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Standard Life Aberdeen: is the marriage on the rocks?

Terry MurdenIt was supposed to be a marriage made in fund management heaven. The coming together of Scotland’s two giants of the sector was meant to propel the newly-combined group to greater heights.

A year on since the merger of Standard Life and Aberdeen Asset Management to form Standard Life Aberdeen and instead of popping the Champagne corks they are drowning their sorrows.

A bombed out share price, a slip in pre-tax profits, an exodus of senior managers, and a drift of funds to other managers has hardly made it a year to remember.

A public spat with that other big Edinburgh institution – the Lloyds-owned Scottish Widows – over its decision to withdraw a £109 billion mandate was followed this month by another defection by St James’s Place.

The company’s co-chief executives accept the company has suffered a few knocks but say the problems should not be overstated. Martin Gilbert told the media this week that “outflows look high, but only account for 2% of assets under management”.

That may be so, but those assets are also in decline, down by £16.6bn over the half year – equivalent to the total assets managed by some firms in the sector. Its flagship GARS fund has lost £5bn.

An underlying issue is the co-CEO structure itself which raised eyebrows when it was first announced. Insiders say that it has brought together the leaders of two companies with distinct cultures – one (Aberdeen) more collegiate and the other more eat-or-be-eaten.

This has led to some uncertainty about the company’s mission and the steady stream of departures of top staff to the likes of Aviva has not been matched with any high-vis replacements.

Mr Gilbert and his fellow CEO Keith Skeoch say the problems are related more to a tough trading environment characterised by low interest rates, individuals becoming responsible for their own financial future and a lack of trust in financial services.

“We will not be the last to look at cost efficiencies in the sector,” Mr Gilbert said this week, with Mr Skeoch adding that the business had to be “fit for purpose”.

That meant “right-sizing” the company, but he insisted the strategy is not about cuts but realigning the business for the future. “The great thing we have is scale which gives us a great advantage,” he said.

The merger – actually a takeover by Standard Life of the ailing Aberdeen – has created a business to compete, especially on the European stage.

However, analysts wonder if continued slippage in performance will make it a short-lived union. Even larger North American funds have the firepower to mount a bid, a prospect that may be lying in wait for whoever succeeds Sir Gerry Grimstone as chairman next year. He, or she, may also be tempted to dispense with the co-CEO arrangement, especially if there is no sign of improvement.


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