Was sale of Standard Life brand by giant decisive move or folly?
A SYMBOLIC move by one of the biggest forces in Scotland’s key financial services sector last week may herald big changes that could impact on many people in the country.
Standard Life Aberdeen (SLA) announced last Wednesday that it was selling the brand with which the group and its forebears have been associated for nearly 200 years.
The Standard Life name must be one of the best known in the UK pensions world but Edinburgh-based Standard Life Aberdeen has apparently decided it has no need for it.
It has passed the name on to Phoenix as part of a complex deal. This will result in SLA actually paying £115 million to Phoenix, which has headquarters in London.
The deal was announced months after former Citigroup executive Stephen Bird took charge at Standard Life Aberdeen. It was billed as a move to simplify the arrangements put in place after SLA sold its pensions business to Phoenix for £3.2 billion in 2018.
This was heralded as transformational by SLA, which was created through the merger of Standard Life and Aberdeen Asset Management in 2017.
SLA bosses decided the best prospects lay in the racy global asset management business rather than in the boring old pensions business that Standard Life has been in for most of its life. The business was founded in 1825 and remained a mutual under the ownership of its members until 2006. The firm developed expertise in asset management as part of efforts to help build up pensioners’ funds.
The decision to sell the Standard Life brand indicates that Mr Bird is sure the focus on investment management is right, although SLA will retain a 14 per cent stake in Phoenix.
Mr Bird said SLA will unveil exciting new branding later this year.
Some sector-watchers will feel that the rebranding provides an opportunity to remove a source of unhelpful confusion about the group.
While the executives who negotiated the merger between Standard Life and Aberdeen Asset Management decided the group should be called Standard Life Aberdeen, they called the fund management business they put at the heart of the strategy Aberdeen Standard Investments (ASI).
The messy compromise in terms of names suggested merger negotiations had involved difficulties, which may have had something to do with egos.
The impression was reinforced by the fact that Standard Life boss Keith Skeoch and Aberdeen Asset Management chieftain Martin Gilbert became joint chief executives of the enlarged business.
City analysts hated the arrangement, which did not last long.
Mr Gilbert stepped down as joint chief executive in March 2019, two months after former HSBC chairman Sir Douglas Flint took over the chairmanship of the SLA board.
Mr Gilbert departed SLA last year after a spell as vice-chairman.
A University of Glasgow-educated chartered accountant, Sir Douglas is famed for his forensic mind.
It was significant that the board he led chose Mr Bird, an outsider, to be the new chief executive, rather than someone steeped in the traditions of Scotland’s financial services industry.
When his appointment was announced in June, Mr Bird described Standard Life Aberdeen as a company with “a great history, a strong brand, and an exciting future”.
Last week, however, he said directors were excited about the work that was being done on a new brand and looked forward to sharing the results later this year.
Mr Bird added: “The ‘Standard Life’ brand has an important heritage. In the UK, it has strong recognition as a life insurance and workplace pensions brand. This is closely aligned with Phoenix’s strategy and customer base. This is much less the case with the business we are building at Standard Life Aberdeen which is focused on global asset management.”
The name change exercise will likely create valuable work for brand gurus and digital visionaries.
But sceptics will need some convincing that a name change alone will make much difference.
In February last year, Merian Global Investors agreed to be taken over by Jupiter.
Merian was only bought out of Old Mutual Wealth in 2018. It is thought the buyout team had hoped to grow the business significantly before floating it on the stock market.
However, the value of the business reportedly fell from around £580 million at the time of the MBO to £240m when the deal with Jupiter completed. Merian suffered £4.3bn outflows of funds in the first half of last year, leaving it with £16.7bn at June 30. Jupiter had around £56bn under management at September 30.
Merian-branded funds took on the Jupiter name last month.
Mr Bird took charge at SLA following a period in which the group experienced big funds outflows.
The group suffered net outflows of around £90bn in the three years from 2017 to 2019.
In August, Mr Skeoch said redemptions had slowed significantly and SLA had achieved a “resilient” investment performance amid what he described as one of the most volatile periods in his 40 years in the business.
But funds under management fell to £511.8bn at June 30, from £544.6bn at the end of 2019.
The fall in the first half of last year reflected the impact of the decision of the owner of Scottish Widows, Lloyds Banking Group, to move £70bn funds that had been managed by Aberdeen Asset Management before it merged with Standard Life. Lloyds is working with Schroders, a big rival of Standard Life Aberdeen’s.
If the flows situation doesn’t improve quickly enough, things could get tricky at SLA. Job losses would probably be inevitable if the company looked to make cost savings to offset the resulting hit to income.
It employs around 4,000 people in Edinburgh currently.
SLA could use acquisitions to help it grow funds under management. If it really wants to compete in the global asset management business the company may still need to get much bigger. It is relatively small compared to the likes of Blackrock and Vanguard, which both have trillions of dollars under management.
Mr Bird has spent much of his career in Asia and may focus attention on that area.
The company could still be alert to acquisition opportunities closer to home, although Standard Life and Aberdeen Asset Management hoovered up lots of fund managers in Scotland between them. Edinburgh-based Baillie Gifford would be a tempting target in the unlikely event that partners in the blue-blooded firm decided to sell up.
Whatever name it uses, SLA will need to do a good job of managing the £147bn funds it is looking after for Phoenix. The group won a vote of confidence last week from Phoenix, which extended the term of the relevant fund management agreement by two-and-a-half years, to 2031.
It remains to be seen if Phoenix made the right call in deciding to invest so heavily in the UK pensions market.
It is using Standard Life as a platform on which it expects to grow in that market. Given demographic trends, it seems reasonable to expect the size of the market to increase in coming years.
Phoenix appears to value the skills offered by staff in Scotland, where it has become a major employer. The company employs 2,800 in Edinburgh.
However, some sector-watchers in Scotland will be wary about such an important operation being controlled by a business that is based outside the country and which is listed on the stock market. There will be fears that activity could be moved to other places or jobs cut by Phoenix, in order to help it achieve the kind of earnings expected by investors and analysts.
Phoenix, which also administers closed pension books, has a big operation in Birmingham.
Advances in digital technology and artificial intelligence could mean the work of growing numbers of pensions industry workers being automated.
AS presentations go, it was hard to beat. Coming in at 15 minutes less than last year’s Budget speech and clearly outlining his three-part plan – protecting jobs and livelihoods, strengthening the public finances, and enabling an investment-led recovery – Rishi Sunak delivered an extraordinary Budget for extraordinary times.
While he didn’t shy away from acknowledging the scale of the country’s difficulties – borrowing at levels unseen since the Second World War and the total fiscal response to the pandemic is projected to be £407 billion – he also spoke of “possibilities”. He said there would be a swifter and more sustained recovery than forecast by the Office for Budget Responsibility, with the economy returning to pre-covid levels by the middle of next year – six months earlier than expected.
Many of the most positive initiatives had already been trailed, such as the extension of the furlough scheme to the end of September. This will provide businesses with the certainty they need, but with employers expected to contribute 10 per cent from July and 20% in the following two months it will be interesting to see how uptake pans out. When the Government last tried this, it didn’t work.
The extension of the Self Employment Income Support Scheme (SEISS) to cover those who started a business last year will enable 600,000 more sole traders and freelancers to benefit, but there remains a gap. Those who are paid via dividends from companies they run are still not eligible to claim.
Among the new announcements was a “superdeduction” tax incentive to encourage capital expenditure in the UK and create jobs. Under the scheme, which will cost the Treasury £25bn over the two years it is in effect, businesses investing in qualifying plant and machinery will be able to cut their tax bill by up to 25p for every £1 they invest.
Confirmation that the UK’S first Infrastructure Bank will be established this spring to invest in green private and public projects underlined the Government’s ambitions to grow the green economy. The initiative will be supported by £12bn of capital with the aim of securing at least £40bn in investment.
Following the UK’S success in the vaccine race, the Chancellor spoke of how he wanted the UK to become a “scientific superpower”, revealing a review of R&D tax credits to encourage investment and visa reform to lure “science superstars”.
Also designed to boost growth was the announcement that a number of freeports will be pursued across the UK. The Chancellor confirmed they would be special economic zones with different rules to make it easier to do business, such as favourable VAT levels, tax breaks and cheaper customs.
Somebody, somewhere of course, has to pay up and we learned that corporation tax will increase from 19% to 25% for the UK’S biggest companies in April 2023, delivering a £47bn boost to the Treasury. In isolation, such an increase seems breathtaking yet compared to competitor nations the UK is still an attractive location for inward investment. Prior to this rate increase, to boost the cash flow of struggling businesses and recognising the longer impact of the pandemic, the ability to carry back losses to generate a tax repayment has been extended to two years.
A freeze on the personal allowance, while not affecting the pound in people’s pockets, will help recover a further £19bn as wages increase.
North of the Border, the Scottish Government will receive an additional £1.2bn in funding through the Barnett Formula and City Growth Deals in Ayrshire, Argyll and Bute, and Falkirk will be accelerated. There was also £27m for the Aberdeen Energy Transition Zone and £5m for the Global Underwater Hub in Scotland, the first stage in delivering the North Sea Transition Deal.
Despite the enormity of the impact the pandemic has had on public finances, this
Budget provides a route map beyond Covid-19 together with the degree of certainty that businesses need to implement the final step of the Chancellor’s recovery plan and increase investment within in the UK.
MICHAEL Donaldson, executive chairman of family-owned timber merchant James Donaldson & Sons, approached the Budget hoping Rishi Sunak would resist the temptation of heaping taxes on business and households before they had the chance to recover from the pandemic.
And by and large he feels the Chancellor achieved that, albeit he says the hike in corporation tax from 19 per cent to 25% from 2023 will be a “big jump” to handle, writes Scott Wright.
James Donaldson, which can trace its roots back to 1860, employs 1,019 people. It is one of the UK’S largest importers and distributors of timber, much of which is supplied to the housebuilding sector.
Given its size, the firm would be eligible to pay the 25% rate of corporation tax when it is introduced. Mr Donaldson said the scale of the rise in corporation tax was unexpected, but took succour from the fact businesses have been given time to prepare for it.
“To go from 19% to 25% in one go is a big a jump, but on the plus side it is 2023,” he told The Herald. “We know when it is coming and we can plan accordingly.”
Mr Donaldson also welcomed the “superdeduction” that will allow companies investing in new equipment to claim back a higher percentage of taxable profits for the next two years, particularly as James Donaldson is planning expenditure in “kit and equipment in the relatively short term”. But he cautioned that the “devil with these things is always in the detail”.
With the company earning one-third of its revenue in England, he was pleased to see further support for the housebuilding sector, including the extension of stamp duty relief. The £500,000 nil rate band will now end on June 30 instead of March 31, before being reduced to £250,000 until the end of September, and then cut to its usual level of £125,000 on October 1. Mr Donaldson said the new Government-backed scheme to help house buyers secure 95% mortgages would maintain momentum in the housebuilding sector.