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Noise abatement

Freshly crowned as one of the UK’s biggest asset managers, Aberdeen might seem an odd choice for a column on boutiques.

But the firm’s path from £50m of assets on launch in 1983 to £120bn after this year’s Credit Suisse acquisition shows how far smaller firms can go in the fund industry.

Key to Aberdeen’s progression has been management continuity, with CEO Martin Gilbert involved in the initial £50m MBO from an Aberdeen-based investment trust.

Other key individuals such as equity head Hugh Young have also been with the firm since the 1980s and this basic stability has shaped the character of the business.

Another key facet of Aberdeen is its particular investment style – initially formulated by Young on his Asian portfolios and gradually disseminated across the group.

Young originally set up Aberdeen’s Asian franchise in 1992, with himself and original partner Peter Hames still heading the business today. Several individuals from the Asian team have implemented their strategy on other desks over the years, with Chou Chong, Jeremy Whitley and Devan Kaloo all trained by Young.

In basic terms, Young says his process focuses on fundamentals and cutting out market noise, honed after making various short-termist mistakes early in his career.

“The market is basically full of people wanting to sell you something that will make them money and we have always wanted to ignore that background noise and concentrate on our own research,” he adds.

This fundamental approach is grounded in company visits and tends to mean relatively low stock turnover on portfolios, with Young owning certain holdings since the late 1980s.

He believes that good, solid companies will outperform over the long term and seeks to buy these as cheaply as possible. Young also stresses that his investment universe has changed beyond recognition since the early 1990s, when only a few Asian countries were open to external flows.

China effectively did not exist as a market and there was no access to regions such as India, for example.

Young feels the subsequent explosion in the area has made Asian investment much more labour-intensive and it now requires significant local presence.

Aberdeen now has around 30 equity investors across the region, spread across countries including Singapore, Thailand, Malaysia, Japan and Australia.

Broadly speaking, however, they have looked to maintain the flat management structure of a much smaller firm, with the whole team working across all the funds.

While concerned about a growing bubble in China, Young believes that Asian markets still look extremely attractive, with solid banks, a healthy consumer and high savings rates. That said, he would not particularly mind if markets saw a 10-20 per cent pullback from current levels.

Aberdeen has seen substantial growth via acquisition over the years although it stresses that this has been in tandem with healthy organic development. Of around 30 acquisitions, buying Prolific in 1997 and then Murray Johnstone three years later significantly expanded the reach and size of the company.

After serious issues in the split-cap crisis earlier this decade, the firm stepped back from the retail space, selling its unit trust range to New Star in 2003. But it was soon back on the front foot, buying various businesses from Deutsche in 2005, a US division from Nationwide in 2007 plus the transformational Credit Suisse deal.

Head of collective funds Gary Marshall says the aim has always been to add assets without disturbing the products, with incoming managers required to adopt the group process.

He feels this unwillingness to compromise on investment ideals has allowed the group to retain its specialist nature in the face of growing assets.

Throughout its life, Aberdeen has remained a long-only house, with business split across equities, bonds and property.

The firm’s approach is to deliver compelling investment products and then package them appropriately for different markets, whether as Oeics, Sicavs, investment trusts or various other different wrappers.

Beyond the well-known expertise in Asia, Marshall also highlights the group’s strength in global equities, where the team only buys stocks preapproved by the various region desks.

Aberdeen also has a decent reputation in bonds, boosted by the arrival of Paul Griffiths from Credit Suisse to head the fixed-income division.

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