Aberdeen Asset Management Offers Grim Blueprint for Manager Survival

From Lipper Alpha Insight, Nov. 28:

Aberdeen Asset Management offers a grim how-to guide for fund manager survival. The UK group faces pressure from passive funds, zealous regulators and a protectionist Trump presidency. Chief Executive Martin Gilbert’s coping mechanism – more deals, fewer costs – applies to the sector as a whole.

Aberdeen‘s full-year results make for bleak reading. The group grew assets under management to 312.1 billion pounds, but this was flattered by the weaker level of sterling, and acquisitions. Net flows were negative. Despite the higher assets, revenue and pre-tax profit sank 14 and 28 percent respectively, as fee margins fell.

Aberdeen‘s challenges are individual and sector-wide. Its emerging market franchise has been pumped up by years of loose U.S. monetary policy, and now faces a stronger dollar as the Federal Reserve raises rates. U.S. President-elect Donald Trump wants to bring back domestic jobs from emerging economies, and may trigger trade wars. Trump may be all talk, but competition from cheaper passive and “smart beta” funds is not. Finally, regulators are demanding managers hold more capital and are scrutinising competition.

Aberdeen has strengths. Its emerging markets business may be more resilient to the passive onslaught than managers focused on more commoditised developed market equities. And its blended margin of 30 basis points is already lower than many peers’....MORE