The recently announced merger of Aberdeen and Standard Life will result in a combined business that is the largest active management group in the UK and the second largest in Europe. The mighty beast is to be headquartered in Scotland and will have assets of well over £600bn.
The news follows that of the Henderson and Janus deal in January and highlights an accelerating trend that sees not only the smaller firms looking for scale but the very largest and most successful too.
All these groups are leaders in their field and are generally considered to have excellent, highly respected senior management in place. I have no doubt they will make a success of these deals and emerge as stronger businesses for it. The ability to refine their combined offerings – merging and closing underperforming funds, shaking out extra costs and plugging gaps in their ranges – should lead to real benefits.
No doubt there will be lots of short-term disruption, redundancies, culture friction and the like, but the longer-term pros are bound to outweigh the cons.
If they manage things well over the medium to long term, the businesses should continue
their expansion and growth, particularly in the US and emerging markets.
In the case of Aberdeen and Standard Life, the deal appears to be a very shrewd one indeed. Despite some truly excellent fund managers and emerging markets expertise, Aberdeen has suffered patchy performance and substantial outflows over the last few years. Standard Life can benefit from its global reach and reputation, while bringing some much needed stability to asset numbers. Of course, not all mergers go to plan but I expect this to be a successful integration.
So what does it all mean at an adviser and fund buyer level? Well, I for one am always in favour of consolidating the number of active funds available. There are too many closet trackers and underperforming strategies out there.
In a merger like Aberdeen and Standard Life it is highly likely the best-performing managers with the strongest investment propositions will win out. Duplicate funds will disappear and talent will be enhanced by bringing quality together from both sides.
It is also highly likely some managers will be unable or unwilling to remain in such large combined groups, even if their talents fit. From these shakeouts and walkouts could come new boutiques, where excellent managers back their own skills and knowledge in launching their own propositions. Some of the most exciting, dynamic and rewarding investment opportunities in recent years have come from such situations.
So while we can expect uncertainty in the short term, there will be significant benefits further out in the shape of stronger, larger groups, and smaller players with a talent for performance.
What we may end up losing in choice at the larger end we often replace at the smaller end, meaning the necessary cycle of innovation and enterprise continues within active management. For those of us who still believe in the benefits of active management, at least…
Lee Robertson is chief executive of Investment Quorum