Two of the City of London's oldest names could merge after fund manager Schroders said it was in talks to buy smaller rival Cazenove Capital.

Schroders said in a statement it was considering a cash offer for Cazenove, which manages £18.7 billion (€21.9 billion) in assets.

The 200-year old firm has until 19 April to decide.

Buying Cazenove would increase Schroders' assets under management by close to 10%.

The plan comes just a week after Schroders' high-profile head of UK equities, Richard Buxton, resigned, raising the possibility private investors in his fund will follow him when he leaves in June.

Cazenove, established in 1823, grew to become one of the top stockbrokers for the well-heeled of London by the 1940s, and has reportedly counted Queen Elizabeth II among its clients.

The fund management arm was split from the wider group after JP Morgan formed a joint venture with Cazenove's UK investment banking business in 2005.

Traditionally one of the least acquisitive of the larger UK asset management houses, Schroders has made small add-on deals recently.

In December it said it had agreed to buy US-based STW Fixed Income Management.

"Schroders certainly needs to do something given the loss of Richard Buxton and other fund managers. Clearly they will need a high quality UK franchise," said Numis analyst David McCann.

British fund managers have enjoyed rising inflows over the past year, as an easing of the euro zone debt crisis encourages clients to invest more money into their products.

Many, including Aberdeen Asset Management and Jupiter, have seen their cash reserves swell as they book rising profits.

Schroders may have to stump up between £500-600 million for the deal, given Cazenove's most comparable rival - Rathbones - is valued at around 3% of its assets under management, McCann said.

More profitable peers like Jupiter Fund Management are trading at 5% of assets, McCann said. Cost savings from the deal would also impact valuation, he added.

Of Cazenove's assets, £5.8 billion are managed through investment funds focusing on asset classes and sectors like UK equities.

The remaining £12.9 billion are invested on behalf of private clients.

Last month Schroders said its assets had risen to £212 billion following strong inflows in its fourth quarter.