What investors can learn from SLA's ill-fated merger

The merger of Aberdeen Asset Management and Standard Life was supposed to create a “formidable player” on the global money-management stage. Things are not going well. Merryn Somerset Webb looks at what investors can learn from the mess.

By Merryn Somerset Webb

published 22 February 2018

in Features

When Martin Gilbert and Keith Skeoch the one-time CEOs of Aberdeen Asset Management and Standard Life signed their huge merger deal last year, the plan was simple to get big enough to be a "formidable player" on the global money-management stage.

So far, so bad. Six months in and, while the combined business is the UK's largest listed fund manager, it is also "plagued by disappointing performance, flighty investors and falling staff morale", says the Financial Times. Worse still given the men's stated aim (scale, scale, scale) their biggest client has sacked them. Lloyds Banking Group has said it will pull out £109bn that Aberdeen has been managing for Lloyds' Scottish Widows insurance and pensions unit since 2013. That £109bn makes up around 20% of SLA's assets under management (AUM), and not far off a third of the assets Aberdeen brought to the merger. Nasty.

What lessons can ordinary investors learn here? First, this is a timely reminder that big mergers more often destroy than create value: in merging with Standard Life, says Shore Capital's Paul McGinnis. Aberdeen rendered its £500m purchase of Scottish Widows "essentially worthless". Second, for the right client, big fund managers can offer bargain-basement prices. SLA has made much of the fact that while the Lloyds money makes up 20% of AUM, it produces only 5% of revenues. That means Lloyds was having its billions managed for under 0.15% a year.

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I wonder how end clients of Scottish Widows feel about that (you can be sure their bill is a little higher)? More pertinently, I wonder how the rest of Standard Life Aberdeen's clients feel? If I were one of them, I'd have a quiet word about my own fees, particularly if I happened to be invested in their vast, hideously complicated, high-charging and embarrassingly underperforming Global Absolute Return Fund (yours for 0.89% a year, and down 1.3% over the last three years).

The lessons are simple: mostly sell shares in firms involved in big mergers; remember your fund manager is probably overcharging you; and steer clear of very large funds run by very big fund-management firms (it's hard for them to outperform). This week, Max King offers an alternative Max Ward's Independent Investment Trust. It's nearly as cheap as Lloyds money managed by Aberdeen used to be (0.2% a year you don't need "scale" to offer value). It is simple. It is focused. It isn't looking to get bigger. And it is very successful. The GARS fund is up 13% over the last five years. The Independent Investment Trust is up 175%. They aren't quite the same thing, so it isn't 100% fair to compare them, and of course past performance is no guarantee of future performance. But if I was looking for somewhere to put cash for the long term, and I wasn't going passive, I know which I would go for.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.