Aberdeen turns to Japan
Group secures £100m for funds from its major shareholder Mitsubishi UFJ
ABERDEEN Asset Management has raised £100 million from its major Japanese shareholder to strengthen its balance sheet and invest in new funds for a worldwide market.
Mitsubishi UFJ Trust and Banking Corporation, which has a 17 per cent stake in Europe’s biggest fund manager, will advance the cash at a five per cent interest rate, with the deal structured as non-voting preference shares that would only convert to capital in extreme circumstances.
It means a further £100m onto the balance sheet, only weeks after Aberdeen led by Martin Gilbert raised the interim dividend by 11 per cent and said it had a surplus of £221m over its regulatory capital minimum of £320m.
The group also promised last month it would launch a share buyback programme of up to £100m to return surplus capital to shareholders over the remainder of the year.
But the fundraising will give Aberdeen the headroom also to launch new funds with higher amounts of investment than it has been able to do in the past, to build on last year’s £550m acquisition of Scottish Widows Investment Partnership.
The board said it believed “the ability to generate organic growth through the launch of new funds will be enhanced if the company is able to commit increased levels of seed capital, so that the funds are launched at a level at which they will be considered credible by the group’s larger distribution partners”.
Finance director Bill Rattray said: “We recognise following the SWIP acquisition we have a much broader product capability now, and we are looking to build on that organically. We will be looking over the period of the next few months to be launching additional funds, and we recognise that by providing a slightly higher level of seed capital to individual funds we will get onto platforms more quickly.
“Typically, a fund seeded with $50m will gain more traction than one seeded at a lower level.”
Mr Rattray said launches could span the product range, including “some equity funds, some bond funds, but equally multi-asset solutions and possibly even a fund of alternatives”.
Mitsubishi bought a 9.9 per cent stake in Aberdeen in October 2008 for 140p a share, around a third of current levels. It was part of a strategic alliance that gave the bank exclusive rights to distribute certain funds in Japan, and gave Aberdeen access to an important market.
The stake rose to 19.9 per cent following regulatory clearance and has remained within the 15 to 19.9 per cent range ever since. Akira Suzuki, a Mitsubishi executive, sits on the Aberdeen board.
Mr Rattray said: “The main part of the relationship is they help us to distribute products into the Japanese institutional market, from their side they are keen to tie up with an asset manager with global equity expertise.” The deal “stemmed from a conversation that suggested they could help us with lending”.
The non-voting preference shares, unlike debt, count towards core tier one capital in an asset manager’s balance sheet, and Aberdeen says: “The existing headroom above the company’s regulatory capital requirements will be protected and the company will be well placed to accommodate any future changes to applicable capital adequacy laws.”
Mr Gilbert said at the weekend that “falling liquidity in markets is, in part, an unintended consequence of well-meaning regulatory changes”, and the Bank of England’s latest market review showed that it real- ised “that over-regulation could also harm the proper functioning of markets”.
The new shares only convert into ordinary voting shares if Aberdeen’s tier one ratio slips below 5.125 per cent – it is currently 13 per cent.
Aberdeen used this capital-raising method in the issue of $500m of capital notes in 2013 with a coupon of seven per cent.
On borrowing at five per cent, Mr Rattray commented: “We consider it quite an attractive coupon. What we are doing is giving ourselves more flexibility in the capital base.”
On whether it put Aberdeen in a stronger position to consider further non-organic growth through acquisition, Mr Rattray said there was nothing specific on the radar but added: “We will consider nonorganic opportunities as and when they arise.”
Aberdeen shares, which peaked at 507p in April, were down 7.5p at 409.4p last night.