Mixed results for FTSE fund management giants fighting to prove their worth

These are tough times for the asset management industry.

The growth during the last couple of decades of so-called “passive funds”, which simply seek to track the performance of an index such as the FTSE 100 or the S&P 500, has accelerated.

More and more investors are concluding they need not pay fees to an “active” fund manager when they could simply leave their savings with a low-cost passive fund.

Active fund management also suffered a reputational hit from the spectacular fall from grace of former star manager Neil Woodford.

It has left some of the biggest names in the industry having to fight harder than ever to prove their worth and, as they have cut costs to preserve their own profitability, has also led to the loss of many thousands of job losses in the sector globally.

Today brought results and progress updates from two of the biggest players in the UK fund management industry – Standard Life Aberdeen, which has a stock market value of £7bn and M&G, which is valued at £5.4bn.

Both have been through an interesting recent past.

The former was created by the merger, in August 2017, between the former mutual Standard Life and the fund manager Aberdeen Asset Management.

The combined company has had a difficult few years, grappling with huge client outflows running into tens of billions of pounds, partly due to the loss of some business from Scottish Widows, owned by Lloyds Banking Group, which ended up in a tribunal hearing.

SLA, which still has nearly 100,000 shareholders as a legacy of its demutalisation 15 years ago, has also remodelled itself into a pure-play fund management business by selling Standard Life’s former life and pensions business.

The Standard Life brand in these activities is now owned by Phoenix Group which, following the deal, is now the UK’s largest long-term savings and retirement business.

M&G, meanwhile, has only been a stand-alone business for just over a year.

The original M&G, which famously launched the UK’s first unit trust in 1931, was bought by the Prudential in 1999 for £1.9bn and remained part of the insurance giant for the next two decades.

It was spun off by the Pru as a separate company in October 2019 and immediately became the UK’s third largest listed fund manager after Schroders and SLA.

Shortly afterwards, the company was forced to “gate” its widely-held £2.1bn property fund following a rush for the exit by investors that had uncomfortable echoes of a similar run on the sector after the Brexit vote in 2016.

To judge from the share price reaction to today’s results, though, the pair’s fortunes are diverging.

M&G’s share price rose by more than 5% at one point, making it the biggest gainer in the FTSE 100, despite news of a fall in full year pre-tax profits from £1.75bn to £1.61bn.

The rally reflected delight at news of a rise in the dividend and an affirmation from John Foley, the chief executive, that the company remains committed to generating £2.2bn in capital in the three years to the end of 2022.

Mr Foley said: “In our first year as an independent company, we have delivered a strong and resilient performance in one of the most challenging operating environments ever.”

If M&G went some way today to convincing City doubters, the jury remains well and truly out on SLA, whose shares fell by more than 4% at one point – making it the biggest faller in the FTSE 100.

Like M&G, SLA also suffered a drop in full year pre-tax profits, from £584m to £487m.

Unlike M&G, it has not raised its dividend, but actually cut it by one-third.

Yet Stephen Bird, who took over from the long-serving Keith Skeoch as chief executive in September last year, insisted today there were reasons to be positive.

For a start, he could point to a slowdown in the rate of client outflows, once the loss of business from Lloyds/Scottish Widows is taken out of the equation – even though the position appears to have deteriorated since the half year update.

Secondly, he highlighted the opportunities from last December’s deal in which SLA bought 60% of Tritax, a fund manager specialising in investing in the fast-growing field of warehouse and logistics assets.

And thirdly, he argued that the performance of SLA’s funds were improving, with two thirds of assets under management outperforming their benchmark during the last three years.

Motherwell-born Mr Bird is also optimistic about the future for the global economy.

He noted that SLA had upgraded its global growth forecasts for this year due to the huge economic stimulus being provided to the US economy and to China’s early emergence from COVID-19 – making it the only major economy to grow in 2020.

These, he said, created a “supportive market environment”.

He went on: “We have an assumption that vaccines are being distributed in the developed world and are proving effective.

“We are beginning to see an easing in restrictions and a recovery in activity on the back of that – and that will be followed in turn by a recovery in corporate earnings.

“When the market doesn’t deliver that we take actions and we have a response plan.

“If this environment doesn’t deliver the expected level of growth, we will take action.”

SLA is certainly capable of doing that.

Mr Bird highlighted today that, during the last year, the company had cut costs by 10%.

Yet there is still much to be done.

Long-suffering shareholders, especially those who have clung on grimly to the free shares they received when Standard Life demutualised, have been promised robust growth before – only for it not to materialise.

They can be forgiven for being sceptical – but there is one reason above all other why, perhaps, they should be optimistic.

Mr Bird earned so much in more than two decades with his previous employer, the Wall Street banking giant Citi, that he need never work again.

He is not in this job for the money – but for the challenge of reviving one of Scotland’s most important employers.

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