Martin Gilbert, the chief executive of Aberdeen Asset Management, talks to Nick Fitzpatrick about his company’s recent acquisitions and how globalisation of the Aberdeen brand came about rather by accident.
Most people who want to upgrade their tech and stay ahead of digital advances might buy a new mobile phone. Martin Gilbert goes out and buys Parmenion Capital Partners, a digital platform that provides risk-graded model portfolios to financial advisers in the UK. Details of the deal are confidential, but it probably cost more than a phone.
Gilbert, the chief executive of Aberdeen Asset Management, says the acquisition of the fintech firm, which was announced in September 2015, was a result of meetings he’d had back in 2014 with social media giants such as Google and Facebook.
The meetings were fact-finding missions, “just to learn and see where they were going in terms of their businesses, whether they would see themselves as asset managers or distributors”.
He adds: “I would say one of the results was the purchase we made of Parmenion, a Bristol-based platform business.
“[Meeting Google, etc] made us think about the way the world is going. The more you look at it, the more you need a centre of excellence in your organisation to develop systems and software. Wherever we went, we saw that.
“Parmenion was a business we liked. We are able to leave it as a standalone business and we learnt from Facebook and Google about these areas.”
Parmenion is one of a plethora of acquisitions Aberdeen has made in the past two years – never mind the past three decades – as it continues to globalise its business.
The firm, which entered the FTSE 100 in 2012 and has £307 billion (€436 billion) of assets under management, traces its roots to the back room of an Aberdeen law firm 32 years ago, when it managed private client money and a closed-end fund. Gilbert was there at the beginning and has built the firm using dozens of acquisitions.
There was no conscious move to go global, he says, but the springboard for internationalisation was the relocation of Hugh Young, a star fund manager, to a newly opened office in Singapore in 1992. Aberdeen was on its way to becoming a giant emerging market investor. Then in 2005, it purchased Deutsche Asset Management. “That probably helped as well,” says Gilbert.
It wasn’t that Aberdeen had a strategy, exactly. “It was much more that we were good at Asian equities and, when we bought Deutsche, it gave us the opportunity to become bigger. [Aberdeen] was a UK-centric asset manager and Deutsche gave us the resources to become more global because it had US and Australian operations.”
Aberdeen is a major brand in Europe, but in the US – a market the firm is expanding into – it might be seen more as a specialist emerging markets manager.
Is Gilbert aiming the famed emerging market offering there?
“Among others, yes. But I would widen it and say we are offering more global products in the US. The US market is very competitive and probably the area we would have a competitive advantage, or at least be on an even playing field, is for global products, such as emerging market equities, global equities, Asian equities and global bonds.”
Is the US ready for these relatively exotic asset classes?
“Yes, definitely. We are seeing more internationalisation and more money going abroad, helped by the stronger dollar and the very strong performance of the US market over the last few years. Bond yields are low, but with bond yields in emerging market debt being attractive, all these things are pointing towards more money being put to work abroad.”
It might be said an asset manager’s footprint can be only as big as its main service provider’s footprint. These are the dual role custody bank and asset servicers. In Aberdeen’s case, this primarily means BNP Paribas Securities Services, together with State Street.
It might also be said none of the top custodians are as global as they make out. Would Gilbert agree? “To a certain extent, none are as global as they say they are,” he says. “When we first operated with BNP, we were probably one of their first global clients. They’ve done a great job of mirroring our operations in three time zones and they’re connected up, though they might like to be bigger in the US, probably.”
He says BNP Paribas has grown roughly in tandem with Aberdeen, and Aberdeen was an influence on the custody bank, which today ranks as roughly the fifth-largest in the world.
“We worked with BNP. We said, ‘Look, this is the strategy you should follow. You should work in three time zones,’ as they were also basically UK-centric, though with an Australian arm. They grew along with us.”
Aberdeen’s numerous acquisitions – buying certain Credit Suisse operations (2008) and, more recently, Artio Global Investors in the US (2013), Scottish Widows Investment Partnership (Swip, in 2014), US hedge fund Arden Asset Management (2015)and private equity firm Flag Capital Management (also 2015) – must put pressure on its providers, who have to sew together investment and operational functions, in some cases globally.
Of these, Swip was easily the largest – but apparently not so difficult. “One of the reasons Swip was quite easy for us, if I can put it like that, was they were already with State Street. If it’s a big acquisition, we look at who their provider is. When we looked at Swip and saw it was with State Street, it all fell into place.”
Aberdeen had £566.6 million of assets on its balance sheet in its May interim results – a sizeable stockpile. Will we see a further string of acquisitions?
“The view we are taking is the regulator is going to demand asset managers hold more and more capital, and certainly we would not be spending vast amounts of cash on acquisitions.
“We would be looking to hold that as regulatory capital. Perhaps we will invest more as seed capital to get funds off the ground, though.”
Regulation could put a damper on any asset manager’s growth, and the regulatory burden carried by the industry appears to be something the likes of Google identify with.
Asked what he learnt about Google and Facebook’s ambitions in asset management, whether they will become asset managers, or distributors, Gilbert says: “I don’t know, only they will know.
“But I think one thing they will take into consideration is asset management is a highly regulated industry. Those companies have great reputations and they might regard it as too much – perhaps not risk – but too much hassle to enter these sorts of markets.”
©2015 funds europe