Stocks in Focus: Standard Life & Aberdeen Asset Management

Standard Life is to pay ￡3.8bn to acquire Aberdeen Asset Management in a deal which will see the combined company managing assets of approximately ￡660bn, making it the second largest Asset Manager in Europe. As investors, it is worth considering how this will affect both the shareholders in the companies themselves and those invested in their funds.

Standard Life and Aberdeen have both struggled in recent years with a rise in popularity of passive funds hurting the two, predominantly active, managers. Aberdeen has seen over ￡100bn of withdrawals from its funds since 2012 while Standard Life recently reported disappointing outflows from its flagship ‘Global Absolute Return Strategies’ range of funds. This deal is a defensive one with the combined company due to benefit from significant cost reductions. Management expect savings of ￡200m annually from the end of 2018 but that there will be ￡340m of restructuring costs – it will therefore be a couple of years before the full effect of the benefit will be felt.

Whilst Aberdeen is known for its Asian and Emerging Markets funds and Standard Life for its UK and European funds, there is a certain degree of overlap. Investors in some funds may, therefore, find that they are merged with others. This will likely lead to the best managers being retained and so should ultimately benefit investors.

Economies of scale will bring cost-savings, benefitting the combined company and, ultimately, the shareholders. Investors in their funds, while not likely to see any reduction in management charges, should benefit as the restructuring of the company results in an improved offering. However, bigger is not, necessarily, better and there are significant risks to be navigated by Martin Gilbert and Keith Skeoch, the ‘co-CEOs’ of the new combined entity.

- NW Brown Investment Management

For more stocks in focus: https://www.nwbrown.co.uk/library