In the cutthroat world of high finance it’s hard to imagine a marriage made in heaven – or a shotgun consolidation in which nobody loses face.
Hence the scepticism – after the £11 billion mega-merger of Standard Life and Aberdeen Asset Management (AAM) – which greeted news that their respective bosses, Keith Skeoch and Martin Gilbert, would both have their hands on the tiller of the diplomatically titled Standard Life Aberdeen (SLA).
But a year on, Skeoch is insistent that, far from having created a two-headed monster, the merger is going “brilliantly well”, not least because of the symbiotic relationship he has with his opposite number – who can share a joke.
“We get on really well with each other. We respect each other,” he says, acknowledging that he and Gilbert are “two very, very different people” with contrasting strengths.
“He covers a lot of stuff that I wouldn’t be good at and I hope to do the same. If we’ve got something in common it’s a great sense of humour – and actually in these markets you probably need it. There’s so much to do that it’s actually great to have two people looking at this.”
His comments come after the Edinburgh-based group on Tuesday unveiled its half-year results, including a drop in adjusted pre-tax profits for continuing operations to £311 million from £355m, with the CEO duo commenting that conditions for the asset management industry remain “challenging”.
A report from Boston Consulting Group published in May said profit margins for the sector globally are expected to fall to 36 per cent in 2021 from 38 per cent at the end of 2017 if current trends continue. However, SLA’s recent results statement also saw Skeoch and Gilbert praise progress of the merger, unveiled in March 2017 and clearing its final hurdle in August of that year.
The group said the integration “continues to progress well”, while it remains on track to achieve at least £250m of annual cost savings.
John Moore, senior investment manager at Brewin Dolphin Edinburgh, described the results as “another mixed bag” for SLA, a standpoint Skeoch attributes to focusing on short-term indicators, in particular the net flows position.
Outflows grew to £16.6bn in the first half, up from £12.4bn 12 months previously but down from £17.9bn at the end of 2017. Skeoch says £16.6bn is “a lot of money in anybody’s locker”, it is only 2.6 per cent of the £610bn SLA manages, “so it’s a lot lower than some other people suffering outflows”. He also stresses that gross inflows increased to £38bn from £36bn at the end of the previous half.
Moore saw the latest results as showing a business “in transition”, an opinion echoed by Skeoch. He harks back to January 2017, when he and Gilbert decided the merger was not just a wise move but actually feasible, driven by the need to handle “disruptive” forces in the savings and investment landscape.
These were in turn spurred by trends including the democratisation of financial risk, lack of trust in financial services, the impact of digitalisation and technology on revenue margins, regulatory pressures, and the effects of slow growth as well as low inflation and interest rates.
“Over the last 18 months, all of these trends have continued – and if anything have intensified and made life more difficult for the asset-management industry,” says Skeoch, adding that further hurdles such as Brexit-induced volatility in financial markets, and trade war fears, have only turned up the heat.
“And I think to some extent in the first half of this year that has been reflected in asset-management share prices. It’s difficult for us to avoid, given that we’re the biggest in the UK, one of the biggest active investors in the world, but the strategic logic and the reasons for doing the merger are even more powerful today than they were 18 months ago.”
One of the key motivations for the merger was to reshape the business. This process has included the sale announced in February of its UK and European insurance business to Phoenix Group for £3.2bn, and SLA expects to close the transaction in the third quarter. It has also floated its HDFC Life joint venture in India.
“We’re reshaping the business, we have one of the strongest balance sheets in the world, which will allow us to both reinvest in the business as we reshape it and return capital to shareholders, which we have a long and proud track record of,” says Skeoch.
SLA said on Tuesday that it was bringing forward plans to return £1.75bn to shareholders, with the first £175m tranche of its share buyback programme beginning imminently.
“Yes, we are a business in a transition. There’s more to do, but I think over the past year we’ve made a very strong start,” says Skeoch, adding that such mergers and reshapings take two to three years to complete.
“We need to continue to get this merger done. We’re building a UK champion based in Scotland, which I think is fantastic.”
He cites both the merger and the Phoenix deal as “effectively completing the journey that as an executive team we really put in place in 2005 as we looked at listing Standard Life”, a step that took place the following year.
County Durham-born Skeoch has been with the company since 1999, joining Standard Life Investments as chief investment officer, assuming the division’s chief executive role in 2004. He became chief executive of Standard Life in August 2015.
He studied economics and started his career working for the UK government’s economics service, writing a paper on 1970s productivity problems. With similar concerns apparent today, it’s a case of “what goes around comes around”, he says.
He was headhunted by global securities company James Capel, now HSBC Securities, where he spent almost two decades, with duties including advising the world’s top 100 financial institutions.
And he was one of the economists in London on Black Monday 1987 who commented on the stock market crash for television broadcasts – “but the main highlight was doing it from the Blue Peter garden”.
The highly complex task of fashioning SLA out of two listed pillars of Scottish finance is now at the forefront of his mind. “We’ve certainly built something of scale.”
The company’s assets under management and administration were £610.1bn at 30 June from £626.5bn six months previously, with some £109bn set to walk away due to Lloyds Banking Group’s Scottish Widows unit pulling its mandate.
Skeoch notes that the matter is the subject of dispute resolution, and he admits that it will “knock some numbers off”. “But what it will not do is have an impact on scale,” with the Lloyds assets only about 5 per cent of SLA’s 2017 revenues.
The spotlight has also been on SLA’s flagship Global Absolute Return Strategies (Gars) fund, launched by SLI in 2006 and attracting much investment in its early years, but suffering outflows of late. First-half net outflows reached £5.3bn, although this was down from £5.6bn in the same period in 2017 and SLA said these “continue to conceal more encouraging flows in the broader asset class”.
Skeoch says that as performance in the likes of Gars is fixed, “over the medium term the momentum in gross flows will dominate and we will return to growth – and the one thing that hasn’t been in the share price is the prospect of future growth”.
After 20 funds were launched in the first half of this year, the same number again is to debut by early 2019 across a “broad” range of asset classes, regions and target markets, “and that’s about our ability to tap in and meet client demands”.
The funds will see robust flow over the next four or five years, says Skeoch. “That’s us again preparing ourselves for the future.”
As for how he wants the group to look in coming years, he says: “Our vision is to build a world-class investment company and the purpose is to invest for a better future so we can make a difference to people’s lives – our people and our shareholders. That’s where our focus needs to be and we need to make sure that we return to growth by delivering these new active solutions to the market.”
Returning to the subject of the merger, he is keen to stress that the efforts of staff – numbering more than 9,000 – “will ultimately make it a success”.
The alliance has had one consequence that few could have anticipated. Skeoch notes that Gilbert’s strong communication skills, include constant use of smartphone messaging.
“I didn’t really ever bother with that stuff, but my family’s now very impressed that I know how to WhatsApp,” he says. “That’s down to Martin.”