March 2017

OPINION: Aberdeen standard – a northern colossus

Fiona_RintoulSo, after years of gobbling up other funds, Aberdeen Asset Management is to be gobbled up itself – well, merged with Standard Life.

The plucky Aberdonian, led from its beginnings in 1983 by current CEO Martin Gilbert – a man who has perhaps done more than any other to prove that you don’t have to wear a tie to succeed in the decidedly non-wacky business of investment – will make up one-third of the combined group to be created if the necessary approvals are obtained.

At a time when active managers are under pressure to prove their worth – pressure that may increase under MiFID II (see page 18) – the merger will create one of the largest active investment managers in the world with £660 billion (€760 billion) of pro forma assets under management.

It is this aspect of the deal that the companies are emphasising. The merger will, they say, “reinforce both Standard Life’s and Aberdeen’s long-standing commitment to active management, underpinned by fundamental research, with both global reach and local depth of resources”.

VICISSITUDES
Of course, it will do other things too. There will be “operational efficiencies”, which will, inevitably, lead to job losses. Analysts are predicting around 1,000 job losses as a result of the merger, or one in ten current employees.

This sits a little ill with two companies that have been champions of employee-friendly practices such as promoting diversity. Both are among 29 employers signed up to Investment 2020, an initiative that strives to bring more diverse talent into investment management. But such are the vicissitudes of these kinds of deals.

It remains to be seen whether one of the job losses will be either Standard Life’s CEO, Keith Skeoch, or Martin Gilbert.

The merger announcement is steadfastly even-handed. The combined group will be branded to incorporate the names of both Standard Life and Aberdeen. The boards will comprise equal numbers of Standard Life and Aberdeen directors. Keith Skeoch and Martin Gilbert will be co-CEOs, an abbreviation that looks a little ugly on the page.

It may get ugly in practice too. Parity is a noble aim, but anyone who has been involved in or has observed a merger of this kind will feel a shiver of fear on reading of these lofty plans for equal treatment. It is fiendishly difficult to make such arrangements work in practice. In particular, CEO is not a natural job-share position.

Whether Skeoch and Gilbert can manage the dual controls or not, one aspect of the deal that is set in stone provides pause for thought. The combined group will be headquartered in Scotland.

This will create an investment management colossus, presumably in the city of Edinburgh. Under Gilbert, Aberdeen has remained steadfastly loyal to its eponymous home city, maintaining its headquarters there, but core front-office functions are carried out in Edinburgh and London. With Standard Life’s front office based in the Scottish capital, that is the natural home for the merged company.

CORNERSTONE
At a time when the UK is hurtling towards a hard Brexit, a position resisted by the Scottish government, the case for an investment management centre within the British Isles but away from London is compelling.

Gilbert says the Standard Life and Aberdeen merger will create a firm “with a breadth and depth of talent unrivalled amongst UK active managers”. It may yet be the cornerstone of an expanded financial services hub in the Scottish capital.

©2017 funds europe

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