Martin Gilbert, the chief executive of Aberdeen Asset Management, described the prospect of Aberdeen becoming the largest asset manager in Europe as 'frightening'.
Some 30 years after he and colleagues bought Aberdeen out in 1983 from an Aberdeen law firm where Gilbert worked, Aberdeen is set to become the largest asset manager in Europe once its purchase of Scottish Widows Investment Partnership is completed this year.
In a relaxed interview yesterday before an audience at the Jersey Finance Annual Funds Conference in London, Gilbert said the acquisition would take Aberdeen’s assets under management to $500 billion (€360 billion) – and he added: ”I like to use US dollars because it sounds more impressive. That’s another trick I’ve learnt.”
Since the 1983 Aberdeen buy-out, the firm – which is now a FTSE 100 company – has made 60 acquisitions, said Gilbert. Some of Aberdeen’s acquisitions have focused on underperforming asset managers.
Gilbert admitted that Aberdeen, which runs various asset classes and is one of the largest emerging market fund managers in world, is itself currently underperforming.
“We are personally going through a period of underperformance,” he said.
Although Gilbert added that company’s with long-term performance records like Aberdeen will be less affected by short-term figures, he also said changing direction when underperformance strikes could be disastrous. In times of underperformance, it is vital for asset managers to stick to their philosophy.
“You have to hold the line and continue with the holdings you have. You have to have confidence in what you’re doing and stick to it.”
Asked by interviewer Geoff Cook, chief executive of Jersey Finance, how fund managers could re-assure investors, Gilbert said: “You hope people understand your philosophy – and that usually lasts about a year with underperformance … but if you change your style, you’re dead.
“That’s what happened to Morgan Grenfell before we bought it.”
Morgan Grenfell Asset Management, which Aberdeen acquired as part of a deal with then-owner Deutsche Bank in 2005, had stayed out of tech stocks, said Gilbert, but then bought into them at the top of the market.
As a major investor in emerging markets – a region that has seen a major capital flight over the past 12 months – Gilbert said Aberdeen is now seeing a U-turn by institutional investors who are beginning to invest there again.
“There is a view that the reversal of QE [quantitative easing] will see money pour out of emerging markets. Being one of the biggest emerging markets managers in the world, we are seeing quite significant outflows, [but] for private banks rather than institutions.
“Institutional segregated investors are putting money in.”
Gilbert said he believed emerging markets were at a “turning point” as people realise a buying opportunity.
Gilbert said the fundamental question for him about investing in companies – regardless of type of security – was whether corporate management could be trusted to look after shareholders’ money. This rule applies everywhere, but is “very important in emerging markets where there is a lot of iffy management”.
On another topic, Gilbert said there was too much intermediation in the fund management industry and that he is in favour of the anticipated regulator-led overhaul in the UK of the system whereby fund managers do not pay for investment research, but receive it as a form of commission from brokers in return for deal flow.
“There are too many people in the food chain at the moment,” he said, and added that fund managers paying for their own research “is going to change the industry”.
Asked what the future holds for Aberdeen following the Scottish Widows deal, Gilbert said the key thing in life was to “overcome adversity”. He said that as a chief executive, much of his time was spent sorting out problems.
In a not uncommon show of humour for Gilbert, he said: “When you are on first-name terms with the Jersey regulator, you know you’re in trouble.”
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