thank you. I will get Richard to take the first. Hubert, in terms of the comp ratio, we have been below our 45%-49% target range for quite a few years now. I guess that is because we saw very strong market conditions, and we wanted to get the balance right between looking after two of our key stakeholders, our staff, and our shareholders. Our staff numbers have increased largely through acquisitions. When we looked at that, we got to retain our talent, and therefore, we have increased our accrual rate to 45%. The overall comp pool is still down on that basis, notwithstanding our headcount has gone up through those acquisitions. That is what we are accruing to in our management accounts. It is something we need to look at in the second half of the year. But that is our best expectation at the moment. And quickly on real estate. Our fund performance has been excellent, partly because we have been very much avoiding areas, particularly high street retail. But our primary focus is on logistics. That is a key, and we were very early onto that in storage. We have been focused on the real growth cities, particularly Manchester, Berlin, et cetera, which have been good. So the Spinningfields development in Manchester, for example. On real estate, we have good momentum because we are in the right places. Thanks. Okay. Questions are still coming through. The next one comes from the line of Haley Tam from Credit Suisse. Haley, you are unmuted. Please go ahead. Morning, everyone. Just a few points of clarification, if I may. First of all, on BoCom, it's obviously very impressive momentum in the first half. I just wondered whether there were any specific drivers of the net new business of GBP 9 billion, or whether that's the sort of momentum we could look to continue from here. Secondly, just in terms of costs, the non-comp costs, if I can just simply clarify, how much benefit exactly did we get in the first half from lower traveler marketing costs, just so we can help us think about that. That'd be appreciated. Then the third and final point, just for clarification, the investment performance, I think you said 69% of equities, 7% of fixed income funds outperforming over three years. Forgive me if I missed it. What were those numbers at the end of December, just so we could have a comparison? Thank you. Okay. Thanks, Haley Tam. I'm very conscious of Man Group results. First of all, BoCom, net new business GBP 9 billion. I don't think you should put a straight line through that up to the skies, because you'll see that the retail environment in China has been very buoyant in the first half. But it's been a number of successful fund launches which have got that. And those assets for us have proved really quite sticky, which is not the case with all the fund launches. So I think that the underlying business has had good long-term momentum and has particularly got good investment performance going forward. But please don't annualize GBP 9 billion for too long. I'll get Richard Keers to take the non-comp question. On investment performance at the end of December, equities was 70%. It's 69% at the end of June. Multi-asset was 49% at the end of December. It's 21% today. Fixed income was 92% at the end of December. It's 79% today. Those are the key drivers. In terms of those variances, travel and marketing, about an GBP 8 million benefit in terms of travel, and marketing was down about GBP 5 million. That is against the first half of last year, Heidi. As I mentioned before, we were budgeting for a decrease in travel costs anyway, which was non-COVID related. So, in aggregate, 8 plus 5, but against the first half of last year, but we were looking to reduce air travel anyway. Thank you. That is very clear. I think mine goes at 10:30, in case that helps. But thanks. Oh, is that—oh, good. Oh, great. Okay. Perfect. Pressure is off. Thank you very much. Moving on to the final question of today from the line of Michael Werner from UBS. Mike, you are unmuted. Please go ahead. Thank you, everyone, for the presentation today. Very, very clear. Just a quick question. Looking at the momentum and strength that you've seen in the solutions business, I guess in a lockdown environment, are you guys able to refill the pipeline there as effectively, especially considering that most of your sales force is confined to their residences? Thank you. Mike, thanks for the question. I think it's something we've been very focused on. I think that this environment does help those firms with relationships where you are sort of already a part of the ecosystem. It's much more difficult if you're a challenger to establish new relationships. So in a perverse kind of way, if you've got brand and you've got standing and you've got relationship, you should be in a better position to pick up incremental bits and pieces because you're already a known commodity. So from a pipeline perspective and a relationship perspective, we feel we're in a pretty reasonable position, actually. What I'm more focused on is if we stay in this position for, let's say, 24 months, we're going to have to become a very much more digital industry, and that could change buying habits in a different way, particularly in mutual funds. I think for the time being, I feel pretty relaxed, largely because we enjoy many of the relationships. We're not trying to make them for the first time. Thank you. Thank you. That was the final question of today's Q&A. Thank you. Great. Thank you, everybody, and very much appreciate all the questions, and look forward to seeing you all again in person in due course. Thank you. Thank you for joining today's conference. You may now disconnect your handsets.