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Aberdeen Standard’s Hugh Young on merger challenges

The UK asset manager’s Asia chief reflects on the merger of Aberdeen Asset Management and Standard Life and on fund industry consolidation in general.
Aberdeen Standard’s Hugh Young on merger challenges

Aberdeen Standard Investments has experienced well-documented challenges following the merger of Aberdeen Asset Management and Standard Life in 2017, not least large outflows of client money­.

Hugh Young, head of Asia Pacific at the £486.5 billion ($644.5 billion) fund house was frank but philosophical in a recent interview with AsianInvestor.

AsianInvestor: There have been bumps in the road with the merger, but perhaps Asia was a smoother transition than the UK businesses?

Hugh Young

Hugh Young: It’s been a relatively easy merger in Asia, operationally; a lot simpler than in the UK obviously. Aberdeen was very much investment-led in Asia, and distribution came second, while Standard Life had virtually no investment staff out here [in Asia] – their Asian assets were managed out of Edinburgh.

Mergers are never smooth, but the rationale and logic certainly made sense; there was low duplication. Both firms are good at different things – [Aberdeen] was more an equities house, [Standard Life] more a fixed income specialist, so it’s mapped out very well.

If you think about areas that have gone wrong, that’s been in each individual business. The Standard Life business saw massive outflows from its core product, Gars [the Global Absolute Return Strategies fund], while Aberdeen saw massive outflows from its core products in active equities in global and emerging markets.

So, strangely enough, I think both businesses, had they not merged, would have been in even worse shape. The outflows would have happened anyhow in that period.

And if you are a certain size, you’ve almost got to make a decision on whether you want to stay a boutique. I sometimes hanker after that little boutique when it was all very simple. [But] I’m not sure it was ever as simple as you think.

And now we’ve got a similar spread of investment skills to BlackRock that we can offer clients, albeit with the odd zero missing from our assets under management! So it’s become a hellishly more complicated business.

Q. But BlackRock has benefited from its big passive business in recent years. Where do you stand on the passive and active debate?

We have a fairly large passive, quant business in the UK with around £54 billion of assets under management, though it’s miniscule by BlackRock standards. It’s not something we’ve hugely promoted in Asia.

Am I a big fan of passive? Not personally, but if people want it, we can provide it. It’s very much a scale game; you need big scale to make passive really worthwhile.

Q. So the aim to provide something that isn’t pure index tracking?

Yes we do more value-added type passive products, such as smart beta, but nothing specially tailored to Asia at the moment.

Q. Is that in the plan?

I wouldn’t rule out offering anything we do. But is it high on the list? Probably not. For us it’s a matter of focusing on key products for this region: equities, Asian fixed income and multi-asset, alongside satellite strategies of real estate and infrastructure.

The danger is being spread too thinly, with say 100 areas of expertise, whereby you fall over yourself and achieve nothing. It’s about identifying key things that appeal to clients in different markets.

Q. How is industry consolidation affecting the landscape for institutional clients?

I think there is a lot of pressure on people, as there has been for years. If you look at our annual reports over the years, you’ll see evidence of pretty major fee compression. That prompts consolidation, for us and others. And it also promotes spinoffs, as you’re still seeing – people leaving major houses to concentrate on their speciality.

In a sense, the worst place to be is somewhere in the middle. In the old days you probably thought $10 billion was enough, and now its $50 billion or $100 billion. Unless you’re a true boutique.

There’s still plenty of choice for clients. There are still a lot of firms out there – there’s not an oligopoly.

But it’s harder and harder to start up a small firm with just a desk and a telephone, because the costs are so high from a regulatory standpoint and because of client expectations. So a certain ‘squeezing out’ of the low end of asset managers is taking place.

This interview is the expanded version of one that originally appeared in the 20th anniversary edition of AsianInvestor magazine, which was originally published at the end of June.  

¬ Haymarket Media Limited. All rights reserved.
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