$1trn dream sours for Standard Life

Bloomberg

Martin Gilbert and Keith Skeoch’s $1 trillion dream has grown a little more distant. Six months after merging Scotland’s two biggest money managers to create a giant capable of competing with the largest US companies, the co-chiefs of Standard Life Aberdeen Plc are instead digesting the potential loss of almost 20 percent of the funds at their asset-management business.
Lloyds Banking Group Plc’s decision to pull 109 billion pounds ($153 billion) of assets overseen by Standard Life Aberdeen may drive the owner of Britain’s largest active money manager to accelerate efforts to win more clients abroad.
Gilbert, in a Bloomberg Television interview, cited “huge opportunities” in the US, Europe and Asia. Investors were less sanguine, and the shares tumbled.
“A large part of the justification behind the merger was for these companies to become more important and larger,” said Michael Werner, a London-based analyst at UBS Group AG. “This is a business they had hoped to maintain.”
In an interview with Bloomberg last year, Gilbert stressed the importance of scale and said he aspired to membership in the “$1 trillion club.” The 3.8 billion-pound merger between Standard Life Plc and Aberdeen Asset Management brought the firm within sight of that threshold, with combined assets of more than $900 billion. Some 70 percent of the funds at the asset management unit come from within the UK.
While Gilbert said that Lloyds’s move wasn’t a complete surprise, describing it as just “one of those blips,” investors responded by pushing the shares down by the most since the aftermath of the Brexit vote in 2016.

PASSIVE INROADS
Lloyds’s move is just the latest setback for the Scottish fund manager. It’s also grappling with outflows from its flagship Global Absolute Return Strategies fund amid a relentless push by investors toward cheaper passive investments. Active money managers globally are struggling to ward off this index-tracking explosion and mitigate pressure from falling fees, while also coping with the rising costs of regulation and technology.
In that context, Standard Life Aberdeen was in a relatively weak position in negotiations with Lloyds over the mandate, with the bank able to either move the money elsewhere or extract an even lower fee for what was already a low-margin contract.
Gilbert said the firm could still end up managing money for Lloyds, insisting the arrangement, which is now set to end by the first half of 2019, “is good value for their customers.”

OLD RIVALS
Still, the partnership between the two companies, which have historically been fierce competitors in insurance, was always going to be tricky. The arrangement was a legacy of Aberdeen Asset Management’s acquisition of Scottish Widows Investment Partnership from Lloyds in 2013. After the merger of Aberdeen and Standard Life last year, the combined entity became a competitor of Lloyds’s insurance unit. A six-month lock-up on the fund management agreement expired this week.
“It’s a blow for Standard Life Aberdeen, but it’s only to be expected,” said Laith Khalaf, a senior analyst at Hargreaves Lansdown Plc. “Standard Life and Scottish Widows are long-standing rivals, so one managing the assets of the other was never going to sit particularly comfortably.”