Aberdeen has deeper problems than property outflows

Added 25th July 2016

Aberdeen saw outflows of £1.5bn from its property funds in the three months leading up to June, but some analysts see this as merely a "sideshow," to deeper problems.

Aberdeen has deeper problems than property outflows

Two of the funds hit hard by Brexit-related outflows, Aberdeen temporarily ceased trading in the UK property funds UK Property Fund and UK Property Feeder Unit Trust in July.

And while the firm saw net outflows across the remainder of its asset classes totalling £8.9bn, according to a trading update released on Monday, withdrawals from the property sector represented the largest outflows as a percentage of assets under management.

“The exodus from the property sector took its toll on Aberdeen over the last quarter, though the silver lining from the Brexit vote is that weaker sterling has helped drive an increase in the group’s assets under management,” said Laith Khalaf, analyst at Hargreaves Lansdown.

Despite fund outflows, Aberdeen’s assets under management rose from £292.8 billion at 31 March to £301.4 billion at 30th June 2016 - a result of positive market movements and exchange rate movements, with sterling weakening against most major currencies.

“We continue to benefit from the diversified asset and client base of the business. Currency, exposure to a broad mix of assets and good investment performance outweighed the net outflows the business experienced this quarter,” said Martin Gilbert, chief executive of Aberdeen Asset Management.

Net outflows were worse than expected, according to Liberum, at £8.9bn - totalling £25.6bn for the 9 months. "We experienced a large outflow from alternatives in the quarter due to a change in strategy by an institutional investor in one of the recently acquired funds," said Aberdeen, adding that the latest quarter has seen some withdrawals of Nordic mandates by institutional investors.  

However, strong performance and FX benefit (£8.5bn) means total AUM of £301.4bn is better than the £272.9bn Liberum expected.

But Khalaf pointed to deeper issues, while Aberdeen’s outflows from the property sector were substantial, withdrawals are taking place across the board, he said. “At the moment for every £1 in assets Aberdeen is attracting, £2 is walking out of the door, and that’s not sustainable for a fund manager in the long term,” he explained.

While the analyst said the latest quarter did see some moderation in the pace of withdrawals from Aberdeen’s equity funds, it is difficult to get too excited by this, since that “still equates to over 3% of equity assets lost in just three months.”

“Aberdeen is undoubtedly home to some talented fund managers, particularly in its emerging markets franchise, but the business is facing a challenging period at the moment,” said Khalaf. ”Fund outflows are part and parcel of asset management, from time to time, but Aberdeen will be hoping that before too long they start to see some ebb, as well as flow,” he added.

Numis too remains unconvinced by the firm's current proposition.

“Short term, Aberdeen remains very much exposed to the fortunes of EM, where for choice we would prefer to wait for a more attractive entry point. Long term, you need to believe the group can achieve growth in other areas and/or make further cost cutting motivated acquisitions and/or will be bid for, to justify purchasing today,” it said.

“There are many uncertainties out there, including the shape of the UK’s future relationship with the EU, which might undermine market confidence”, said Gilbert. “We remain well placed to take advantage, on behalf of our clients, of any weakness and will continue to focus on fundamentals rather than be distracted by market noise.”

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