LONDON (Bloomberg) -- Schroders Plc, the UK's largest independent securities company, said pre-tax profit rose 21 percent in 1996, as growth in its fund management business eclipsed investment banking for the first time.

The company has a Bermuda subsidiary, Schroders (Bermuda) Ltd., which is involved in the group's venture capital and fund management operations, with five of 28 staff members representing Schroder Investment Management.

Schroders said surging global markets and increased advisory work on mergers boosted pre-tax profit to 239 million ($382.4 million), from 197 million in 1995, in line with analysts' expectations.

Schroders shares fell as much as 2.5 percent, though, amid concern about rising costs, and after chairman Win Bischoff said the company would find last year's record results "hard to beat.'' The shares fell as much as 45 pence, or 2.5 percent, to 1,692.5.

"None of us can guess how long we'll have a bull market going forward, but I do see costs going up,'' said Johnny de la Hey, a securities analyst with Credit Lyonnais Laing.

The rise in earnings was the first substantial gain in four years for Schroders. It comes after a record year in the City of London and on Wall Street for investment banks and fund managers. A surge in take-overs in the US and Asia boosted advisory fees, while rising global stock markets lifted fund management sales and assets.

Schroders said profit from fund management exceeded that from investment banking for the first time in 1996. Fund management profit was 132 million, and investment profit, 107 million.

Bischoff and Peter Sedgwick, the head of investment banking, said business was off to a strong start this year and that they had added a note of caution to the earnings statement only because the rally in global stock markets had gone on so long that it could end this year. That would hurt business.

"At this point in the year we are encouraged,'' Sedgwick said. He reiterated that Schroders has no intention of buying any other fund manager of investment bank, or of opening itself to offers from rivals. The company is protected by a 40 percent stake held by the Schroder family.

Investors said the decline in Schroders shares today was almost inevitable, after the stock had gained 16 percent this year, amid expectations of higher profits, and some take-over speculation.

"The earnings were in line with expectations, but they simply weren't enough to justify a rerating of the stock,'' said Mark Williamson, an analyst at Birmingham-based Albert E. Sharp & Co., which oversees about 6 billion pounds in UK equities. "There wasn't anything in the report to push the stock up another level.'' The company declared a final dividend of 14 pence a share, bringing the total dividend to 20 pence, up from 16 pence last year.

The post-tax return on equity was 20 percent, while earnings per share rose 29 percent, to 92 pence a share, Schroders said.

Schroders said pre-tax profit in the second half was 123 million, up from 116 million in the first and 111.4 million in the second half of 1995.

Overall costs at Schroders, something Bischoff was cautious about when interim earnings were announced in September, rose 19 percent, to 719 million. The company said this was mostly because it increased its staff 10 percent, to almost 5,000. Costs grew faster in fund management, where the majority of the new staff joined, the company said. They were 25 percent up in fund management and 17 percent higher in investment banking.

Assets under management grew 18 percent in the year, to 87.6 billion, with about 10 billion in new assets coming in the door during the year and 3 billion coming from appreciation of investments. John Govett, the head of asset management, said funds under management rose to more than 93 billion as of the end of January.

Schroders said its investment banking profit was helped by gains in its mergers advisory business. It advised on 122 mergers or take-overs, worth about 21 billion, during the year. About 45 of those were cross-border acquisitions.