Standing still is not an option

One question I have repeatedly been asked since we announced the proposed merger of Aberdeen and Standard Life is whether this is an offensive or defensive decision. It is a bit of both.

Any asset manager which denies it faces challenges has its head in the sand. The industry is polarising with boutiques at one end and large multi-service providers at the other. Those stuck in the middle are likely to be left behind due to industry headwinds, such as the rise of passive investing, downward pressure on fees and increased regulatory pressures.

Our proposed merger will put the combined business firmly into that bracket of major full service asset management providers with a truly global footprint both in terms of investment capabilities and client coverage.

But the cornerstone of the deal is the extent to which these two businesses complement each other. It was this factor more than any other which meant that the deal made sense to my colleagues and I on the Aberdeen Board.

Our businesses complement each other in two key respects: a minimal overlap in investment capabilities and significantly different distribution strengths resulting in a business which is highly diversified by asset class, clients and revenues.

The merger will create an asset manager that has five broad investment capabilities which have scale and financial strength – equities (both active and quant), fixed income, solutions, property and alternatives. It will have over 1,000 investment professionals operating out of 20 countries.

This increased breadth of investment capability will provide clients with more choice. Various pension funds, insurers and financial institutions (banks/wealth managers) are increasingly looking to interact with a smaller number of fund managers from whom they buy a wider range of strategies. Many of the US fund management giants have been very successful at marketing multiple investment strategies to clients.

The merger will also greatly increase our presence in next generation investment capabilities, such as solutions, smart beta and alternatives. These are growth areas within asset management and we will be able to compete toe-to-toe with global groups, as we already do within equities and fixed income.

Multi-asset investing – constructing portfolios offering exposure to equities, bonds, property and alternatives – is becoming increasingly important. This can range from constructing bespoke solutions for institutional investors, such as insurers, to offering a range of portfolios to help individuals build a pension pot and invest in specifically designed post-retirement investment products.

The combined group will have 50 unique distribution centres and clients in over 80 countries and complementary strengths in institutional, wholesale, workplace and retail channels.

The investment and distribution strengths of both companies will mean we are able to consolidate and grow our position in the UK whilst deepening and expanding our client relationships internationally.

The asset management industry is facing an unprecedented period of disruption and consolidation. Standing still is not an option. Those who succeed will be those who embrace change and position themselves to meet the changing needs of clients.

Martin

@MartinGilbert83