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Splitting image is no joke for Aberdeen

Barely two years after being a leading retailer in the Isa market, Aberdeen Asset Management is sitting on a mountain of debt, hamstrung by its poor investment decisions and a stockmarket which steadfastly refuses to rise.

Its liabilities have ballooned to almost £250m and its shares – worth nearly £7 at their 2001 peak – have lost roughly 90 per cent of their value. The share price recently stooped below 40p and speculation is rising that Aberdeen could breach its banking covenants.

Chelsea Financial managing director Darius McDermott says: “Aberdeen is in freefall. It has been forced to let lots of fund managers go, has slashed its salesforce and its performance is shocking. It is a tainted brand now and, with markets as they are, you cannot see it getting any better.”

In fact, Aberdeen&#39s situation seems to be getting worse. Of its 19 split-capital investment trusts, four are in receivership or have been liquidated and others will probably follow unless equity markets perform an unlikely U-turn.

Even its efforts to repair some damage are beginning to look doomed as it struggles with precarious finances. Its long-awaited compensation plan – what it calls a “capital uplift package” – for investors in its ill-fated progressive growth fund – a unit trust which invested in split-caps – is currently languishing with the FSA, which is yet to approve it.

The sticking point surrounds what is believed to be the main thrust of the plan, which is that Aberdeen will compensate investors in 2005, by which time it hopes that equity markets will have recovered sufficiently to cover the likely £45m cost. Now several weeks overdue, the plan may never emerge – at least in its current form – but it remains investors&#39 best hope of recovering some money.

But, whatever the outcome for investors, the men being held accountable for Aberdeen&#39s problems – chief executive Martin Gilbert and head of investment trusts Chris Fishwick – will be in no better position. In July, Gilbert came under attack from MPs at a Treasury select committee hearing, at which Aberdeen&#39s marketing was branded “the unacceptable face of capitalism”. Notable in his absence was Fishwick, who failed to attend. The committee wants to conduct a further hearing in the near future and is believed to be keen to speak him.

However, Aberdeen clearly does not expect to be the only group to be carpeted in future meetings of the select committee. A spokesman says: “If there is another hearing, then we would expect other groups with similar fund ranges to attend. One would imagine the committee would be keen to hear the views of a cross-section of providers.”

But it seems Fishwick will carry the can for the disaster and is expected to resign once the FSA completes its investigation into the splits debacle. But when this might be is far from clear. The regulator says it does not know when it will finish its report. It is likely to be next year but could be as late as early 2004, by which time Aberdeen could be facing even more serious problems if its unit trust investors decide to move their investments elsewhere.

Plan Invest joint managing director Mike Owen says: “We have clients just unhappy with the name, regardless of how their fund is doing. Aberdeen&#39s fixed-interest offering is actually quite good but clients with bonds have told me they do not care about performance, they just want away from the name. When they insist, we have to move them.”

Owen says he has heard of one investor who simply sent an email to his broker saying: “Get me out of Aberdeen”, even though his fund was not affected.

But it is clear that many IFAs would prefer their clients in Aberdeen&#39s healthier funds to stay where they are. Its £1.2bn fixed-interest fund, managed by Paul Reed, is well regarded and its property fund has a good name with IFAs. Even its technology fund, which has lost around half its value this year, remains viable as a small part of a diversified portfolio.

But, as Owen points out, performance becomes an irrelevance when all Aberdeen&#39s funds become tarred with the same brush as its split-caps.

So what does the future hold for Aberdeen? Sympathy for the company is non-existent, even among other beleaguered fund managers, because the perception is that it only has itself to blame for aggressively marketing splits as low risk. Its brand has become synonymous with all that is wrong with the industry and some believe the only way forward may be to sell the business once the extent of its problems are more apparent.

An industry source says: “Aberdeen will not get bought until its liabilities are clear. No one will be prepared to buy blind. Once its liabilities are dealt with and the FSA takes whatever action it is going to take, perhaps a significant fine and an order to pay some compensation, it will be a sitting duck. Only then will bids come in for it.”

It is anyone&#39s guess which fund managers would be prepared to dust off their cheque book for a firm with a name almost as poisonous as Equitable Life&#39s. But it could be Aberdeen&#39s only hope in the long run, as its prospects for attracting new business over the next few years are bleak, to say the least.

That Aberdeen is paying a heavy price for its mistakes, however, will come as little consolation to the thousands of investors who have seen their money vanish into thin air.


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