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Aberdeen Standard Investments suffers £19bn outflow as Gars pains grow

Gars was hit by an additional £5.3 billion outflow in the first half.

Aberdeen Standard Investments suffers £19bn outflow as Gars pains grow

Standard Life Aberdeen's (SLA) Global Absolute Return Strategies (Gars) continues to haemorrhage assets. 

According to the fund giant's first half trading update, Gars suffered a net outflow of £5.3 billion over the first six months of the year, adding to the £5.6 billion outflow in the corresponding period of the previous year. 

This withdrawal was a major factor in a total net outflow of £19.2 billion in the first half for SLA's asset management arm, Aberdeen Standard Investments, increasing the pressure on the firm after it experienced a £37.3 billion outflow in 2017.

The outflows follow a period of poor performance for the multi-asset strategy. In the three years to the end of June it is ranked close to the bottom of its peer group, returning -4.4% versus a oeer group average of 0.9%. 

A number of pension funds have lost faith with Gars following its poor run, with Kingston and Bromley councils, along with the Surrey pension scheme all divesting over the last two years. 

Commenting on the recent outflows, the firm said: 'While Gars' performance is behind benchmark over one and three years and behind its target over one, three and five years, it has continued to operate within the targeted volatility range, which is a key element of its design.' 

At 10.40am shares in SLA were up 3% at 315.7p, remaining sharply down from 427p over the year to date. Cenkos analyst Rae Maile said that the size of the business and the pace of change since the merger of Standard Life and Aberdeen a year ago meant that a lot of moving parts were in play, but that investors were starting to recognise its undervaluation.  

'Taking the value of listed holdings of £5.4 billion from the market capitalisation of £9.1 billion leaves just £3.8 billion for the core business but that includes £1.75 billion earmarked for returning to shareholders,' added Maile.

'The residual £2 billion of value is a [price to earning ratio] of under 5x for the current year. The company is keen to take advantage and is accelerating the return of capital with an initial buy-back of £175 million (2% of the issued capital) commencing in the next few days.'

Killik also repeated its buy on the stock on the back of the results, saying Aberdeen Standard Investments is very cheap compared to its peers. 

[Although] we believe this part of the business deserves to trade at a discount to the peer group given cyclical net flow challenges, and the structural outflows from its "mature" AuM, the current implied discount based on a sum-of-the-parts analysis looks excessive,'  Killik said in its note. 

'[Meanwhile] the ordinary dividend yield of 7.3% is attractive and we note that management intends to maintain a progressive dividend.'  

Excluding Gars, the multi-asset range saw net inflows of £0.9 billion, which included continued demand for MyFolio and Parmenion products which delivered net inflows of £0.8 billion and £0.6 billion, respectively.

Total assets under management fell 3% to £557.1 billion as a result of the outflows, with adverse market movements in some asset classes also contributing to the decline. 

Adjusted profit before tax fell from £325 million to £317 million as a result of lower fee-based revenue, which fell from £950 million to £817 million. This was partially offset by lower operating expenses. 

The firm added that the integration of Standard Life and Aberdeen Asset Management is on track to deliver its cost-savings target. 

'The integration continues to progress well and is complete across our client and consultant facing investment and distribution teams,' the firm said. 

'We remain on target to achieve £250 million of annual cost savings by 2020 and the estimated integration costs remain at around £370 million in order to achieve these synergies.

'As at 30 June 2018, actions have been taken which will deliver £135 million of annualised cost savings. Total integration costs incurred since the completion of the merger are £98 million.'

Overall the wider SLA group recorded a higher than expected 12% drop in pre-tax profit in the first-half, which the firm attributed to 'challenging' conditions for the sector. 

The firm, which is jointly headed by co-chief executives Keith Skeoch (pictured left) and Martin Gilbert (right), also announced plans to accelerate its share buyback scheme through a £175 million tranche, which it said would 'commence in the next few days'.

'Conditions for the asset management industry continue to be challenging. However, our gross inflows remain robust and are spread across a diverse range of investment capabilities, and our market-leading adviser platforms continue to grow,' Gilbert and Skeoch said in a statement. 

'Our investment and distribution teams are winning new mandates and we have a good and diverse pipeline of business from around the world. We are actively taking steps to improve our investment performance in key areas and are encouraged by the impact of these initiatives.'

The pair added: 'We are also pleased by progress on the integration programme and achievement of cost synergies. The sale of our UK and European insurance operations will complete our transformation to a capital light business and enhances our strategic partnership with Phoenix.

'Our financial strength allows us to return up to £1.75 billion of capital to shareholders and we will commence the first tranche of £175 million in the next few days.

'We will still have one of the strongest  balance sheets in the sector, which enables us to continue to develop and broaden our areas of strength and focus on delivering long-term performance for our clients.'

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