July 2009

CEO INTERVIEW: Hitting the big time

With parts of Deutsche Bank and now Credit Suisse under its belt, Aberdeen has grown out of the industry’s middle ground. CEO Martin Gilbert (pictured) tells Fiona Rintoul about the firm’s plans for global growth and graduate training... martin_gilbert.jpgEscaping from the industry’s ‘middle ground’ has been a driving ambition for Aberdeen Asset Management since it
bought Deutsche Bank’s UK investment management business back in 2005. Martin Gilbert, Aberdeen CEO, has said elsewhere that the Deutsche deal took Aberdeen into the middle ground of asset management, while the subsequent headline-grabbing purchase of Credit Suisse’s long-only business in recent months took the company out of it.

I met Gilbert in London just as Aberdeen was about to complete its latest acquisition-driven metamorphosis. The firm has come
a long way in 25 years, having started as a three-man band in the eponymous Scottish city.

Now the future is upon it. The Credit Suisse acquisition concluded on 30 June and the once-tiny Scottish firm has £133.1bn (€155.6bn) of assets under management and is the UK’s largest independent fund business. As Aberdeen cofounder George Robb says on the video released last year to mark the firm’s 25th birthday: “It’s a remarkable achievement for a very small business from a town in the far north of Scotland.”

But while Aberdeen has been growing, the industry has been changing. The big are getting bigger and as a result the middle ground has shifted.

“One of the things that has happened is that BlackRock and BGI have completely changed the landscape of world asset management,” says Gilbert. “It used to be that a trillion was considered big. I don’t know what they are now – $2.8 trillion (€1.9 trillion) or something.”

Gilbert, a maverick in the City who in personality is about as far removed from the good-old-boy style of fund manager as it is possible to get, and who has developed a reputation as a canny deal-maker, makes no secret of his desire to pocket a few more star buys and get further away from the dreaded middle ground. New Star Asset Management, which Aberdeen considered, went Henderson’s way in the end, and now Gilbert says what he would most like is an acquisition in the US, where his firm does not have a substantial presence.

“Our aim is to do something in the US so we can give ourselves further distribution in what is the world’s biggest market,” Gilbert says. “That would be our priority, and mainly with a distribution capability, because we have the products. We just don’t have the distribution in the US.”

Big ideas
Gilbert is by no means confining his acquisitorial eye to the US, however, and while acquisitions for their own sake are something he says he doesn’t favour, size is important because with size comes strength.

“One of the things we’re finding in the world now is that there are huge advantages to not being owned by a bank or an insurance company, but probably the most serious disadvantage is you don’t have that balance sheet behind you,” he says. “One of our aims is to improve the strength of our balance sheet over the next two to three years and improve the strength of our recurring income so that we can afford to give clients the type of service they want.”

And with banks selling off their asset management divisions like they’re going out of style, there will probably be no shortage of opportunities. There can surely be no better indicator of how compelling the need to sell is than Barclays’ decision to divest itself of BGI, something that Gilbert says could be perceived as selling the family silver.

“There are a lot of potential transactions around that satisfy what we’re trying to do which is try to become financially stronger, try to become really big and profitable, so that we have the scale and the balance sheet in order to give our clients comfort that they are really with a strong organisation,” he says.

And strength has perhaps never been more important than now. Confidence is returning to the markets and the economy, but Gilbert suggests that the markets may have got ahead of themselves. Meanwhile, more regulation is to be expected, even if it
won’t necessarily help the industry or solve the problems that caused the global financial crisis.

“I’m very keen on the principles-based system as far as funds are concerned because I think it’s far better than rules and regulation,” says Gilbert. “But there is no question that Europe would like to tighten up regulation quite considerably, more towards what I would term the European model rather than the Anglo-Saxon model.”

But for the time being, Aberdeen is busy digesting its most recent meal: Credit Suisse. There will be fund mergers – many, in fact – and the entire operation will move to new offices at the end of the year. By that time Gilbert expects to have broken the back of the integration process. The speed of integration is partly the result of systems put in place when the firm did the Deutsche deal, and indeed in many ways Credit Suisse is the fulfillment of that deal.

“Deutsche really allowed us to do Credit Suisse,” says Gilbert. “What we didn’t fully understand when we did Deutsche was just how big it was compared to us and how complicated a business it was compared to us. It’s taken us two or three years to put the systems in place for a global asset manager.”

There were diseconomies of scale in buying Deutsche, says Gilbert, and operating margins went down. “In Credit Suisse we’ll see all the benefits of the Deutsche deal and we’ll see massive margin improvement.”

The process of integration has, of course, already begun. Some funds seem to have been made anew in Aberdeen’s image. A Credit Suisse US quant fund has been reformulated as a bottom-up fund managed according to Aberdeen’s house style, while Hugh Young, who heads Aberdeen Asia, has taken over management of the Credit Suisse Orient fund. But Gilbert is clear that he wasn’t just buying assets with the Credit Suisse acquisition. It has given Aberdeen a presence in areas such as convertible bonds and money market funds.

“We’ll obviously retain those,” he says. “Where we’re looking to amalgamate is where we have two similar funds in the same area and that’s really just to achieve economies of scale.”

Founding values
A key question for the firm now must surely be: Can the values and spirit that drove the initial Aberdeen enterprise survive the many deals it has made in the meantime? The firm is still officially headquartered in Aberdeen, and 347 of its 1,878 staff are based in Scotland (229 in Aberdeen), but it is a greatly changed entity with offices worldwide and a London headcount of 365. Despite this, Gilbert believes Aberdeen is essentially still the same firm he helped found back in 1983.

Some things are, of course, different. “When we first started I knew every stock we owned,” he says. “I don’t know every stock we own now.” But with the original management team still in place after over 20 years, Gilbert believes the company’s core ethos has been maintained.

All good things must come to an end, however, and with a management team comprised of 50-somethings, the spectre of retirement looms. There may be a danger of them all going together, concedes Gilbert, but he isn’t worried because it is then that the company’s commitment to bringing on graduates will come into play.

“It’s this ability to bring on the graduates and bring them up in the ethos which is the fundamental thing that we do,” he says. “We’ve given those graduates a real chance to build the business.”

©2009 funds europe

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