Standard Life and Aberdeen Asset Management completed their £11bn merger a year ago, creating the second-largest fund manager in Europe.
But reactions have been mixed as to the progress of integration over the past 12 months, which has seen a number of high-profile clients leave the firm.
The merger completed in August 2017 and subsequently included the sale of Standard Life’s insurance business to Phoenix Group earlier this year, creating a more focused, combined asset management group.
Both companies had struggled with net outflows in recent years, with Standard Life seeing new outflows for the 18 months prior to the merger. However, Aberdeen experienced the larger withdrawals of the two.
Performance of company over 1yr
Source: FE Analytics
“Aberdeen, who manage a large number of emerging market funds experienced net outflows as emerging market economies slowed down,” explained Graham Spooner, investment research analyst at The Share Centre.
In its first financial report as a combined entity – the full-year figures released in February – the trend continued, with the firm experiencing total net outflows amounting to £31bn, although this was an improvement on the previous year.
In the February results for 2017, assets under management grew a small amount to £655bn thanks to rising stock markets.
Fee based revenues rose by 3 per cent to £2.7bn with adjusted profit before tax falling marginally to £1bn and the cost-to-income ratio rose to 66 per cent from 64 per cent largely as a result of one-off costs.
However, since the results the firm has been hit by more outflows, with high-profile clients Scottish Widows and Lloyds Bank withdrawing mandates worth £109bn following a review.
“The merger was not entirely welcomed by some of their customers including Lloyds Bank, their largest customer who announced that they will be pulling their funds away,” Spooner noted.
“The loss of Lloyds Bank as a customer will be big blow for fee income going forward and these are risks that were known about at the time of the merger, others may follow.”
Laith Khalaf (pictured), senior analyst at Hargreaves Lansdown, added: “It was a relatively low margin business but it was a bit of a blow particularly seeing as some of the rationale for the merger was scale. 
“As a result of the merger that money from Lloyds has walked out of the door and that somewhat undermines that rationale.”
Additionally, earlier this week, wealth management group St. James’s Place appointed Impax Asset Management to run its £286m Ethical fund, replacing Standard Life Aberdeen, another blow to the firm.
But the company remains of interest to advisers and was the most heavily researched asset management group by professional investors using FE Analytics during the first half of the year.
And while there are risks that more customers take their assets elsewhere, there are also reasons to remain optimistic.
“The merger is progressing well with synergies to follow,” said The Share Centre’s Spooner, adding that the 7 per cent dividend makes it attractive to income investors.
However, Spooner noted “while the group goes through a transitionary period with a lot of uncertainties, we continue with our hold recommendation for investors willing to accept a medium level of risk”.
Turning to the investments, Hargreaves Lansdown’s Khalaf said while there are concerns, there are also a number of positives.
“It is a very big merger and actually we are still not at the end of the merger process and things like culture do take some time to integrate,” he said.
“From a fund point of view, I think it looks like the key teams have been maintained as you would expect and those managers are high performance individuals who don’t need external motivation in any case.
“The teams we have been in touch with who are our preferred managers on the Wealth 150 list seem happy and settled and that’s what we want,” said Khalaf.
Those on Hargreaves Lansdown’s Wealth 150 list – including Aberdeen Asia Pacific Equity, Aberdeen Latin American Equity, Standard Life Investments Global Smaller Companies, Standard Life Investments UK Equity Unconstrained and Standard Life Investments UK Smaller Companies –have all retained the same managers.
But Khalaf noted that there is still a lot of room for improvement and integration from the somewhat slow pace seen so far.
“There is an opportunity here for both companies to embrace each other’s’ culture and processes and make improvements. That can come from both sides. There is a definite opportunity for the sum to be greater than the parts,” he said.
“Perhaps people expected it to happen overnight but it was never our expectation. We knew it was going to take some time. We are not surprised that the pace of change has been what it is and it is an ongoing thing.”
However, Peter Hewitt, manager of the F&C Managed Portfolio Trust Growth and F&C Managed Portfolio Trust Income portfolios remains concerned about how quickly the culture integration can take place.
“You often find with companies that are built by a lot of acquisitions there is not quite the same culture. It was the same with F&C a few years ago,” he explained.
“When F&C first merged with what was then called ISIS in 2005 it took quite some time for the culture to get sorted out. It takes a while.
“In the case of Aberdeen there is lots of deals that they have done and when you look at them they have been generally quite good but there is clearly something that has gone wrong there.”
As such the manager has sold out of all of his Aberdeen investment trusts due to poor performance, with the most recent being Aberdeen Asian Income.
Indeed, the trust has been the second-worst performer in the IT Asia Pacific ex Japan sector over the past five years, returning 17.14 per cent compared with 61.31 per cent for the average peer.
Performance of trust vs sector & benchmark over 5yrs
Source: FE Analytics
“I used to have a lot of the Asian trusts run by Aberdeen and I have steadily sold out of them all and it is performance driven,” he said.
The only Aberdeen trust he has continued to hold is Bruce Stout’s Murray International Trust, although he may consider selling this down on performance grounds as well.
He said: “It is the biggest holding and the dividend is fine, the income is growing he is a good manager and is out of favour at the moment and I would be loathe to sell him at the bottom.
“I don’t think I will sell him, but he might not be my number one holding. He might be number 10 or 15. If you have got your biggest holding that should be a statement that I really believe in this thing not just long term but in the short term and Murray International has got a bit to prove in my thinking.”