Bob Parker (pictured) tells Fiona Rintoul that Credit Suisse is definitely not ducking out of asset management, despite selling its long-only business to Aberdeen Asset Management...You can see history from Bob Parker’s 18th-floor office at 1 Cabot Square in London’s Canary Wharf. Beyond the bank of computer terminals that line the Credit Suisse vice chairman of asset management’s window desk looms the former Lehman Brothers building. Pride comes before a fall, its empty rooms seem to whisper.
And the history that brought down Lehmans – the global financial crisis – has touched Parker’s office as well. On the very last day of 2008 Aberdeen Asset Management announced that it was to purchase Credit Suisse Global Investors, the Swiss bank’s long-only equity and fixed-income business, in exchange for 240m new ordinary shares in Aberdeen.
The deal, which, subject to shareholder and regulatory approval, will be finalised in June, will give Credit Suisse a stake of up to 25% in an Aberdeen reconfigured to incorporate the Credit Suisse assets. “It may be a lower percentage based on the volume of business that is transferred from the Global Investors business into Aberdeen,” says Parker, “but if the transaction proceeds smoothly we will become the largest shareholder in Aberdeen.”
This will dilute the stake of existing shareholders, but they are understood to have been supportive of the deal, which has been seen as something of a coup for Aberdeen and its founder Martin Gilbert. The transaction substantially increases Aberdeen’s assets under management and catapults it into the global league, giving it operations in the US, Asia and across Europe.
For Credit Suisse bank, by contrast, the deal is more of an exercise in credit crunch-related realism. The low-margin, long-only arm is being amputated so the company can concentrate on its higher-revenue private banking business. One of the reasons Aberdeen came to be preferred over fellow suitor Schroders was that Aberdeen could complete quickly. In the face of $14bn (€11bn) of sub-prime related writedowns in 2008, Credit Suisse wanted the deal done by the end of the year – something it only just achieved – in order to be able to start 2009 with a clean slate.
Credit Suisse will, of course, retain an interest in the long-only business through its stake in Aberdeen. But this can hardly be what Parker was planning when he helped found Credit Suisse First Boston Investment Management back in 1982. However, if he finds the present turn of events in any way dispiriting he isn’t showing it when we meet in the weeks after the Aberdeen announcement at the firm’s London offices. These days, senior fund industry executives often have the haunted eyes and shadowed brow of condemned men. Not so Parker. He is chipper as always.
“The deal with Aberdeen is very attractive indeed because it’s not a sale it’s a swap,” he says. “We are swapping our business in long-only equity and fixed-income for equity in Aberdeen.”
The decision to do the deal was taken further to a strategic review undertaken at Credit Suisse, Parker adds. This showed that the traditional long-only equity and fixed-income business needed greater scale. “We decided that to achieve that scale the best thing would be to partner with other industry players. Therefore we decided not necessarily to put it up for sale, but essentially to put it up for partnership.”
And a partnership the new venture will be – in more than just name. Credit Suisse will have one director on the board of Aberdeen, research input will be provided “if that adds value”, and Parker and Gilbert will be travelling the world together to promote the new business.
“We want a very strong bridge to be formed between Credit Suisse and Aberdeen,” says Parker.
One of the most important planks in that bridge will be distribution support. Credit Suisse can provide Aberdeen with access to its powerful private banking distribution network, which should help to boost Aberdeen’s AUM.
“Given Credit Suisse’s interest in Aberdeen there will be opportunities to introduce Aberdeen to business that it perhaps would not have looked at in the past,” says Parker.
The trouble with partnerships, of course, is that you have to keep seeing your partner. It’s all very well to have a bit of a push at the start, but how will this partnership evolve over time? Is Credit Suisse in for the long haul? Will it hold its shareholding in Aberdeen steady, or perhaps increase or decrease it over time?
“The plan at the moment is that we will have a shareholding of up to 25% and we have made a commitment that we will have that shareholding for a period of time,” says Parker. “Obviously it’s way too premature to comment on what Credit Suisse’s strategy will be let’s say in five years’ time. As to the size of the shareholding the only thing one can say at the moment is that both parties have a very strong vested interest in making this work.”
Nothing is set in stone, but clients, suggests Parker, will be the glue that keeps the two firms together.
“There are essentially four components to this,” he says. “There are the interests of Aberdeen, the interests of Credit Suisse, the interests of the staff on both sides, but also – critically – the interests of the clients. We have to demonstrate to clients – and this is something I’m working on with Martin Gilbert at the moment – that there is a very strong value added for them.”
Thus far the reaction from clients has generally been positive, says Parker. “They understand the consolidation that’s going on in the asset management industry; they understand the need for economies of scale. Many clients are also impressed with Aberdeen’s global equity and emerging equity – particularly Asian emerging equity – track record.”
What the long-term impact on staff will be is a little less clear. Inevitably, there will redundancies and departures. And, as demonstrated by the recent announcement that Paul Griffiths, the fixed income head whom Credit Suisse recruited from Axa in 2007, is to take over as global head of fixed income at Aberdeen, they won’t necessarily be on the Credit Suisse side. Garry Bartlett, the existing head of fixed income at Aberdeen, is to leave the company.
For Parker, resolving personnel issues is just one of the headaches he faces at the moment. As well as working with Martin Gilbert on issues such as optimum staffing, he retains responsibility for the assets staying within the Credit Suisse group. These come from the multi-asset class business and an alternative investment business comprising private equity, hedge funds, infrastructure and property.
It will be Parker’s job to grow those businesses in the future and despite the problems experienced by the likes of hedge funds in 2008 he is optimistic that he can do it. The Aberdeen deal should not, therefore, be seen as Credit Suisse bowing out of mainstream asset management, he maintains.
It’s the future
“We are strongly committed to the asset management business,” Parker says. “Those businesses [that remain within Credit Suisse] are very substantial businesses. But given the Aberdeen transaction we feel the traditional long-only equity and fixed-income business needs partnership to achieve economies of scale.”
Panning back to look at the industry as a whole, Parker believes the kind of deal Credit Suisse has struck with Aberdeen is a sign of the times and will be repeated elsewhere.
“I think you’re going to see many more of these types of deals,” he says. A theme for the future will be banks that own asset managers consolidating with partners in the industry. The trend we’ve seen in recent years – whether it be in the Legg Mason deal with Citigroup, the Merrill Lynch deal with BlackRock or the deal we’ve done with Aberdeen – will result in more of what you could call independent asset managers rather than asset managers affiliated with banks and insurance groups.”
As he gets ready to begin work with Martin Gilbert on the new venture, Parker also makes it clear that every partnership has its limits. Asked if his forthcoming travels with Gilbert will include a trip to the Granite City – Aberdeen – he responds with an unequivocal “certainly not”.
©2009 Funds Europe