If Aberdeen Asset Management (AAM) is to recover from the chronic volatility in its emerging market historical heartland, it is almost certain to have to do it incrementally rather than in any single bound. The problems go too deep in Asia-Pacific and elsewhere – involving economic slowdowns, flights of capital and jittery stock markets. Chinese worries have upped the ante considerably.
There are no quick fixes. Not surprising then that AAM chief executive Martin Gilbert had a tale to tell yesterday of the tenth consecutive quarter of fund outflows and flat annual pre-tax profits.
The situation was aggravated in the past year by sovereign wealth funds pulling in their investment horns because of the plunge in the price of oil.
While Gilbert says he is an arch believer in the resilience of those emerging markets, even he admits that the current weakness may “have some way to run”.
Pessimists believe it may get better before it gets worse. If the US Federal Reserve decides to finally tighten monetary policy this month, which many believe pretty likely, it won’t make any emerging market debt repayment any easier.
At this juncture, AAM’s strategy/tactics seem to be a mixture of acquisitions to yield integration synergies – £50 million from Scottish Widows Investment Partnership, in particular – and a markedly more diversified approach to investment.
That has helped partly insulate profit margins amid the emerging market headwinds, and allowed an 8 per cent hike in the dividend to keep shareholders onside amid the gathering uncertainty.
Other more bijou and bespoke recent acquisitions have included Advance Emerging Capital and Parmenion Capital Partners, but are too small to change the big picture. And, ironically, some believe this interest in mergers and acquisitions could have the unintended consequence of suggesting to bigger rivals that AAM itself could be up for grabs because of its more vulnerable position. The shares fell another 4 per cent yesterday.
Gilbert rejects this scenario, however. He is essentially saying to shareholders: play the long game and it will come right.
The big question is whether we are really talking of another two or three quarters, or perhaps two or three years, before cyclical emerging market trends turn positive again?
For both the company and those markets, the wheel still looks very much in spin.