How abrdn lost the battle for investors’ wallets
Its rebrand was meant to launch a new era, but it has been an utter disaster, says analyst. Lucy Burton reports
‘If you’re caught in no man’s land, it’s only a matter of time before you are buried’
Shortly after Stephen Bird told a group of angry money managers that their bonuses would no longer be spread around “like peanut butter”, the company he was newly in charge of decided to cut back on its vowels too.
Standard Life Aberdeen, created through a £11bn merger between Aberdeen Asset Management and rival Standard Life four years earlier in 2017, was now simply abrdn.
It was a rebrand aimed at signalling the start of a new era under self-styled “reset guy” Bird, a former Citigroup banker who ex-colleagues speak highly of but question his readiness for such a switch.
It’s not just vowels and bonuses which have been cut. Abrdn has been ejected from the premier FTSE 100 index after its shares plunged and now plans to axe £150m in costs.
That means letting go of 500 jobs and reducing overheads, drawing out new contracts and replacing some of its many £24,000-a-year Bloomberg terminals. Friends of Sir Douglas Flint, the company chairman whose background is also in banking, believe that he and Bird have been particularly unlucky in what was always going to be a tough job.
But fund managers at the business are losing patience and analysts say radical change is now needed.
In the past few days it has emerged that US investment firm Harris Associates, a high-profile shareholder in abrdn, has sold its stake after losing confidence in management.
Abrdn yesterday sold its own 50pc stake in Virgin Money Investments, losing over half the value of its investment along the way. More bad luck, supporters will say.
Those working inside abrdn’s fund management arm are less generous. An investor who used to work for the company says the merger has been an “utter disaster” as shares slumped more than 70pc since their 2015 high point and the fund manager continues to clock up outflows. Abrdn suffered a pre-tax loss of £169m for the half year ending June 2023. The investor claims that staff are desperate to leave and are convinced that bosses just want to shift the business away from its traditional money manager roots.
Bird has concentrated on diversifying the company and boosting its consumer and tech focus, snapping up Interactive Investor for £1.5bn in 2022. Stock-pickers feel that their status has vanished.
“Bonuses are generally at zero, travel is very limited, management don’t appear interested in keeping good people or focused on investment performance,” the former employee says. He adds how this contrasts with the luxury lifestyles some thought they had signed up to 20 years ago, when bonuses were “a multiple of basic pay”.
Insiders push back on any suggestion that there are problems internally, arguing that everyone is cutting costs, bonuses are now much more fairly judged on performance and all fund managers face the same issues. “There’s no drama,” insists one executive.
Rae Maile, an analyst at Panmure Gordon, begs to differ. In his view the company is “crying out” for an activist investor to swoop in like Us-based Edward Bramson, who for years had a high-profile battle with Barclays over its leadership and was behind a boardroom coup of F&C Asset Management a decade ago.
“If only dear Mr Bramson would come back to these shores,” Maile says. “Bird is three years into a three-year turnaround and it is a fair question as to whether management needs further change beyond the very welcome recent addition of a new chief financial officer [Jason Windsor].”
In Maile’s eyes, current cost-cutting plans barely scratch the surface, arguing there is a case to be made for either a sale of parts of the business or a complete split. He says: “The real key is to return the investment business to a proper level of profit and that means a material level of further cost cutting.”
There were rumours of a sale of abrdn’s investment division last year, but that was quickly shut down.
“There is absolutely complete agreement between the board and management, including myself, on the shape of this group,” Bird reiterated on an earnings call last month, adding that speculation was out of date as it was linked to a strategic review in 2022. “In those reviews, we test every configuration to destruction,” he said. “We are committed to the investment business, we can see a clear path to restoring the profitability of it.”
Competitors have been relishing the drama. A boss at a rival investment company argues that abrdn is stuck in limbo because of its size.
“Pure asset management is increasingly becoming a big scale game,” he says. “On one end you have huge asset managers managing billions of trillions of pounds of investment, such as Blackrock, which benefit from economies of scale. On the other end you have absolute specialists which manage investments in niche areas like AI or nanotech.
“It’s the smaller and mid-sized asset managers in between that are in trouble. They don’t have the economies of scale to offset increases of business costs. If you’re caught in no man’s land, it’s only a matter of time before you’re buried.”
City analysts who agree will continue to lay out their arguments for a big shake-up in the months ahead, piling pressure on Bird and Flint. David Mccann at Numis wrote last month that the “status quo needs to meaningfully change” with “more radical action, such as a break-up of the group” needed.
Another City analyst says he is unlikely to be on abrdn’s Christmas card list this year as he doubts his opinions about the group will make him popular with management. “I’ll go along to the results meeting but I won’t drink the coffee or [eat] the biscuits... just in case,” he jokes.
An abrdn spokesman said: “At abrdn, we’re building a modern investing business. We have substantially reshaped the company, combining investment content and wealth platforms to create a diversified, through-cycle business with more opportunities for growth.
“Industry change, combined with market conditions, has put the investment management sector under intense pressure in recent years.
“We recently announced a new transformation programme to remove a further £150m from our cost base, which will help drive improved profitability in abrdn’s investments business. Pay for performance is central to our remuneration policy. We’re very focused on retaining our best people.”