Aberdeen Standard Life Merger: Expert View

Morningstar fund analyst Ashis Dash reveals Standard Life and Aberdeen's strengths and weaknesses and what the merger may mean for investors

Emma Wall 6 March, 2017 | 9:31AM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by Ashis Dash, Morningstar Fund Analyst, to discuss the merger between Standard Life and Aberdeen.

Hi, Ashis.

Ashis Dash: Hi, Emma.

Wall: So, a big 12 months for asset management. We've seen two big mergers already in the form of Henderson and Janus and Babson and Barings. And then this morning we have had confirmation that Standard Life and Aberdeen will be merging. What do we know so far?

Dash: As you mentioned, yes, over the weekend the news came through that the two firms would be merging. If the merger goes through, then two-thirds of the new asset manager would be owned by Standard Life Investments and one-third of the – or the rest of it would be owned by Aberdeen. It would make it the largest asset manager within the U.K. with about $660 billion-odd of assets. About $300 billion-odd comes from Aberdeen and the rest comes from Standard Life.

Wall: And how will the new firm be run, because you've got two Chief Executives at these companies potentially vying for position?

Dash: Yes. So, from the news that we have got till now it seems like the new company would be run by both the co-execs as of now. So, Martin from Aberdeen would be one of the co-execs and Keith from Standard Life would be the other one.

Wall: And we have heard from Martin Gilbert this morning in the news stressing this is not a case of merging two ailing companies to create a global player. He was very positive, as you would expect him to be. But it has been a difficult 12 months for both asset managers, hasn't it, with outflows from both companies?

Dash: Yes. So, the two of them have been amongst the top five investment managers to have lost in terms of outflows over 2016 and the trend has sort of continued in 2017 as well. This in a way can be traced back to what their key strengths are. So, Aberdeen is known for their emerging market or Asian equities business and which is not – performance-wise it has struggled a little bit over the last couple of years. So, that has caused a lot of outflows.

Whereas SLI or Standard Life of late has been known for its absolute return or multi strategy fund, the global SLI GARS and over the last 12 months of 2016 it has not really beaten its benchmark and that has become an issue for a lot of the unitholders. So, that has also seen some significant outflows.

Wall: Now, here at Morningstar, we rate funds on a five-pillar basis and parent is one of those pillars. It's an important part of fund analysis. So, where does the fund analyst team – what is their view, what is their parent view on both of these companies?

Dash: So, Aberdeen is rated as a Neutral currently and that is because of some key departures last year. So, you had Anne Richards who left for M&G. So, based on that we have a current view on Aberdeen as Neutral. Whereas Standard Life is rated positively and that is sort of driven by a lot less turnover within the team.

They have got a good stable of funds through fixed income equities and multi-asset, seems like much better setup and even the remuneration is aligned to long-term investment, which makes it a positive rating.

In terms of when the two come together, as news comes through we will definitely be taking a view. But as of now, we don't really have any concerns on each of the parent. As I said, as more news comes along, we will be taking views on the parent as well as individual funds.

Wall: Ashis, thank you very much.

Dash: Thank you, Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar