Advisers have urged Aberdeen to focus on turning around the performance of Swip’s funds if a proposed deal to acquire the Lloyds-owned fund manager goes ahead.
Aberdeen last week confirmed it was in talks with Lloyds Banking Group to buy Swip in exchange for shares in the FTSE 100-listed fund manager as well as cash payments tied to performance.
In a statement issued to the stock exchange on Thursday Aberdeen said the deal would “add further scale and diversity” to its product range. Aberdeen could become the biggest fund management company in Europe by assets, reaching almost £350bn if it buys Swip in its entirety.
Iain Wishart, owner of Edinburgh-based Wishart Wealth, cited Swip’s poor performance and issues with retaining senior staff and fund managers.
He said: “We used to invest in Swip’s managed funds and every year at annual meetings they would talk of a performance turnaround which never happened.”
Steve Wilson, director at Scottish advice firm Alan Steel Asset Management, said: “Hopefully this deal will improve performance for Swip. One of the reasons we don’t own Swip is because of poor performance.”
Swip products have regularly featured in prominent lists of underperforming funds. The group has dominated Chelsea Financial Services’ tri-annual ‘RedZone’ report into underperforming funds in recent years, and almost two thirds of its funds listed in IMA sectors underperformed the sector average in the three years to October 23, according to FE Analytics.
The group has also struggled to keep hold of its best fund managers. Nick Ford led the Swip North American fund to a top quartile return in three years until his departure in September 2012 to join Miton Asset Management, while top-performing UK equities manager James Clunie left the group in April to join Jupiter, where he now runs the Absolute Return fund.
Mark Harris, head of multi-asset at City Financial, said Swip had “never quite captured the attention it should have done” but backed Aberdeen to succeed with the deal, citing its strong track record with acquisitions.
“It feels like this would bulk up [Aberdeen’s] assets, add new distribution and diversify its revenue base,” Mr Harris said. “[Asian equities head] Hugh Young has openly said he can’t take much more money and emerging markets have not had a great period recently. It seems a very sensible move.”
Aberdeen’s share price jumped more than 5 per cent on Thursday afternoon following the announcement of the talks, closing up 5.8 per cent.
Swip said its fixed income and real estate funds were “highly regarded” by advisers adding it wass “beginning to see the benefits of the repositioning of its equity strategy which took place last year.
What could Swip bring to Aberdeen?
Property: While Aberdeen has a very good property shares fund, it doesn’t have the direct property expertise that Swip does. The £2.4bn Swip Property fund, managed by Gerry Ferguson, has a strong performance record against its direct property peers. Gavin Haynes, managing director of Whitechurch Securities, highlighted property as a key area of Swip that could add value to Aberdeen’s business. Swip also has two very good property share funds, but Aberdeen has the best performing fund in that sector for both one and three years, leaving the door open to fund consolidation.
Absolute Return Bond fund: Possibly the flagship fund for Swip in the past year, James Carver’s Absolute Return Bond fund could be a lucrative acquisition for Aberdeen. The fund has demonstrated the consistent, low-risk returns necessary in an absolute return fund and the strategy could prove popular in the face of rising bond yields. While still relatively small at £213m, the fund has been seeing consistent inflows in the past year. Swip also has a strong Strategic Bond fund, managed by Luke Hickmore and Roger Webb, but Aberdeen recently launched its own version - how to handle these products will be a tough decision for Aberdeen.
Passives: Aberdeen has yet to make a move into the increasingly popular passive investment arena, but Swip last year radically overhauled its equity exposure, shifting the bulk of its assets to passive quantitative models. While passive funds are not high margin business, the sheer scale of Swip’s assets could make it a lucrative addition to balance out Aberdeen’s high quality active range. With the importance of economies of scale to the success of passive funds, Aberdeen could be able to position itself alongside Legal & General, Vanguard and BlackRock at the forefront of that battle for assets.
