Back from the brink, Gilbert eyes the FTSE
ECONOMIC storm clouds are gathering over Europe and the UK is battling against the most savage slump since the 1930s. But Martin Gilbert, the chief executive of Aberdeen Asset Management, is in an ebullient mood.
And why not? His firm has this year been seen as a serious contender to join the elite FTSE 100 index for the first time – a development few would have predicted a decade ago when it practically self-destructed through its involvement in the split capital investment trust scandal.
Having rescued Aberdeen from the brink of disaster, Gilbert is not going to let trifles such as the financial crisis stand in his way now.
‘We pretty much ignore the UK economy and just look at companies,’ he says. ‘And lots of companies are doing well. They have lots of cash even in the recession.
‘To a large extent we also disregard the problems in the eurozone. Lots of companies are in good health there too.
‘Obviously there will be huge consequences if it implodes. I can’t see a disintegration, though I think they will take it to the brink.’
For Aberdeen, Gilbert says ‘it is like the downturn didn’t happen. Our share price has tripled’.
That is good news for the 56-year-old, who founded the firm in 1983, since he owns more than 5.4m shares currently worth more than £14m.
‘We must be due some underperformance soon, we can’t keep it up,’ Gilbert jokes, but adds: ‘I am quite optimistic on share values.’
Aberdeen’s assets under management fell by 5pc last year to £170bn, but its profits still rose 44pc to £302m.
That performance earned Gilbert a cash bonus of £1m plus a deferred payout of £3m, on top of his £500,000 salary.
He suffered the embarrassment of a significant shareholder rebellion over his pay and bonus for 2010, with almost a third of investors refusing to back his rewards. Fewer complained about his package for 2011, but a still substantial 15pc declined to support the pay report.
These episodes raise an obvious question: how can fund managers such as Gilbert be expected to hold pay in check at companies in which they invest, when they themselves are leading members of the bonus brigade?
‘Even fund managers who are highly paid are quite happy to stick the boot in,’ he says. ‘Shareholders are not part of the club. There are more votes against remuneration reports.’
‘I had no objections about shareholders voting against my bonus – they should vote, they should engage. But this year, the vote against it halved, and my bonus was higher.’
Gilbert adds: ‘You have to differentiate us, as fund managers, from bankers. All we do is manage people’s money and if we don’t do that well, we don’t get well paid.’
HE CITES the example of his friend Sir Bill Gammell, the head of Cairn Energy. Gammell agreed to pass up a share bonus worth £2.5m and a £1m donation to charity after it was opposed by investors due to the company’s failure to secure their approval and the lack of performance criteria.
Gilbert says Gammell, whose oil company is another Aberdeen stalwart, is ‘ a very good friend, and I am not going to be hard on him, but there should have been consultation’.
Aberdeen Asset Management publishes an ‘engagement report’ setting out its voting record on pay and other governance issues. It voted against management on pay 185 times last year and abstained 31 times, out of a total of 1,581.
Just in case he hasn’t had enough boardroom controversy, Gilbert recently took on a job as a non-executive director at BSKYB, where James Murdoch’s role as chairman is under intense scrutiny because of concerns over his independence and the phone hacking scandal.
Gilbert is now regarded as a pillar of the investment establishment. But just a decade ago he and his team of fund managers were virtual pariahs, described at a select committee of MPS as ‘sophisticated snake oil salesmen’ over the split capital investment trust scandal.
That debacle, which wiped out the savings of thousands of small investors who thought they were buying low risk investment trust shares, was described by the Financial Services Authority as the worst misconduct it had ever seen, though to be fair, it may have been overtaken in the league of shame since then.
The affair drove the firm to the brink of administration and Aberdeen, and the companies involved, ended up paying £194m in compensation between them to 40,000 investors.
‘I repaid a £650,000 bonus over the split capital scandal and it was painful,’ Gilbert says. ‘But it was a small token compared with the losses and I did it willingly.’
On the current row over bonuses to bank bosses, he says: ‘People in the City are definitely not aware of the strength of feeling out there.
‘The weight of public opinion is so heavy. But we have to be aware of unintended consequences. The controversy could drive people abroad, or out of public companies or make them stay off the board so they can keep their rewards private.’
Investors have come in for criticism in the credit crunch for allowing companies to operate as ‘ownerless corporations’ and for failing to stamp out management folly in cases such as Royal Bank of Scotland’s disastrous takeover of ABN Amro.
‘That lack of engagement, if it was ever really the case, is not the case now,’ Gilbert says.
He cites the example of security group G4S, which was forced to abandon a £5.2bn bid for Danish cleaning company ISS after opposition from shareholders.
He also mentions the Prudential, which gave up its hopes of taking over Asian insurer AIA in a £25bn deal when it failed to win round its investors.
‘Shareholders are taking a much more active stance now,’ he says.
The split cap scandal made Gilbert risk-averse, and he steered clear of the complex derivatives that triggered the credit crunch.
He built – and rebuilt – his corporate empire through a series of acquisitions but is currently building up his cash cushion.
Unlike many in the City who stand four- square behind the coalition’s austerity package, Gilbert agrees with shadow chancellor Ed Balls that George Osborne ‘could go slower’.
He reckons: ‘What we should have done is more of the Keynesian thing of spending our way out. Having said that, Osborne is doing a reasonable job and he has given the UK huge credibility on the bond markets.’
‘The austerity is not as bad as he says if you live in London. Or in Aberdeen, which is doing very well.’
Or, indeed, if you happen to be Martin Gilbert.