Abrdn must find a way through turbulent waters

But five years after the deal completed, with the firm having gone through three different chief executives and several company names, the share price of the combined business is 45 per cent lower today than it was then.

Although both companies were synonymous with Scotland, they had very different origins. Standard Life Investments began as a division of the Standard Life insurance company, a business that was founded in 1825. Its office was on the corner of the prestigious St Andrew’s Square in Edinburgh.

Arguably each had too many funds, so when they combined, they really had too many funds. Darius McDermott, Chelsea Financial Services

In contrast, Martin Gilbert, the co-founder of Aberdeen Asset Management, previously told FTAdviser that when he was looking to expand that business he consciously moved to London, rather than Edinburgh, because he was not sure what reception he would get with a firm from the Scottish provinces if he entered the market in the Scottish capital.

In an attempt to bridge any cultural divide, Gilbert and Standard Life Investments boss Keith Skeoch were made co-chief executives, before Gilbert moved to a £600,000-a-year role as deputy chairman and then left the company.

The current chief executive is Stephen Bird, whose previous experience was running the retail banking arm of Citigroup in the US. 

The combined business comprised three different adviser platforms, two different forms of discretionary fund management, the 1825 advice business and the two fund management businesses. 

At the time of the merger, the company said it employed 1,000 investment professionals in 24 offices in 20 countries. 

The most recent set of results showed the company made a pre-tax loss of £615mn.

The group was profitable at the operating level, but writing down the value of some of its stake in other businesses meant it became loss-making. Operating profit was £263mn, down from £323mn in the prior year. 

The write-downs that pushed the operating profit into a pre-tax loss included £214mn of restructuring costs, a £494mn write-down on the value of unquoted assets and contracts previously acquired by the company, and a £187mn loss on the value of the company’s investments in listed businesses. 

One of Bird’s first moves was to sell the Parmenion adviser platform for £102mn to a private equity firm in 2021, and then to acquire the Interactive Investor retail platform for £1.5bn in 2022. 

Abrdn’s current (as of March 6 2023) market capitalisation is £4.6bn; this implies that if Interactive Investor is worth at least the price paid for it, then it accounts for around one-third of the entire worth of the combined company.

Too many funds?

In terms of the asset management business, Darius McDermott, managing director at Chelsea Financial Services, says the problem is both Standard Life and Aberdeen "arguably each had too many funds, so when they combined, they really had too many funds, and it is a big job of work to fix that". 

"Fifteen years ago in this industry it seemed everyone wanted businesses that were in all parts of the value chain, but that is being discouraged now”.

One wealth manager, who did not wish to be named in order to protect business relationships, says the surfeit of funds at the company did not mean it was diversified.

They say: “This business is in a worrying state. Historically Abrdn relied on EM and Standard Life on Gars and both have suffered.

"Then both firms came together and the one had a focus on quality as a style (Aberdeen) and the other on change (Standard Life), and as you may suspect, quality investing is usually synonymous with little change.

"So that was also an issue, two incongruous ways of investing, and both at a time when their flagship offerings were struggling.”

The wealth manager adds that he notices a lot of the staff with whom he would be familiar are now working at other businesses, implying, in his view, the company has an issue retaining staff. 

Cutting claims

In his presentation to analysts on the day of the results, seen by FTAdviser, Bird announced that he was speeding up the cost-cutting plan.

Originally the intention was to cut a further £75m of costs from the business by the end of 2024, but this has now been brought forward to the end of 2023. 

He confirmed headcount was reduced by 8 per cent in 2022 and that further reductions in this area are “ongoing”, and were part of an overall reduction in costs of 2 per cent during the year.    

Bird said 58 funds, from a total of 120 that were placed under review, have been closed or merged, with more to come. 

One area he highlighted as a problem is that a huge chunk of the company’s assets under management are run for the Phoenix insurance company, and so are low-margin business compared with fees earned to run money for advised or retail clients. 

In terms of where he wants to grow, Bird said growing the fixed income business, presently £120bn in size, is a key focus for the coming year.

McDermott says bonds are once again a “viable” asset class and so he sees the logic in trying to grow in this part of the market.  

Abrdn also recently launched its first ever exchange traded fund in Europe, taking the business into another new area.

Bird says he aims to drive up the overall margin by expanding further into Asia and alternative asset classes, where he says margins can be higher.  

Revenue in the adviser platform businesses were £185mn, an increase of £7mn on the prior year.

The income earned from platform charges actually fell from to £174mn £177mn, but interest earned on the cash holdings of clients on the platform that Abrdn did not pass on to the clients rose to £11mn from £1mn, enabling total revenue from the adviser platforms to increase.

The profit from the adviser segment was £86mn. The assets under administration of the adviser businesses, including both the platforms but not the advice business, was £69bn last year.

Income from the investment business dropped to £1.07bn in 2022 from £1.23bn, with all of the reduction accounted for by a fall of £168mn in income from the listed equities business.

Income from private assets actually rose by 2 per cent, though the company stated this was accounted for as a result of the gain from the Tritax property business, of which it acquired 60 per cent in 2020. 

The cost of running the investment management business in 2022 was £956mn, a reduction of 2 per cent on the previous year. Bird said the reduction came about from a combination of job cuts and lower bonuses. 

On the adviser side, costs fell to £99mn from £104mn. Total net outflows across the entire business were £37.9bn during the year. 

Next steps?

But the cost cuts and asset sales are not happening quickly enough for David McCann, an analyst at Numis. 

He says the Interactive Investor business performed “better than expected”, while the investment division, in his view, performed worse than expected. 

McCann welcomed the sale of Abrdn’s discretionary fund management business to LGT for £140mn, and noted this was £20mn more than he had valued the business at.

McCann says he conducted a “sum-of-parts” valuation of each of the different Abrdn businesses as separate entities, and says this valuation is “materially” higher than the combined market capitalisation of the company right now, but adds that this much higher valuation will not be achieved unless there is a “radical” change in strategy.

He says in order to achieve the higher valuation he would like to see the company either broken up, with each of the individual businesses sold off and the capital returned to shareholders, or else the entire company be sold.

Whatever happens next, Abrdn’s activities reach into every corner of a financial adviser’s life, so they will be impacted. 

David Thorpe is investment editor at FTAdviser

david.thorpe@ft.com