Standard Life and Aberdeen eye smart beta entry as merger plans take shape

Aberdeen Asset Management and Standard Life have “big plans” to enter the smart beta arena as the merging firms prepare to present their new investment strategy.

The divisional investment structure of Aberdeen and Standard Life, which will be presented to shareholders in early May, will focus on up to six investment strategies within equity, fixed income, quantitative strategies, real assets and property.

Speaking to Money Marketing, Aberdeen global head of distribution Campbell Fleming reveals the new firm will leverage its combined £24bn quant strategy assets to build a smart beta offering.

He says: “As a combined business, there are economies of scale in terms of costs that should eventually see lower overall costs for our clients. The businesses run £24bn in active quant from single to multi-strategies and we have got big plans in that space to build on that business with an active multi-factor strategy.

“We are interested in the opportunity to provide better, smart beta products than the simple basic proposition of the benchmark minus fees, if you are lucky.”

Fleming says the group is also “watching the space” of Australian mutual fund exchange-traded funds for possible replication in their business despite reiterating the new firm will be primarily an active manager.

He says: “We don’t mind ETFs, in fact we can find a way to cleverly wrap some of our strategies into an ETF format.”

Synergies saves

In March, Standard Life and Aberdeen agreed to combine their forces to create a global, £660bn asset management powerhouse. The firms will be holding a general meeting in June and looking to complete the deal in the third quarter of this year.

The two firms have identified £200m worth of “synergies savings” as a result of the merger, says Fleming.

Money Marketing understands that EY has been appointed integration partner for the deal.

A source close to the firms expects Aberdeen’s Edinburgh office to be one of the first to be closed as staff are moved into Standard Life’s newly expanded St Andrews Square offices, with marketing, HR and finance functions at particular risk of job losses.

But others remain positive about the deal’s prospects. One ex-staffer says: “When Standard Life make up their mind, they chuck resource at it and do it to a high standard.”

It is understood that former Standard Life Investment head of equities David Cumming, who left the firm four days after the merger announcement to the public, was not assured he was going to keep his role in the merged firm.

Both Standard Life’s Keith Skeoch and Aberdeen’s Martin Gilbert, who will be co-chief executives of the new group, have expressed their public displeasure at the fact the merger was leaked, as well as the impact this has had on staff.

Fleming says the lion’s share of the synergy savings will be in the technology contracts with third parties, including asset custodians, then in property by shutting more than 20 offices worldwide, and finally in “people reductions”.

He says: “We have 74 offices around the world, we probably only need 50 to 55. There’s a lot to be saved in just office duplication.”

While it is too early to know how many staff will be made redundant, Fleming says “that’s a thing you have got to do properly and carefully”.

“When Standard Life make up their mind, they chuck resource at it and do it to a high standard.”

‘We are going to be unrivalled’

Despite the consistent outflows Aberdeen has been seeing over the past four years adding up to around £100bn, Fleming says the firm continues to have “a strong pipeline” of interested clients.

He says: “Clients continue to fund us despite the merger. People say this is going to be unsettling for investment processes and clients but in reality it’s not. It is a complementary fit and the fund overlap is tiny.

“When you show clients what the company would look like when the merger goes in and shareholders approve it, they like what they see.”

Aberdeen’s diversified growth funds, the multi-asset business and Parmenion platform will all be retained.

Fleming says: “SLI’s MyFolio has a certain class of clients, different from the Parmenion group and diversified teams. The powerful thing together is if we take SLI’s Gars, multi-asset and multi-manager, the group has almost £160bn of assets in those three strategies and we’re going to be unrivalled.

“Everyone understands the headwinds facing the [asset management] industry. The clear message is this [merger] is not about taking costs out regarding alpha management proposition, this is about having the best most efficient platform in which to deal with these headwinds.”