Schroders nets £80bn mandate from Lloyds

Schroders is set to land an £80bn (€90.7bn) mandate from Scottish Widows, part of Lloyds Banking Group, it announced today.

The FTSE 100-listed investment house has agreed a strategic partnership with Lloyds, including a new £13bn wealth management joint venture due to start operations in the second half of next year.

The remaining £67bn relates to insurance assets for Scottish Widows, invested across equities, fixed income, multi-asset and private assets. The assets are currently run by Standard Life Aberdeen (SLA), which has disputed the decision to reallocate the management contracts.

The contract between Schroders and Lloyds was for “at least five years”, the two firms said in a joint statement, to begin when the dispute with SLA has been settled or when the current contract expires in 2022.

The joint venture will initially manage roughly £13bn on behalf of “affluent” UK customers. Subject to regulatory approval, Lloyds will own 50.1% of the new company and Schroders the remaining 49.9%. Lloyds will also take a stake of up to 19.9% in the holding company for Schorders’ wealth management business, Cazenove Capital. Lloyds will also transfer £400m to Cazenove.

In the statement, the companies said the joint venture would “aim to become a top three UK financial planning business within five years”.

The mandate is likely to result in Schroders overtaking SLA to become the third-biggest UK-based manager, based on data from IPE’s Top 400 Asset Managers survey.

The award follows Lloyds’ decision to hand BlackRock a £30bn contract for passive investments earlier this month.

The huge contracts have been up for tender since February, when Scottish Widows launched a review of its asset management arrangements and terminated its partnership agreements with SLA.

Scottish Widows and Lloyds have argued that long-term contracts signed with Aberdeen Asset Management in 2014 to run the money could be terminated if it turned into a material competitor.

Aberdeen merged last year with insurance company Standard Life, which Lloyds argued was a material competitor. However, in May SLA disagreed and said Lloyds and Scottish Widows did not have the right to terminate the arrangements. SLA sold the bulk of its insurance business to Phoenix at the end of August 2018.

The parties remain at odds over the issue, but Lloyds earlier this month it said it was confident of its right to end the contracts, and expected the arbitration process to conclude early next year, at which point the contracts would be placed with BlackRock and Schroders.