THE joint chief executive of Standard Life Aberdeen has declared he is more concerned about the prospect of a “messy” departure from the European Union (EU) than a hard Brexit, as the investment giant reported net outflows of £16.6 billion for the first six months of the year.
Keith Skeoch’s comments came as shares in the Edinburgh-based institution soared by nearly five per cent, as investors responded to news it will pay out an initial tranche of £175 million under a £1.75bn buyback in the coming days. It raised its interim dividend by 4.3 per cent to 7.3p.
Mr Skeoch said the investment house, formed by the £11bn merger of Standard Life and Aberdeen Asset Management last year, is well-prepared for a hard Brexit, having put contingency plans in place over the past 18 months.
Those include the creation of an asset management company in Luxembourg for European mutual funds, a regulatory office for EU clients in Dublin, and a distribution channel in the Irish Republic for 5,000 to 6,000 customers in Ireland, Germany and Austria. The latter has been sold as part of the deal which saw Phoenix Group acquire Standard Life Aberdeen’s insurance business.
While Mr Skeoch believes the firm, and the broader asset management sector, is “well ahead of the game” in preparing for a hard Brexit, he declared: “What is much more of a worry is a messy Brexit, where things go on for a long time.
“I think financial services are reasonably well-placed in that, but I’m not sure the goods market is the same. My concern is quite simply that a very messy Brexit has an impact on people, and it has an impact on our business.”
Standard Life Aberdeen conceded that net flows continue to be a challenge for the institution as it unveiled its results for the first half of the year yesterday, which revealed a 12.3 per cent fall in profit before tax to £311m.
Gross inflows from new business climbed to £38bn from £36n in the second half of 2018, lagging slightly behind the £39.5bn recorded in the first half of 2017. However, this was offset by an increase in redemptions to £54.6n from £53bn, leading to net outflows of £16.6bn. The outflows included £7.6bn flowing out of equities and £4.4bn from multi-asset funds, including its flagship GARS (Global Absolute Returns Strategies) fund.
Overall, total assets under administration fell to £610.1bn from £626.5bn, which included a drop in assets managed by Aberdeen Standard Investments to £557.1bn from £575.7bn.
Mr Skeoch, who runs the company with Martin Gilbert, emphasised that the gross inflows represented the future of the business, with the outflows reflecting its “past performance”.
He admitted that GARS is currently struggling to hit its target of the interest rate plus five per cent, with inflows to the “volatility dampening” fund having slowed in recent years as global equities, property and bonds have become more attractive.
“We have put in a performance enhancement plan, looking at improving the quality of our ideas, and the quality of our idea implementation to make sure that’s in a better place,” Mr Skeoch said.
Meanwhile, asked to assess the effect of geopolitical tension, including Trump’s trade war, on investor sentiment, Mr Skeoch said politics has created uncertainty in the market, leading to a “concentration of return in the kind of growth areas”.
He added: “Trade wars, worries about the ending of QE (quantitative easing), the longevity of recovery, all of that has had quite a profound impact on market sentiment, and I think you are going to see more of it in the second half.”
Elsewhere, Mr Skeoch said the company was still engaged in a dispute resolution process in its bid to stop Lloyds Banking Group stripping it of the right to run the £109bn Scottish Widows asset management mandate. Lloyds announced its intention to pull the plug on the deal in February, declaring that Standard Life Aberdeen had become a material competitor to the bank since the merger of Standard Life and Aberdeen Asset Management last year. Mr Skeoch said there was no indication of when the matter would be resolved.
Laith Khalaf at Hargreaves Lansdown said: “Part of the reason Standard Life and Aberdeen joined forces was to achieve greater scale, but continued outflows are testing that rationale. Over £16bn walked out of the door in the first half of this year, and Lloyds is poised to withdraw a further £109bn in the not too distant future.”
Shares closed up 14.7p, at 321.1p.
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