As competition heats up, the two Scottish firms agree to merge, creating an asset management behemoth.
It is too early to tell whether the £3.8 billion [$4.6 billion] merger of Scottish firms Standard Life Investments (SLI) and Aberdeen Asset Management is a match made in heaven. But given the last few years it was clear they could not go it alone.
Together, they create the largest U.K. and second biggest European fund management firm with £660 billion [$802.4 billion] of assets under management (AuM).
“The deal also marks Standard Life’s further evolution from a traditional insurer into an investment powerhouse to create a strong force in active management — an investment strategy which has come under growing pressure from larger competitors like BlackRock, and passive asset managers like Vanguard,” says Caroline Belcher, partner and co-head of financial services at Cavendish Corporate Finance.
SLI’s transformation began over a decade ago with the acquisition of rivals and an increasingly diversified offering.
However, more recently, its top performing products, including its top-rated Global Absolute Returns Strategies (GARS), have faltered prompting investors to exit. Last year, investors pulled a net £4.3 billion [$5.2 billion] from GARS, and analysts expect an additional £8 billion [$9.7 billion] to be withdrawn in 2017.
Aberdeen has also been besieged by problems with the firm reporting £10.5 billion [$12.8 billion] of net outflows in its fiscal first quarter after Donald Trump’s U.S. presidential election victory dented sentiment toward one of its key strongholds — emerging markets. It is thought that a U.K. wealth manager and a sovereign wealth fund accounted for £4.2 billion [$5.1 billion] of the money withdrawn from its equity, fixed income, and multi-asset funds with a range of investors comprising the rest.
In addition, there were key departures, most notably the global Chief Investment Officer Anne Richards, who left Aberdeen to become CEO of M&G last February.
For the combined firm to come, SLI officials say the combined group will be headquartered in Scotland and following the merger:
- Sir Gerry Grimstone, chairman of Standard Life, will become chairman of the board of the combined firm;
- Simon Troughton, chairman of Aberdeen, will become deputy chairman;
- Keith Skeoch, CEO of Standard Life, and Martin Gilbert, CEO of Aberdeen, will become co-CEOs of the combined group;
- And Bill Rattray of Aberdeen will become chief financial officer (CFO) while Rod Paris from Standard Life will become the chief investment officer.
In many ways, the deal did not come as a surprise as there has been a spate of M&A activity in the fund management space — the merger of the Henderson Group and the Janus Capital Group last year being a prime example.
“It is no secret that Aberdeen, itself a product of acquisitions, has been in the market for another game-changing deal,” says Mike Clements, head of European equities at SYZ Asset Management. “Speculation has been rife that it is either a target for a larger firm or it is on the lookout for a deal for itself,” Clements says.
“The products and distribution are complementary, and with an AuM of £660 billion, the deal will catapult the combined entity well ahead of the likes of Schroders or M&G to create a regional asset management powerhouse and globally relevant player. The one drawback for Aberdeen and Gilbert is that for the first time since it was founded, it finds itself as the junior party to a tie-up. Still, this is no time to be choosy, especially when the rationale stacks up so well,” Clements says.
As to the benefits, Clements points to SLI gaining access to Aberdeen’s emerging market and Asian equity franchise at a time when sentiment looks to be turning for the better.
“On top of this, the deal will bolster its product range in solutions, property and alternatives. With both asset managers under pressure and looking to diversify, this deal couldn’t come at a better time,” Clements adds.