Investors pull money out of Standard Life ahead of merger

ETX Capital
Aug 8, 2017 · 2 min read

Standard Life suffered £3.7bn in net outflows in the last six months as its flagship Global Absolute Returns Strategies Fund took a big hit. Active fund management is not dead but more and more investors are swapping the hefty fees of the star managers in favour of passive investing. SL’s struggle to stem flows reflects a problem facing the whole active sector. Its betrothed Aberdeen Asset Management has been suffering net outflows for years.

SL gross inflows were steady at £20.7bn, but a rise in redemptions to £24.4bn (from £20.9bn in H1 2016) meant net outflows totalled £3.7bn. GARS was hit worst, suffering a £5.6bn net outflow, which SL blamed on ‘a period of weak short-term investment performance in 2016’. Total assets under administration actually rose 1% to £361.9bn.

Operating profit beat expectations and improved 6% to £362m (£341m H1 2016) as fee-based revenues were higher and SL benefitted from the weaker sterling exchange, which added £15m to the bottom line, accounting for three-quarters of the increased profits.

Costs were a touch higher at £581m. Cost to income ratio is steady at 62% but should improve as the merger with Aberdeen yields up better operating leverage. Dividend is up 8%, which is well covered with free cash and in line with expectations.

The outlook for investment houses is always pretty much the same — risks and opportunities in equal measure. SL noted optimism in financial markets has increased, although any look at equity indices will tell you that. The biggest risk is the structural issue facing the sector from passive funds.

SL’s deal with Aberdeen, which will offer the pair much greater scale and huge cost synergies to compete on that front, completes this month. The results today reveal the pressure that active fund managers are under from low-cost competitors. Heft, which it will have, is going to be necessary for this Scottish investment powerhouse.

Whether the merger pays off, active fund management has to cope with a lot of change. It’s becoming a tougher sell to investors and fees are falling. Passive investing represents more than a tenth of UK investment holdings and according to Moody’s, it will overtake active management by 2024 in the US.

Neil Wilson

Senior Market Analyst

ETX Capital