Not quite a year since the completion of one of the asset management industry’s highest-profile mergers, Kurtosys felt it was time to meet up with Aberdeen Standard Investments’ Director of Operations, Mike Tumilty.
Here he discusses the group’s expanded global footprint, the need to be nimble and how timing is everything.
When you carry out a merger that brings together two such large organisations, what’s the most challenging aspect to integrate?
There are many challenges but I think from an operational perspective, the key thing is to try and identify what your target operating model looks like. So understanding your ‘as is’ position and then trying to work out your optimum ‘to be’ position.
I think once you’re clear about what you’ve got today and what it is you need tomorrow to successfully deliver against the business strategy of the firm, that then allows you to break activity down into related areas, sections or aspects of data and information that – while often quite sizeable – will lead you in a very clear direction. On the face of it, when you bring together two massive organisations there will be an incredible amount of detail and that could otherwise become quite overwhelming.
How has the merger affected your role, in particular?
While I was global head of operations at Standard Life Investments prior to the merger, my role at Aberdeen Standard has become even more global. This is as a consequence of Aberdeen having more of a critical footprint in 10 countries in Asia as opposed to Standard Life Investments, which was predominantly based in Hong Kong.
Aberdeen has a physical presence of operations in eight of the 10 target APAC countries and we now have a bigger presence in the USA, [building on] our respective bases in Philadelphia and Boston.
The main difference is that Standard Life Investments’ global distribution strategy was probably defined by the phrase ‘targets not territories’, whereas I would say the Aberdeen distribution strategy is ‘targets and territories’.
What I mean by that is that Aberdeen’s physical footprint manufactures in more countries for distribution in Asia, for example, but it also manufactures local products for sale in more countries in Asia. The SLI strategy was very much about taking global products to targeted institutions on a global basis.
Therefore I’ve had to very quickly develop a much deeper understanding of the mechanics of more countries in Asia, more about some of the domestic types of funds in the Americas, for example.
These two strategies have since amalgamated into one, expanding our client base because there wasn’t as significant an overlap in clients as people might have assumed.
With so many moving parts, the timing of a merger must be quite tricky to pinpoint, especially as market performance seems to be a factor determining the success of a merger. So how does one plan for that?
Timing is ultimately everything. After we’d done the Ignis acquisition in 2014, I felt there was something in trying to create an operating model that meant that you were always ‘acquisition-ready’, or in this case merger-ready. We needed to ensure our operating platform was as robust and integrated as it could be, able to step into action should we be called upon at short notice to engage in acquisition or merger activity.
The other key thing – which I think applies to many industries, not just asset management – is to try not to become embroiled in change initiatives which last for many years. The more you’re entrenched in really long change programmes – whether it’s changing your core infrastructure, your trading systems or other aspects – the less flexible you are.
Breaking down your change initiatives into smaller, less lengthy, events means you’re more able to adapt and move quickly when it comes to these opportunities. These opportunities will arise at various points in the economic cycle, and I think this one, for me, timing-wise, sees both organisations stronger together and able to withstand any potential future downturn in a more robust way than they may have been able to do when they were two independent firms.
One big trend we’re seeing is asset managers moving towards so-called ‘vertically integrated’ business models. What do you think is the key to an asset management firm offering a ‘catch-all’ proposition?
One of the key drivers behind vertical integration is an asset manager wanting a distribution channel. For example, take what we’re doing with Standard Life and the proposed (subject to shareholder approval) sale of Standard Life Insurance to Phoenix. A key aspect of any disposal is about the retention.
On one side is the desire to become a strategic partner – a significant provider of asset management services to major insurance clients domestically and abroad. The other is what we’re retaining – the platform business. This gives us an element of vertical integration, as platforms are becoming far better established ways of end investors and intermediaries investing into funds.
By retaining the platform business, Standard Life Aberdeen is able to promote the content that Aberdeen Standard Investments manufactures. In an advised sale, it is up to the intermediary as to how those assets are invested.
But a very simple analogy is comparing it to Tesco; you’ve got Tesco’s own brand but they also sell other brands. They may well buy Tesco products or they may buy other brands, but you’re bringing them into the store.
If you’re bringing them into the outlet – in our case the platform – and you’ve got your content, then the ideal scenario is they use our platform and ultimately they buy the Aberdeen Standard Investments content. So that I think is how we see the business strategy rolling out.
When a merger takes place, how long does it take for things to really ‘settle down’? While it may be hard to generalise, is there a rule of thumb?
The full integration timeline from start to finish is three years but you can break that down to component parts. For the first six months we wanted to be very explicit about who would manage our client’s funds and who would manage our client relationships.
The parts I’m responsible for – the integration of the operating platform – takes a little longer, so our three-year timeline will allow time to consolidate the clients, consolidate data architecture and really get the firm optimally shaped to effectively deliver against the synergy targets on a per-annum basis; the full run-rate kicks in from year three onwards.
In terms of the next generation, what do you anticipate happening in terms of the way that the future generation will access their investments?
A much greater proportion of the next generation of investors will want to save digitally. Kids who open bank accounts today don’t really do cash, so the next generation of investors will want everything online. But I still believe they will take comfort – like I do today – that the people making the investment decisions with my hard-earned savings are people and they’re using technology to help make an informed decision.
In terms of them accessing investments, I think that is going to be far more online and moving towards self-service. If you look at the travel industry, I for one am quite happy for British Airways to outsource to me pretty much all of the activities which used to be done for me. Be that booking a flight, checking in, tagging a bag at the airport – we’re doing all of that ourselves because technology has put the control in our hands and we are seemingly delighted with that prospect. I think that’s how accessing savings and investments will end up.
Based on recent findings and events, global asset managers are set to keep using mergers and acquisitions to strengthen and diversify. We take a look at the current state of M&A, including motivations, market trends and margin erosion.