Profile of Martin Gilbert, CEO, Aberdeen Asset Management
The austere granite facades of several Victorian terraced houses in Aberdeen’s West End seem an unlikely home for one of the UK’s fastest-growing fund management groups.
But Aberdeen Asset Management, which has increased the assets it manages from £2.8 billion in 1996 to more than £15 billion today, has its headquarters in Queen’s Terrace, a residential street off Aberdeen’s Union Street. As seagulls squawk overhead, it’s a far cry from the City of London or even Edinburgh’s Charlotte Square.
Members of Edinburgh’s fund management industry have traditionally looked down their noses at their “country cousins” at Aberdeen Asset Management; some even view Martin Gilbert, the arch deal-maker who has been the firm’s chief executive since 1991, as a “bit of a spiv”. However, they should be careful not to allow such views to distort their judgment of Aberdeen’s performance and potential.
Through organic growth and a series of well-timed mergers acquisitions, Gilbert and his colleagues have transformed the company from a virtual basket-case in 1985 into a financial powerhouse. In 1992, Aberdeen Asset Management’s shares were trading at 23p. Today, they have risen to 121p, giving the business a market capitalisation of £183 million. Gilbert’s personal stake is worth around £3.5 million.
In the process, Martin Gilbert, 43, has emerged as one of Scotland’s business heavyweights. He already has several non-executive directorships under his belt, including FirstGroup, Aberdeen Football Club, Grampian Country Foods and, most recently, computer animation company, Inner Workings.
But for someone with ultimate responsibility of more than £15 billion of other people’s money, Gilbert seems surprisingly laid back and self-deprecatory.
Colin McLean, the investment wunderkind at Scottish Value Management, who has known Gilbert for 10 years, explained: “Underneath he’s a tough person and can be quite demanding. But he’s not a details guy. Nor is he exactly the type to join the New Club.”
Aberdeen Asset Management owes its origins to the North of Scotland Canadian Mortgage Company, founded in 1876 to assist Scottish expatriates become farmers in Canada. It eventually became known as Aberdeen Trust, a quoted investment trust and, until 1983, was managed by Aberdeen law firm Brander & Cruikshank W.S..
Then working in Brander & Cruikshank’s investment department, Martin Gilbert was in his twenties when two partners in the firm — George Robb and Ronnie Scott-Brown — invited him to join them as a junior partner in a buyout of the investment operation. It was subsequently incorporated as Aberdeen Fund Managers.
“We were lucky enough to start at the beginning of a 16-year bull market — the longest and biggest in history,” says Martin Gilbert. “In life, you’re much better off being lucky than being good. Once you get a stroke of luck, you have to take advantage of it.”
Lately, the UK investment trust industry has been having a difficult time. Last week, Martin Currie admitted its overall fee income would collapse by around 25% following the reconstruction of its Scottish Eastern Investment Trust, and arbitrageurs are targeting the £405 million Foreign & Colonial Pacific investment trust.
Institutional clients have been going public with their dissatisfaction at the poor performance of several investment trusts, vociferously pushing for their reconstruction or wind-up. Their sole aim is to retrieve their cash.
Shares in some of Aberdeen’s investment trusts, especially those specialising in crisis-torn emerging markets, are trading at discounts to net asset value of more than 25%. But Gilbert says he is eager to meet the needs of dissatisfied investors as early as possible — for example, by offering share buy-backs — rather than let them fester in financial discontent.
“There’s a perception that investment trust managers will do everything to hang on to the assets they manage. You have to display that if you’re at a big discount, you’re willing to give some money back.”
Against this backdrop, the company has been unusually successful in attracting new money into the sector, partly by focusing on specialist rather than generalist funds.
Martin Gilbert says Aberdeen was the number one fund-raiser in the UK in the shrinking investment trust sector last year, bringing in £340 million. And the recent launch of the £100 million Enhanced Zero Trust, a niche capital growth fund, proved Aberdeen can still generate interest in investment trust share issues.
Piers Currie, head of AAM’s investment trust marketing operation, said of the launch: “It is a no brainer. It’s a banking decision really. You are able to borrow cheap (and) invest high.”
Unlike rivals which prefer to manage all their assets from a home base, Gilbert favours putting fund managers on the ground, near the markets in which they are investing.
“We locate our fund managers wherever the assets they manage are,” he explains. So, if they’re managing Far East equities, they’re in Singapore. If they’re managing our Latin American portfolio, they’re in Fort Lauderdale, Florida, and if they’re managing US equities, they are in Chicago.”
The company’s Singapore office, which employs 19 people, has been earmarked for expansion, despite the downturn in south-east Asian markets. Two years ago, the Singapore operation was expanded through a joint venture with a local investment bank and, to demonstrate commitment to the market, has a secondary listing on the stock exchange.
“If anyone wants to know what an emerging market’s like, they should be an emerging markets manager. They’ve had a really torrid time,” jokes Martin Gilbert.
Aberdeen Asset Management’s biggest recent deal came in September 1997, with the £60 million acquisition of Prolific fund management from Scottish Provident. In exchange, Scottish Provident took a 41% stake in Aberdeen. The main fund management teams of the two companies, which were already located in London, moved into the neutral ground of a new office at Bow Churchyard in London’s Cheapside.
But the merger generated restructuring costs of around £8 million, due to 50 redundancies and the need to run two back offices. All investment administration and fund accounting have since been out-sourced to the London-based investment house, Henderson.
While the company’s venture capital business, call centre and local private clients business remain in the city of Aberdeen, the firm only manages £350 million from there, with £12 billion being managed from its London office. Said one investment analyst: “They really have damn all left in Scotland any more.”
Despite the shift in geographic emphasis, Martin Gilbert seems delighted with the Prolific acquisition. “It was one of these dream mergers where everyone so far has been a winner,” he said. The merger reduced Aberdeen’s exposure to the troubled Far Eastern markets from 18% to 5.8% of total assets. And it also enabled Aberdeen to boost sales of its Corporate Bond fund, using Prolific’s retail sales network.
Retail money is flooding into this product through Peps, and Gilbert hopes this will continue with the introduction of Individual Savings Accounts (ISAs). “The Corporate Bond is taking in £2 million a minute. There are now more than 200,000 investors and the fund has grown to £800 million.”
Aberdeen Asset Management’s earlier growth was also largely fuelled by deals, for example its 1996 tie-up with Connecticut-based Phoenix Home Life, which gave it $1 billion to manage and access to the American insurer’s US distribution network. In exchange, Phoenix was given a 20% stake in Aberdeen.
“This was a very cost-effective way for us to enter the US market,” says Martin Gilbert. The firm also gained a foothold in Luxembourg when it acquired the overseas assets of another US insurance company, Aetna, for $4 million. Gilbert believes this will give the firm a platform to sell investment products to Europe. “Luxembourg is their offshore centre,” he said.
However, despite the performance of many of its funds, Aberdeen’s brand awareness remains low.
Martin Gilbert is painfully aware that Aberdeen Asset Management does not roll off the tongue as easily as larger City players. To raise its profile, the company has an annual marketing spend of £10 million and last month signed a three-year deal to replace Whitbread’s Beefeater Gin as main sponsor of the Oxford and Cambridge Boat Race. The £1.5m deal is more likely to hit Aberdeen’s target market than its earlier £450,000 dalliance with Aberdeen Football Club.
So what is Martin Gilbert’s view on global financial markets? Generally, he seems bearish about equities, saying: “The Americans think this bull market will continue, but prudence dictates that there is bound to be a correction in America. I’ve been predicting this for three years — so I’ve been totally wrong. Luckily I don’t do the asset allocation!
“Over the last couple of years we’ve seen a very strange stockmarket. The very big stocks have pushed the index up and the small to medium caps have been left way behind. The Scottish small caps have been blown out of the water.”
And the future of the firm he has built into one of Scotland’s leading financial services companies? “It’s already got much further than I ever expected. I always remember the day we got to £1 billion in assets under management, we thought we’d achieved everything. Our main intention for the future is to continue to provide clients with a good service and to continue growing if we can. I don’t know how big or small we’ll be.
“Baillie Gifford are quite a good indicator for us. If we could overtake them, it would be a real coup for us.”
Catch-up
The investment trust industry, a lynchpin of the Scottish economy, was in turmoil last week. Edinburgh’s Martin Currie admitted its annual fee income would fall by around around 25% following the reconstruction of its Scottish Eastern Investment Trust. Edinburgh Fund Managers’ underperforming £1.8 billion Edinburgh Investment Trust is the latest target for arbitrageurs and trust busters. And Glasgow’s Murray Johnstone allegedly has a ‘For Sale’ sign over its door. Against this backdrop, Martin Gilbert appears to be sitting pretty. Aberdeen Asset Management, of which he is chief executive, has £15 billion under management, and is poised to overtake Baillie Gifford in funds under management
This article was published in the Sunday Herald on 14 March 1999