It’s not been a good year for the UK asset management sector — heck, it’s not been good for a few years. Even so, Abrdn sticks out as having some particularly painful problems. They wouldn’t be straightforward to fix at the best of times. Abrdn’s board is not having the best of times.
There’s investment performance. Outflows. An expensive acquisition. A much-mocked rebrand. Problems with the paperwork in some of its Luxembourg-based funds. Shares that have slipped so much that five years after an £11bn merger, the company fails to make the FTSE 100 any more. Around 9 per cent of its shares sold short, according to Markit figures. A chief executive who seems to have alienated analysts.
That’s before you get to a Sunday Times report that the boss doesn’t have the backing of some of his staff either, an account that Abrdn disputes. The group said in response to the article that “these anonymous allegations contain a number of factual inaccuracies and do not represent the reality of the open and transparent culture we are building”.
The defence of Abrdn and CEO Stephen Bird runs roughly as follows.
Most of the outflows can be traced back to the 2017 tie-up between Standard Life and Aberdeen Asset Management. Those can’t be laid at the door of the former banker Bird, in situ for only two years, and both the deal’s architects are now gone. Bird is only midway through a three-year plan, so it is too early to judge the results — especially for the £1.5bn acquisition of Interactive Investor, only completed at the end of May. Corporate rejigs and strategy overhauls always generate internal upset, and that’s all the more true of a tight knit, traditionalist industry like asset management. The share price decline since the start of this year isn’t even so bad when you plot it against the likes of peers Jupiter, Ashmore, Amundi and Schroders.
Trouble is, this isn’t really about the merger any more. Everyone accepts consolidation hasn’t spurred the two on to greater things. It’s not just about this year’s share price performance either: Abrdn’s shares have done more than twice as badly as Schroders’ over the past two years.
It’s about concerns with the credibility of the turnround plan. In between talk of “vectors”, it’s sometimes hard to understand what Bird’s getting at. Diversification into UK wealth management makes sense; as does increasing exposure to investment platform customers even if valuations have come off their highs. But his inability to deliver a clear-cut strategy easily swallowed by the City is a problem in a business widely recognised as requiring simplicity after the Standard Life-Aberdeen mash-up.
On top of that fixed costs remain stubbornly high (93 per cent of costs in the first half of this year with barely any staff bonuses), profitability poor and the main demonstration of Bird’s strategic insight is to deploy Abrdn’s spare capital on the Interactive Investor acquisition at the top of the market.
Numis analyst David McCann reckons the sum of Abrdn’s parts are worth more than twice its market capitalisation. After stripping out the value of listed stakes in insurer Phoenix and Indian groups HDFC Life and HDFC Asset Management, plus “surplus” capital identified by the company in its interim results, Panmure Gordon’s Rae Maile calculates the asset management business, UK platform operations and UK wealth arm are being valued at about £800mn — and that includes the business it spent £1.5bn on less than a year ago.
McCann’s brutal assessment concludes it is “worth more dead than alive”. That might be true. There is scope to turn it round: diversification is all well and good but sorting out the core asset management engine, still a mess from the merger days, is necessary too. If Bird isn’t able to do that or just as importantly can’t bring those in the business with him, it seems obvious that someone else either should, or should sell it off.
Perhaps Bird’s problem is that markets are merely missing the message. If so, that is not helped by the fact Abrdn only updates investors on performance twice a year.
It seems too much to hope for an activist in a struggling sector, with assets under management likely to decline in a downturn and active performance underwhelming during a sell-off when it should shine. Chair Sir Douglas Flint meanwhile is closely tied to Bird: his hire, who Flint knew from banking. But boards always back bosses, right up until the point they don’t.
Investment managers can rebound — Man Group’s recent revival is a case in point. But someone needs to pull Abrdn back. Right now, it seems just as likely to be pulled apart.
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