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It’s showtime for Keith Skeoch. Almost three years since he and Martin Gilbert agreed to create Standard Life Aberdeen Plc, he’s now flying solo as chief executive officer of the UK’s biggest standalone asset manager. For the fund behemoth to be valued by investors and analysts at more than the sum of its parts, it needs to either consistently outperform its benchmarks, or unlock the value of its captive assets — or, better yet, both.
It won’t be easy. The storm engulfing the fund management industry has strengthened since Gilbert’s Aberdeen Asset Management and Skeoch’s Standard Life merged — and the difficulties of combining two different cultures have arguably deterred rivals from seeking similar tie-ups. Customers have withdrawn money in every single quarter since the merger was completed in August 2017, reducing assets under management to 577.5 billion pounds at the mid-year point, from 670 billion pounds when the deal was completed.
While Skeoch insists that doing the deal was still the right move, the company he oversees is now worth about 7.7 billion pounds, down from 13 billion pounds at the time of the merger.
To be fair, the entire asset-management industry faces tough conditions. The relentless downward pressure on fees for managing other people’s money shows no signs of abating, while the need to invest in information technology has led to an expensive arms race. It’s so dire, according to PGIM CEO David Hunt, that as many as 80% of the industry’s players will become “zombie firms†as the disparity between winners and losers widens.
With UK financial assets out of favour with investors for much of this year and domestic investors pulling money out of the stock market, the UK firm has fared worse than its competitors in Europe. But its lack of an exchange-traded funds business has left Standard Life Aberdeen dependent on active management at a time when customers are shifting more and more money into low-cost passive investment products.
For one thing, Standard Life Aberdeen has an unusually large number of stakes in other companies, certainly compared with its asset manager peers. It owns about 20% of Phoenix Group Holdings Plc after selling its insurance business in February 2018, as well as about 15% of HDFC Life Insurance Co. and 27% of HDFC Asset Management, both based in India. In total, those stakes are worth about 5 billion pounds.
The market capitalisation numbers for Standard Life Aberdeen and the three companies it owns chunks of have moved a bit since UBS published that report last month. But the basic premise remains true: The market is assigning a minimal value to Standard Life Aberdeen’s core business.
The key to retaining existing investor funds and luring more customers lies in generating outsize returns. On that front, the merger seems to have been a distraction.
—Bloomberg