Aberdeen Standard Investments: Building Capabilities and the Value Proposition for Asia

Andrew Hendry, since April last year Head of Distribution for Asia Pacific at Aberdeen Standard Investments (ASI), is looking forward into 2019 with the 2017 merger of Standard Life and Aberdeen Asset Management now firmly embedded. He met with Hubbis to cast his eye over the world of investments and explain how the alliance has greatly strengthened capabilities and an enhanced value proposition for the firm’s direct and indirect wealth management clients.

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Hendry began by summarising the implications of the merger for the expanded firm’s current and potential clientele. “The most obvious positive impact for clients is the breadth of things we can do,” he reports. “Aberdeen is well known as a very active emerging equities firm, especially for Southeast Asia and broader Asia-Pacific. And Standard Life has now brought in a wide array of opportunities within multi-asset and the private markets area, including private equity, infrastructure and real estate.”

Additionally, he reports that the merged company now has a vast quantitative strategies business, whether smart beta, index or enhanced index, with some USD90 billion in that area. The firm is the first in the world to launch an active quant strategy with artificial intelligence as part of the investment process.

It was back in March 2017 that Standard Life reached an agreement to merge with Aberdeen Asset Management, in an all-share merger, to form Standard Life Aberdeen. Aberdeen Standard Investments then began its new life as its asset management brand in August that year.

A smorgasbord of opportunities

Much has been achieved since then, and Hendry quips that the firm’s ‘menu’ is today already far more extensive than ever before. “If I might make an analogy, there are many more dishes to choose from now for our customers,” he remarks, “whereas before we were more specialised in a lesser number of offerings.”

Scale has also been boosted significantly. “We have greater flexibility to be more proactive and involved in what we are doing for clients,” he reports. “For example, if there is a wealth manager that wants to start having a strategic allocation to alternatives but has limited due diligence resources and on track record in manger selection , we can then offer them our hedge fund manager selection capability as well as create a bespoke vehicle to buy the basket of funds. In short, we can start using that whole range of products in a way that is unique to the asset owner’s challenge. That was far more difficult to do before because we didn’t have all the ingredients.”

A la carte and made-to-order

Hendry says the firm’s newly expanded ‘a la carte’ menu can also become off-the-carte. “We can have people coming in and ordering off the menu, requesting and receiving something specifically created for them,” he reports. “We now have the scale and resources as a result of the merger.”

The firm today boasts about 600 people in Asia Pacific, across all functions and operates from 10 developed and emerging markets in the region. Japan, Australia, Korea, Taiwan, China, Hong Kong and Singapore are therefore complemented by the presence of Malaysia, Indonesia, and Thailand.  “We have a nice mix and balance now,” Hendry remarks.

He turned to the critical elements for success, as he sees them. “Motivated, talented people are vital to this asset management business,” he explains, adding jokingly that he was somewhat lucky to have slipped through the net.

“But seriously,” he remarks, “the merger naturally created some uncertainty and that did cause some good people to leave. Moreover, that was compounded in part by the poor markets that began last year, as well as pressures on asset management from margin compression, regulatory intensification and general complexity. However, on the flip side, we managed to also hire good people because they believe in our story.”

Telling the story

Hendry mined down further into the ‘story’ he alluded to. “Take our share price,” he observes. “As a bellwether, you can see it is very depressed, as are those of our peers. However, there are always peaks and troughs and looking through the ‘noise’ of the last couple of years, you can see we have an extensive range of world-class products and strategies. These strategies have helped us raise tens of billions last year, globally and from all types of sophisticated clients. In short, we are winning, and we are looking ahead to realising the full rewards of our progress.”

Hendry then zoomed in on global market conditions. He noted that a remarkable decade in which the MSCI World index achieved over 10% annualised was followed by a challenging 2018 and a terrible final quarter of the year.

“To adapt the business,” he explains, “we believe we have to become much more professional today than we were years ago, and we are constantly improving in this regard. And concerning how we now help our distributors and partners with their own margin pressures, we can now offer supporting initiatives and add-on services. For example, we can share the technology with our Asian distributors that helped our European clients convert their wealth management books from transactional to fee-based accounts .”

Engaging discussions

Hendry also reports that the firm is dedicated to being far more effective in its engagement with private bankers and wealth managers  in order to enhance the relationships and help them boost their business flows and capabilities.

“We must be sensitive to their time and capacity,” he says, “so that each time we engage with them, we achieve something that helps them either retain their clients or raise net new money.”

The firm has many new initiatives designed to help enhance the firm-wide AUM and counter the volatility of the global equity market environment. For example, they launched a new Taiwan fund last summer following a specific discussion with a distributor.

Strategies for holding the fort

They acknowledged that the troubling market conditions looked set to continue and recommended a multi-asset fund with a large portion in private assets such as catastrophe bonds, aircraft leases and other listed alternative assets. “We launched it at USD140 million in the IPO,” he reports, “and by year-end we had considerably exceeded all our expectations.”

Hendry expands on this, by adding that a core mission for the merged firm was to use the new product breadth to avoid having maximum exposure to potential drawdowns should market conditions worsen, as indeed they did in the last quarter of 2018.  “Products with sleeves of alternatives and multi-assets such as this Taiwan fund can help performance and retention. That is why we are  rolling this concept out to other clients.”

Risk aversion persists…

Looking beyond Chinese New Year into the Year of the Pig, Hendry says there are plenty of investors with money but greater aversion to risk. He mentioned opportunities such as the firm’s Australian Dollar Income Bond Fund as viable options for such investors.

“The Reserve Bank of Australia has come up very clearly and said that they are not going to be moving their rates anywhere, the same as their stance in 2018, so it is one of the few countries where there is no uncertainty about rates. Secondly, it is a roughly 4% income distribution, so depending on whether you might be US or Singapore dollar based when we include the hedge – which costs almost nothing – you can end up with another 100 basis points or more as the carry. It is ideal for those with cash and who are risk-averse.”

Building the future from the past

Hendry closed the interview with a reiteration of the history and also the evolution of the firm. “The new entity of Aberdeen Standard Investments is a very different and a considerably more expansive proposition for our clients than we could offer before. We have a lot more offerings within private markets and the quantitative strategies than before.  We have the same history of expertise and quality, but we are not the same organisation that people knew two years ago. It is an exciting prospect.”