Aberdeen finally seals £85m deal for RBS hedge funds after year of talks

Published on Friday 8 January 2010 21:29

ABERDEEN Asset Management has finally snapped up the fund of hedge funds business from Royal Bank of Scotland, after a year spent pursuing the deal.

Part-nationalised RBS confirmed yesterday that AAM had won the battle for about half of its asset management business, after the Scottish firm agreed to pay 84.7 million.

The deal gives AAM another 13.5 billion in assets under management, taking its total funds to more than 150bn, securing its status as the UK's largest independent fund manager and Scotland's largest fund manager overall.

Martin Gilbert, AAM's founder and chief executive, identified that RBS may look to offload the assets more than a year ago, and said several times that the group was looking to acquire funds of hedge funds.

A fund of hedge funds invests in a portfolio of different hedge funds, giving investors a broader exposure to the industry than investing money in a single fund.

Finance director Bill Rattray said distributors had told the company there was demand for this type of product from clients.

"We think this is putting in place one of the final pieces in our product range, the opportunity is to now grow it to a larger scale."

Formal negotiations over the assets have been running for around three months, with AAM beating the likes of Blackrock and Schroders.

As well as a fund of hedge funds, the assets includes funds which invest in a range of investment trusts and smaller private equity and real estate investments.

The acquisition was funded through the placement of 90 million new shares, raising 119m. As well as paying for the assets AAM used the placing as a means to boost its balance sheet.

Gilbert has previously said that he would only fund acquisitions with shares, but it is understood RBS demanded cash for the deal.

Investment bankers had told the AAM board they expected such a large placement, which expanded its share base by almost 9 per cent, would be successful. The shares were snapped up by midday at a 4.8 per cent discount to Thursday's closing price.

The deal comes a year after AAM paid 298m for the 36.4bn of assets managed by Credit Suisse.

In a trading update, AAM said the Credit Suisse businesses were now integrated, revealing that its assets under management had fallen 2.1bn to 144.1bn in the three months to 31 December.

Rattray said the integration of the RBS assets should be straightforward, with the latest acquisition largely a standalone business unit of the bank.

Currently managed by Coutts & Co, the funds will be transferred to AAM's new London offices near St Paul's Cathedral.

Despite several major acquisitions in recent years, Rattray said the company would continue to evaluate further expansion opportunities. Gilbert is known to harbour ambitions to expand AAM's US business.

RBS, which has been selling off a string of businesses to repair its balance sheet, said it concluded last February that the assets would be better placed "as part of a business focused on fund management".

Chief financial officer Bruce Van Saun said: "This transaction represents another step in our plan to restructure RBS around its core customer franchises.

"Aberdeen is a well-regarded and well-established global asset manager and will be an excellent new owner for the business."

The latest disposal is also likely to find political favour, with the control of the assets effectively remaining in Scotland.

Treasury select committee chairman John McFall MP said the deal "is very welcome and will help to build and secure asset management in Scotland".