About Schroders:
Schroders is a global asset manager with GBP 375 billion of assets under management (as at 30 September 2016). They manage assets on behalf of institutional and retail investors, financial institutions and high net worth clients from around the world, which are invested in a broad range of active strategies across equities, fixed income, multi-asset, alternatives and real estate. Headquartered in London, Schroders employs over 4,000 talented people worldwide, operating from 37 offices in 27 countries. It is listed on the London Stock Exchange. The history of Schroders begins in 1804, when Johann Heinrich Schröder became a partner in J. F. Schröder & Co, the London-based firm founded by his brother, Johann Friedrich Schröder, in 1800. The company prospered, focusing on the finance of trade between America and Europe, particularly in the tobacco, cotton and sugar markets. For over 200 years, Schroders has continued to innovate, growing and expanding its business, making targeted acquisitions, entering into joint ventures and establishing itself in new markets. Schroders has built upon a reputation of trusted heritage combined with advanced thinking; and it is precisely these values which continue to underpin the firm’s success today.

Treasury Profile

ADaily Cash Management

BCash Pooling

CPayment Processing

DPayment on Behalf of

ECollection on Behalf of

FSWIFT

GeBAM

HLiquidity Planning

IContract Management for Interest, Currencies

JManagement of Commodities

KTrade Finance Contracts

LCapital Markets

MRegulatory Requirements

NGeneral Risk Management

OTreasury Accounting

PStandard / Individualized Reporting

QNetting & Reconciliation

RInsurance

SMergers & Acquisitions

TInvestor Relations

 

You only need to stand in front of the Schroders office building in the heart of the venerable City (London’s financial district) to understand that this is a special place and a special treasury story. The whole atmosphere within one of the largest asset managers is unlike anything you’ll have experienced before – truly befitting to a leading financial institution in London. Finances seem to permeate everything, and anything other than a professional treasury department with the adequate system support seems unthinkable. We’ve joined Nick Taylor (Head of Group Capital & Treasury) and Jonathan Moore (Assistant Treasurer) on their rooftop terrace above the London metropolis to find out all about their treasury.

What is your business model?

Nick Taylor: We are a leading global asset manager and our business consists of 3 segments: Asset Management; Wealth Management; and Group. Schroders has multiple treasury functions. We have a Group Treasury function to support the Asset Management and Group segments which represent about 90% of Schroders. We have separate treasury functions for each of the four banks in the Wealth Management segment which makes up the remaining 10% of Schroders. It is the Group Treasury function which Jonathan and I run and which uses tm5. Group Treasury focuses on managing Schroders’ own corporate assets, not the clients’ assets – client assets are managed by the underlying Asset Management and Wealth Management businesses.

You can think of our Group Treasury function as effectively an asset manager within an asset manager – Group Treasury manages the asset manager’s own assets. We oversee Schroders’ own cash of about GBP 575 million (as at 30 September 2016) and Schroders’ own investment portfolio of about GBP 1.4 billion (again, as at 30 September 2016). This investment portfolio is fed from excess cash generated by business operations. We prefer to invest excess cash in our investment portfolio rather than keep it in cash. Part of the investment portfolio is invested in Schroders’ own fund products which we seed to build a track record in various investment strategies.

As a financial institution you’re subject to various regulations. What does that mean for Group Treasury?

Jonathan Moore: We are a regulated financial organization and our lead regulator is the UK’s Prudential Regulation Authority. At a consolidated group level we are subject to the requirements of the EU Capital Requirements Directive, known as CRD IV, and the PRA’s Rulebook for UK banks. This applies to both capital and liquidity. As a result, Group Treasury is responsible for the preparation of Schroders’ consolidated individual liquidity adequacy assessment process, or ILAAP. ILAAP is the process for identifying, measuring, managing, and monitoring liquidity risks in accordance with the regulations.

How does your treasury stand out? And, how does this entail different treasury tasks than in other, more “typical” companies?

We stand out because we have no debt and focus on managing assets. Like all treasury functions we need to be in a position to make cash available when it is needed by the business, whether that be for normal day-to-day purposes or to fund an investment or an acquisition.

We make payments on behalf of many subsidiaries and the payments can be from a few pounds to hundreds of millions of pounds. Because our underlying business is in asset management, Schroders is a member of SWIFT. We use our SWIFT membership and infrastructure to process payments and receipts, and Group Treasury has its own SWIFT code.

Another example of how we are different is how we execute treasury trades. Because our Asset Management segment includes trade execution specialists, most of the trades which Group Treasury needs to execute, such as FX trades, are executed for us by the Asset Management segment. In effect we have an in-house dealing team.

Jonathan Moore: Something else we should probably mention is that despite managing large asset balances, making payments on behalf of many subsidiaries and operating in 27 countries, the Group Treasury team consists of only 5 people. Perhaps this is common to many corporate treasury functions but we are business critical – we fund the business. We have to be ready to respond to the unexpected and ensure that the right amount of cash, in the right currency, is in the right place, at the right time, and at an acceptable cost. Doing that with only 5 people means we have to be very efficient.

What is a specific daily challenge for your treasury?

Nick Taylor: Although we’re a financial institution, our treasury function is a corporate treasury function and not a bank treasury function and so could just as well be thought of as the treasury department of a truck manufacturer or an engineering company. The main difference is that Schroders is not in the business of selling hard goods and instead provides asset management services. One of our challenges therefore is no different to any other corporate treasury function, and that is to track cash flows around the Group so that we can forecast where cash is coming in and being paid out and in what currencies and what amounts. Because we have our own investment portfolio, a more specific challenge for us is to structure the portfolio in a way which meets Schroders’ investment objective and priorities.

What role do banks play for your business?

Nick Taylor: Banks play a very important role for Schroders and Schroders’ funds. We execute trades with banks, they act as custodians or administrators for our fund products, they process payments, and they distribute our fund products. We have a very broad and deep relationship with banks. In many cases business is reciprocal. For Group Treasury, banks participate in a revolving credit facility, provide bank accounts and custody accounts, process payments and are trading counterparties.

What about cash management at Schroders?

Jonathan Moore: I’d say we have a pretty traditional setup when it comes to cash management. We have about 690 bank accounts in many currencies. The challenge here is to achieve group-wide visibility, which we do through daily SWIFT MT940 bank statements being automatically loaded in to our TMS. We have automated cash sweeps for the main currencies (EUR, GBP, USD). But, cash management is more complicated for Schroders because we are a regulated financial institution and therefore have regulatory capital and liquidity requirements to comply with in different parts of the world.

What changes do you anticipate for the next 24 months?

Nick Taylor: We are looking to connect the system which the Asset Management segment uses for trade execution to our TMS so we can achieve straight-through processing of trade data for Group Treasury’s executed FX trades. Currently, trades are entered manually. This will allow us to re-engineer the FX settlement process. Also we are looking to roll the TMS out to Finance Operations who are going to use it globally for cash flow forecasting, currency management and payment processing. Improved cash flow forecasting should help us transfer surplus cash more quickly to our investment portfolio and achieve better returns. Like all treasury functions we will be looking for good homes for our operating cash and trying to find an acceptable return in a low rate environment. We will also continue to review and monitor our investment portfolio to ensure that it’s operating in line with our investment framework.

How is FX risk and FX hedging handled at Schroders? Do you have a lot of freedom?

Nick Taylor: Schroders is an international business and therefore has cash flows and assets and liabilities in a range of currencies. Our internal hedging policy recognizes this and so we don’t hedge foreign currency revenues or costs or net investments in overseas subsidiaries. What we do hedge are non-Sterling investments in our own investment portfolio because the currency exposures arise as a result of the Group’s investment decisions, not in the ordinary course of the Group’s business activities.

What were the biggest changes in your treasury in the last 24 months?

Nick Taylor: We totally re-engineered the Group Treasury function and its systems. A few years ago Group Treasury implemented a single treasury system for both traditional treasury management but also to account for our own investments. We tried to accommodate everything, even for example the integration of an accounting engine to generate all accounting bookings or to enable performance reporting for the investment portfolio. To try to get a single system to do everything required a great deal of customization and, as a result, expense. By way of analogy, we bought an oven, heavily customized it and turned it into a dual function oven and fridge. We should have just bought a separate oven and a separate fridge. That is what we have now done – we now have a treasury system for traditional treasury activities and another system to account for our investments.

So you have experience with different systems. What conclusions would you draw and what would you recommend to others?

Jonathan Moore: What I can say for sure is that it is crucial to first consider what you actually need and what your system should be able to do. I can advise to not go down the route of heavy customization. There are good, standardized systems out there that do exactly what they’re meant to do: treasury. Of course you do need some flexibility and some ability to configure (not customize) the system to your requirements. This is why we are so happy with our approach: it is a standardized solution, but at the same time a configurable and flexible TMS which doesn’t pretend to be anything else. It has made our lives much easier. We now have a real-time and accurate overview of our balances and no longer need to wait for an end-of-day batch to run.

Nick Taylor: My recommendation would be: keep it simple! Be realistic about your actual requirements for the system and don’t over-engineer things! Select a system that can work with your preferred process flow and segregation of duties. Ask TMS suppliers to demonstrate a day-in-the-life of your treasury function – give them step-by-step activities and transactions you would like them to demonstrate. And, most importantly: pick the TMS provider whose culture and values are similar to your own. Our shared values of excellence and innovation meant we worked very well together.

How far have you come in your implementation process?

Nick Taylor: Our aim was to find a solution that is stable and reliable, easy to use, and that can be implemented efficiently. No exotic requirements really, but still very important for us. We’ve made huge progress. Back to the analogy, we now have a fully functioning fridge and a separate fully functioning oven. Both are fit-for-purpose and do exactly what they’re meant to do – much to our delight and that of other departments. Because of our success, Accounts Receivable and Accounts Payable globally are now planning to also use the common platform for their cash flow forecasting, currency management and payment processing.

 

We have to be ready to respond to the unexpected and ensure that the right amount of cash, in the right currency, is in the right place, at the right time, and at an acceptable cost. Doing that with only 5 people means we have to be very efficient.

Nick Taylor | Head of Group Capital & Treasury, Schroders & Jonathan Moore | Assistant Treasurer, Schroders