It's been a year since my last post concerning the swift pace of events at Aberdeen Standard Investments, 'Widows Decision Highlights the Dilemmas faced by Insurers and Managers Alike' and the intervening twelve months have also been pretty eventful.
To recap, on 15th February 2018 Scottish Widows announced that it had decided to withdraw £109bn of its money from Standard Life Aberdeen - effectively closing its account. Since the reason given by Scottish Widows for its decision was the discomfort felt in having its assets managed by the captive manager of another life company, there was a definite sense pathos some weeks later when news emerged that the SLA Group would no longer be an insurance company, having sold its insurance assets to Phoenix Group. Did that deal represent an attempt to turn around Widows' decision before the runners-and-riders assembled to fight over the lucrative institutional account auction which was to follow? Or did the Phoenix deal represent the latest step in ASI's evolution into becoming a truly global, modular asset management company?
To add a degree of intrigue, back in 2018 news emerged in the weeks following Widow's announcement that failed talks between SLA and Widows had taken place the previous year, which were to have created a joint venture vehicle which encapsulated the insurance business of both firms. Echoes of this initiative were seen more recently, when the Widows mandate was awarded in large part to Schroders, as a similar joint venture between the firms to build a sizeable wealth manager was announced at the same time. This last piece of news perhaps highlights the existential dilemmas faced by life companies as they choose which distribution model to follow in a new, digital world.
In 2018 some observers felt that the impending loss of of the Widows investment management agreement called into question the rationale of the previous year's merger of Aberdeen SWIP and Standard Life, since that single agreement constituted a third of the assets managed on the A-SWIP side of the merger.
...But others have drawn a different conclusion, wherein both firms were undergoing a more inevitable transformation into a contemporary, modular financial services business which can compete for wholesale, retail and institutional clients alike against the largest asset management companies in the world. The deal created a £700bn FUM manager, with meaningful operations in 50 countries around the globe. It was complimentary too, with Standard Life's absolute return, fixed income and developed markets expertise accompanying Aberdeen's equities, Latam, Asian and subcontinental presence. From a defensive point of view, the merger helped shore up Aberdeen's equities business after a mediocre couple of years in Asia and SL's flagship multi-asset GARS fund after its own challenges. The merger arguably made the company a more formidable competitor to the rising wave of competition from passive strategies.
Redemptions in both GARS and ASI's EM equities funds continued throughout 2018 but although FUM dropped by £40bn last year, profitability on a pro forma (post-merger) basis was almost unchanged - suggesting that the company had done well in fund areas with higher spreads and was moving away from lower margin business. Moreover, ASI was hardly alone in experiencing losses within its absolute return range, as the strategy failed for most managers last year - largely due to the fact that for the second time only in 30 years equities and bonds moved in the same direction, whilst alternatives failed to make up for the shortfall. ASI enjoyed success in its new retail digital product MyFolio, whilst its three wholesale platforms made good progress and there were some interesting acquisitions, particularly in the real asset space. Despite the redemptions, leading analyst Gordon Aitken at RBC maintained the firm's 'Outperform' rating and pointed out that the insurance disposals in the UK and India freed up capital which could increase the firm's reach in key markets like the US as a "pure-play asset manager".
Some ten years ago Standard Life became one of the earlier UK life offices to ease back from the highly capital-consumptive annuities markets, with a strategy which focused upon asset accumulation in the 'at retirement' channel. This involves increasing its savings product range, investing in its platforms business and attending to potential economies of scale. Aegon, Metlife and (in the UK) the Pru have gone down similar paths.
Then, in the past fortnight, two more pieces of news: Firstly, in announcing its results ASI also abandoned its Co-CEO arrangement, with former HSBC Chair Douglas Flint overseeing the new structure. This was followed a few days later by news that a tribunal had ruled in favour of Standard Life Aberdeen over the Widows investment management mandate, deciding that Lloyds was not justified in its decision to terminate the agreement after all, and (by default) awarding compensation in the range of £2-300m to SLA.
In a light-hearted take on this latest development, the FT's Matthew Vincent likens the Widows process to the tragi-comic tribulations of a protracted divorce. In the longer term, it's not clear whether the insurer-as-savings office firms, or annuities writers will have the last laugh...
Reports that Standard Life Aberdeen has won an arbitration case with Lloyds Banking Group over their £109bn fund management break-up read rather like the accounts of a costly divorce . . . Dear Lombard agony column, I’m a fund manager from Scotland, and I wrote to you last year after my marriage to a London banker — let’s call him Lloyd — came to an end. We’d been together for four years since our first man-date. But, when I went into business with a friend in insurance, Lloyd said I was being too competitive, so he was leaving. Then I found out he’d been planning to take up with some posho called Roger, or Schroder, or something, and was going to give him the money he’d given me to look after. All £109bn of it!