Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Abrdn manages portfolios for its customers. It has struggled to handle its own since the 2017 merger of Standard Life and Aberdeen.
The departure of chief executive Stephen Bird after just four years underscores this. Hired as a visionary, a more myopic focus on fixing its investments unit might have prolonged his tenure. Investors ascribe little value to this business, though it still provides two-thirds of Abrdn’s revenues.
The boss’s suitability was in question from the start. Bird arrived from Citi as a specialist in consumer banking (including a stint in Asia) rather than in fund management. The board hoped his experience in restructuring and updating the customer-facing technology of a large (and likely bureaucratic) US bank would come in handy, alongside some cost reduction.
Cost cutting looks good on spreadsheets. But asset management clients tend to be wary. Restructurings unsettle front-line staff, focused on the tricky business of investing — a task made tougher by the industry’s shift to passive funds. Only 17 per cent of Abrdn’s (higher margin) equity funds managed performance above their three-year index benchmarks last year.
Its problems are not just about staffing. Overheads excluding remuneration look high: at Abrdn, these are still half the total costs. For Schroders, this is under 40 per cent and even less for France’s Amundi.
Bird’s efforts to transform Abrdn into a savings provider involved its independent financial adviser platform and a pricey 2021 acquisition of interactive investor, a retail investment platform. Dragged down by the fund management business, these have not gotten enough credit from investors.
These two units account for more than 70 per cent of a core 127p sum of the parts by Citi. Include Abrdn’s stake in insurer Phoenix and surplus capital, and Abrdn’s underlying value is in line with the share price at 155p. The investment business almost comes for free. Abrdn could find interested buyers for these units: CVC has approached rival investment platform Hargreaves Lansdown.
Abrdn’s board reportedly rejected a breakup strategy from Bird last year, suggesting that his departure has been edging closer for months. Newish chief financial officer and now interim CEO Jason Windsor has reiterated the board’s line.
Whatever the fund management nous on Abrdn’s board, the executive suite clearly lacked the expertise to tackle a fund management turnaround in the seriously troubled UK market. Reviving Abrdn, with £367bn of investment assets under management, will require the board’s recognition that its two strategies may ultimately need different masters.
The shares will underperform its own index benchmarks until that time comes.
Read the full article here