Schroders, the asset manager, reported a fall of more than 26 per cent in pre-tax profit for the six months to June 30, after writing down seed capital and fixed-income investments, and gave warning that its retail business would be hit this year by market volatility.

The company reported a £135 million pre-tax profit, down from £185.6 million in the same period last year.

Despite turbulent financial markets making retail investors nervous, pre-tax profit in asset management was up 10.9 per cent to £136 billion, and private banking profit rose 40 per cent to £22.3 million. Private equity profit plunged almost 80 per cent to £7.4 million.

The figures were dragged down by a £30 million group loss on its investment portfolio in the first quarter. The loss would have been worse except for positive returns of £6 million in the second quarter.

The company said that it expected demand from retail investors to be even more subdued in the second half of 2008, which will hit its retail profits. Retail funds under management were £51.2 billion at the end of the first half, and £67.6 billion in instutitional. Both saw a net outflow in the first six months.

Schroders increased the interim dividend by 11 per cent to 10p per share, compared with 9p last year.

Analysts at Cazenove said that the figures were unsurprising, given the state of global financial markets and kept its "outperform" rating on the stock because, it said, there was a meaningful inflow into the fund manager's institutional business for the first time in memory.

Schroders' stock was down 1.5 per cent at 990.5p a share at 8.08am.

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