Aberdeen builds on strength in depth

Far from its near-collapse after the split-cap débacle, Aberdeen Asset Management has gained balance from its acquisitions and is profiting from client relationships, writes Neal Underwood.

Aberdeen Asset Management is celebrating its 25th anniversary this year. The group has been through some notable ups and downs in that time, but latterly a series of acquisitions, successes with some of its funds and, this month, the announcement of a tie-up with Japanese bank Mitsubishi UFJ have given the group considerable optimism for the future.

Aberdeen bought DWS Investments, the British investment operation of Deutsche Asset Management, and Deutsche’s Philadelphia fixed interest operation in July 2005. Integrating the businesses has taken time. The migration of ex-Deutsche funds from Ireland to Luxembourg was not completed until September.

Acquisitions of the size of Deutsche are unlikely to happen again, says says Gary Marshall, Aberdeen’s head of collective funds. “In the past, areas such as the fixed income business didn’t have critical mass,” he says. “The Deutsche deal has transformed that part of the business. One of the things we’ve said recently is we’ll look to do bolt-on acquisitions in the future.”

Marshall says Aberdeen sets out its stall as an active equity manager. “We’re not all things to all men, but where we do have scale in an asset class we would expect to produce a product which is up there,” he says.

“We’ve got a particular style; the key is to articulate what that style is. We have tended to be relatively conservative as a business. We would hope in relative terms to do better than some other styles at the moment. We’re clear on what we’re doing – offering the same level of excellence in that style.”

Marshall also believes it is essential not to change to fit market conditions. “We would regard ourselves more at fault if in difficult markets we capitulated. If you do that you’ve destroyed your mandate.”

Similarly, on fixed income Aberdeen has an active management style that looks to exploit relatively short periods of anomalies in markets and lock in gains across many positions. Marshall describes it as a long-term approach.

Aberdeen has 26 onshore funds, plus a range of Luxembourg Sicavs. “We’re not really looking to add,” says Marshall. “If you look across the equity fund range, we’ve got a fairly comprehensive offering. As the Asia product has matured we’ve put more emphasis on – for example – Asia smaller companies.”

Marshall also highlights the World Equity fund, and the Ethical World fund, which applies a socially responsible overlay to the same universe. “We’ve taken a core discipline and taken a subset of it. We use this as our shop window and a generator of alpha and of new ideas.”

One thing Aberdeen will not do, he says, is attempt to launch into an area where it has no expertise. If a client suggests a product in an area where it is already active, however, this may lead to something being developed.

“If we do the research anyway, we want to capitalise on this strength,” says Marshall. “We think it would be interesting to take on board an idea from a client that’s an area of common interest. We’re developing from something we’ve already got.”

Of the group’s British domiciled funds, notable performers over the three years to October 6 are the American Growth, Corporate Bond, Emerging Markets, Ethical World and World Equity funds. Hugh Young’s Asia Pacific fund, after a period of underperformance, is well ahead of the sector average for the past year, bearing out Marshall’s comments on relative outperformance in difficult markets.

Mark Dampier, head of research at Hargreaves Lansdown, says the obvious fund to pick out in Aberdeen’s range is Young’s Asia Pacific fund.

“It got a real pasting over the last couple of years and even appeared in a couple of dog lists I think. People were very misleading.

“I’ve been investing with [Young] for a long time. He’s the emerging markets equivalent of Neil Woodford – he buys well-managed companies without debts so when there’s a bull market he gets left behind, but as soon as the market goes sideways or downwards he comes to the fore.

“I haven’t changed my mind on this fund – I’m still buying it. I’ve always thought that’s where [Aberdeen’s] strengths are.”

Dampier says Aberdeen’s team, particularly in Asia Pacific, is made up of solid people who one would want running money in the current environment.

He also praises the group for coming through a period in the wake of the split-capital investment trusts debacle where it looked as though the business might go under.

“You’ve got to hand it to [chief executive] Martin Gilbert and Gary Marshall. You have to give them enormous credit for turning it around,” he says. Marcus Brookes, head of multi-manager at Cazenove, says he looks at Aberdeen primarily as an Asian and emerging markets house. “Their ethical and American funds have also done pretty well,” he says. “They’ve very quietly been building themselves into a proper global asset management business. With Hugh Young as head of equities, they don’t get carried away.”

The Asia Pacific fund is on Cazenove’s private client buy list, while Devan Kaloo’s Emerging Markets fund is held across several multi-manager portfolios. “When in capital preservation mode, as we are at the moment, you want to go with the grey hairs,” says Brookes. “Then when times are good you tend to stick with them. We like their approach and their view of corporate governance. Hugh and his team have developed a fantastic framework.”

Although Aberdeen has in recent years been more focused on the institutional market, Marshall stresses it has continued to have a retail presence.

He says: “It’s not strictly true to say we’re not in the retail market. We’ve seen a consolidation of the platforms, with players getting more sophisticated; you could call it a quasi-institutionalisation of the market. We can be active in the retail market as part of the client’s portfolio.

“We are on most of the platforms and although we’ve pulled back from the more high-profile advertising we didn’t want to pull away from the retail market. We continue to support the platforms – we’re pretty committed to that outlet.”

One significant change this year was James Laing replacing Chou Chong as head of pan-European equities. Marshall says the impact will be lessened by the fact that Laing worked with Chong on the pan-European team for several years.

He says: “It will be more of the same. His style is the same [as Chong’s] and he has a mandate to continue the work that’s been done. Chou will be working with Hugh in Singapore as a troubleshooter on worldwide equities, and is still there as back-up.”

At the beginning of this month Aberdeen announced a joint venture with Mitsubishi UFJ, which has taken a 9.9% stake in the company. Marshall views this as a great opportunity to get into the Japanese market.

“Japan is one of the largest markets in the world and we had been looking at it for a long time,” he says. “It was difficult to do on our own. If we can work with an established player, a partner in Japan will give us a much bigger presence there. Mitsubishi know the Aberdeen business and know the products they can distribute through outlets in Japan.” Brookes says: “This could almost be seen as a massive tick in the box for Martin Gilbert. It’s a strategic alliance between two very good financial services companies. You have to say, well done. Aberdeen is big, it’s back and it’s strong.”

Looking to the future, Marshall says it is important to be realistic. “We’re totally reliant on developments in the market. What we would like to do is maintain our existing relationships with clients.

“What saw us through our difficult period was strong relationships with core clients. We must have a level of communication, and never get so big we’ve diluted our client relationships down.”

Marshall is keen to take the business forward geographically. “There are two areas where we are under-represented – the US and Japan. Over the last three to five years we’ve seen a growth in mandates in the US but, compared to the potential for that market, there’s a long way to go. We can take our existing products, but we must add people to cover servicing and so on – in Asia generally, but Japan in particular. If we can make inroads in those parts of the world, our business will naturally grow bigger.”

ABERDEEN ASSET MANAGEMENT was founded in 1983. It has more than 1,800 staff in 21 countries, with its major offices in London, Philadelphia, Singapore and Sydney. It has assets under management of £113 billion, split between equities, fixed income and property. It is the second- largest property asset manager in Britain and in the top 10 globally.