Would Abrdn’s own fund managers invest in Abrdn? “The answer is no,” says one, who compares it to Woolworths, the extinct variety retailer. “The market just does not believe this works in its current guise.”
Another says: “You’ve just constantly got this thing saying, ‘We’ve got a clear strategy’ — and honestly, it doesn’t make any sense to anyone inside the organisation. They’ve just doubled down on a culture of reduced costs, where people inside the business are so knackered, tired, terrified, they’re just doing what they’re told.”
You probably won’t read those testimonials in Tuesday’s full-year results, which will talk about building “a stronger Abrdn”, if the last few are anything to go by. But the Scottish financial giant is now three years into a three-year turnaround that has failed to deliver a turnaround. Assets under management have dipped by 1 per cent to £495 billion over the past year, fee margins are under pressure and the City is being placated with a share buyback programme funded by the liquidation of stakes in two Indian companies.
To be fair, Stephen Bird, the former Citigroup banker who removed Abrdn’s vowels and is now removing hundreds of jobs, inherited a confused monster when he became chief executive in 2020.
Piratical Aberdeen had been bolted onto staid Standard Life, and the combined beast had sold its insurance business.
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Yet if the Abrdn board had simply hit pause instead of bringing in Bird, who dubbed himself “the reset guy”, investors would have been better off. Putting the company up for sale then, when its market cap was £5 billion, would have been preferable to letting the new boss go on an acquisition spree — he notably paid £1.5 billion for the retail platform Interactive Investor at the top of the tech cycle — only to end up with a market cap of £3 billion.
I apologise in advance for using the word, but the jargon-addicted Bird has assembled a group with three “vectors”. There is core fund management, which bled almost £18 billion of net client funds last year; connecting financial advisers with consumers; and serving consumers directly. To extend the monster metaphor, Abrdn has become one of those pig-turkey-snake creatures stitched together by medieval chefs out to impress — a financial cockentryce. (Maybe that would be spelled cckntryc in today’s “digitally enabled” world.)
Interactive Investor is performing modestly well, even if analysts at Numis reckon its value has declined to £1 billion. Finimize, an investing tips website bought for £87.5 million in 2021, has been written down to £17 million. That drop may be small beer in the grand scheme of things, but successful companies don’t splurge money on modish serpents’ tails.
The passivity of Abrdn’s board — and big holders Silchester and M&G — is baffling. The company needs a chairperson with knowledge of the industry to replace former HSBC banker Sir Douglas Flint. A new chair should then dispatch Bird and dismember his creation, selling off the disparate parts. As per its own staff’s analysis, the many-vectored model isn’t working. In fact, the V-word was conspicuously missing from a trading update last month.
Internal candidates to watch are Interactive Investor boss Richard Wilson and newish finance director Jason Windsor. Whoever comes next could win an early victory and reverse Abrdn’s distinctly medieval disemvowelling.
Spin-offs tell a tale of plc privation
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There is a new genre of subplot in the story of undervalued UK equities: companies selling divisions for huge premiums. Outsourcing consolidator Marlowe may have set the record last week by spinning off its risk software unit, which accounted for less than half its underlying earnings, to private equity firm Inflexion — for more than its entire market cap. Its talented founder, Alex Dacre, is moving to work for Inflexion as part of the deal, brokered by Goldman Sachs rising star Khamran Ali.
Cannes Lions organiser Ascential and research firm GlobalData exposed similar ratings mismatches with disposals last year. So did electrical retailer Currys, which sold its Greek chain — 8 per cent of earnings, almost a third of the market cap — and yet has still found itself at the centre of an opportunistic bidding war.
Backing the board’s rejection of an approach from US hedge fund Elliott, Currys’ biggest investor, Redwheel, remarked that the UK stock market “no longer seems to fulfil its primary purpose of price discovery and efficient capital allocation”. The question is what to do about the ongoing drain of assets and people to the private side.
I do not like the idea of merging old pension funds and forcing them to invest in UK equities. A better starting point would be to boost liquidity by scrapping stamp duty on shares, which brought in £3.3 billion last year — a tax take that hasn’t increased in two decades. Peel Hunt describes it as “pernicious” given that markets like the US and Australia offer frictionless trading.
In terms of the broader business environment, there are also numerous self-inflicted policy wounds that should be healed: a malfunctioning apprenticeship levy, the idiotic ending of tax-free shopping for international tourists, windfall taxes that penalise renewable electricity generation, a business rates system that was past its sell-by date in the 1990s and a sclerotic planning regime. Government is good at coming up with new ones. Currys, for example, faces a proposed ban on charging for recycling.
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The UK needs to get more pragmatic about the challenges facing plc world, and companies in general. If it doesn’t, the picking-off by private equity will continue.
