Beyond the Keith and Martin show: can Standard Life Aberdeen be saved?

Standard Life Aberdeen’s Keith Skeoch once joked that the asset management group he co-led with Martin Gilbert was more than just “the Keith and Martin show”.

Soon the UK’s largest listed fund manager will get its first taste of life without the two big personalities at the helm. After axing its cumbersome co-chief executive structure last year and Mr Gilbert later stepping down as vice-chairman, SLA announced last week it would replace Mr Skeoch with former Citigroup banker Stephen Bird by the end of September.

The abrupt change in leadership aims to draw a line under the problems that have dogged the group since an unsuccessful merger in 2017 engineered by Mr Skeoch and Mr Gilbert.

Mr Bird, a newcomer to asset management, inherits numerous unresolved problems at SLA, whose market value has fallen from £15bn at its peak to about £6bn. The group manages £490bn in assets, down from £660bn at the time the merger was agreed, with investors pulling about £44bn per year on average because of Brexit, disappointment with active management and dissatisfaction with the new group.

The Scottish executive, who was in the frame to take the helm at HSBC before the appointment of Noel Quinn, faces the unenviable task of charting a new course for the Edinburgh-based group in the middle of a global economic crisis and against an increasingly cut-throat competitive backdrop for active managers.

SLA rocked by heavy outflows

“[Mr Bird] has a tough row to hoe,” says a former adviser to the company.

Having spent the majority of his career outside of the UK, with stints in New York and across Asia, he is less well known in the City of London and lacks the profile and contacts book of his predecessors, particularly schmoozer-in-chief Mr Gilbert.

Moreover, his background is not in fund management. “Given [SLA] is an investment house with many issues to fix, it seems odd to appoint someone with no investment experience,” says a former employee.

Mr Bird had a mixed record during the final stint of his 21-year career with Citi. The consumer banking unit he led between 2015 and 2019 received the lowest score among Citi’s divisions for financial performance in 2018, although Mr Bird’s scores and pay increased the following year when the unit’s earnings rose by 13 per cent. 

He appeared on SLA’s radar while running the US group’s Asian business, when he proved himself to be a “rising star” who was “not frightened of complexity”, SLA chairman Douglas Flint told the Financial Times. Mr Bird, who is still awaiting regulatory approval for his new role, declined to comment for this article.

Sir Douglas argues that Mr Bird’s record in product development, distribution and risk management make up for his lack of investment experience. “There are more aspects to being CEO of an asset manager than just managing money,” he says.

Yet investment performance has been at the heart of SLA’s problems since the merger and well before. The group suffered 15 consecutive quarters of net outflows starting from April 2016, according to RBC Capital Markets.

The former blockbuster Global Absolute Return Strategies, or Gars, fund has been the poster child for SLA’s problems, shrinking from £26bn at the start of 2017 to under £4bn today because of dire long-term performance.

The fund has returned just 0.1 per cent over five years and 1 per cent over three years, according to Morningstar. The group has also been rocked by the withdrawal of a £70bn contract from Lloyds Banking Group, previously its biggest client.

Under Mr Skeoch’s sole leadership, the performance of SLA’s equity funds and Gars has improved but it will take time for this to translate into positive net flows.

Will Riley, who runs the £7m Guinness Global Money Managers fund, is not yet convinced that SLA has turned a corner. “I continue to avoid SLA as I’m not yet satisfied that product performance is good enough to merit a turnround,” he says.

One top-25 shareholder says that the incoming CEO’s most pressing priority will be addressing SLA’s dividend policy which has been rendered “unsustainable” because of outflows and weak markets. They added that while cutting the payout would probably be unpopular with SLA’s large retail investor base it was “necessary medicine”.

Dwindling fortunes of Standard Aberdeen

Mr Bird will also be under pressure to reduce the core asset management unit’s cost-income ratio, which remains stubbornly high at 82 per cent, despite significant cost-cutting since the merger. Another top-25 shareholder is pushing for greater cuts when Mr Bird takes over.

He must also find new sources of business. “A significant part of SLA’s assets relates to insurance mandates that are naturally running off, creating a headwind to growth that will probably need to be addressed through further acquisitions,” says the first shareholder.

Despite its problems, Mr Bird benefits from “a much stronger base from which to start at SLA than is generally realised”, says Credit Suisse analyst Haley Tam. She points to the fact that the company is “swimming in capital” after reducing its stakes in its Indian joint ventures over the past year.

This could allow SLA to hit the acquisition trail and follow through on the original rationale behind the 2017 merger to create an asset manager with the scale to play a part in industry consolidation.

When Mr Skeoch leaves, the positions of chief executive, chief financial officer and chairman will be held by newcomers not associated with the merger, making it easier for them to justify M&A activity to shareholders, says Berenberg analyst Chris Turner.

One area in which the company wants to expand is the lucrative wealth management market, and Mr Bird’s retail background should help.

“Getting closer to the consumer is the direction the [asset management] industry is moving in and we want to get ahead in that,” says Sir Douglas. “Stephen’s task will be to prepare the business for ever greater democratisation of savings, focusing on technology and on creating a better customer experience.”

Mr Bird embarks on this mission from a position of relative strength: SLA’s total wealth assets under management and administration are £86bn, making it the fourth-biggest player in the UK.

Meanwhile, his experience in Asia — he spent 15 years in the region — suggests that SLA sees opportunities beyond its home market.

However, investors will first and foremost want to see progress on solving the basic issues facing SLA. “The core asset management business, which provides the bulk of the company’s revenues, has to return to growth — that has to be top priority,” says Charles Bendit, an analyst at Redburn.

Additional reporting by Attracta Mooney