By ROBIN POWELL
Managing the England football team is supposed to be an impossible job. But I’m sure there’ve been times over the last four years when Stephen Bird, the soon-to-depart CEO of Abrdn, would have gladly swapped places with Gareth Southgate.
Shareholders in what was then called Standard Life Aberdeen had high hopes of Bird when he joined in September 2020 after a successful career at Citigroup. But the consensus is that his tenure has been a disaster. Fund performance has been woeful, the share price has gradually declined, and the group has twice been ejected from the FTSE 100.
To add insult to injury, Bird’s big idea, to dispense with the Es in Aberdeen, has backfired spectacularly. He leaves the company not only in a worse state than he found it, but lumbered with a rather strange name as well.
Positive changes
I must say, I have some sympathy with Stephen Bird. He made some positive changes. For a start, he restructured underperforming parts of the business. He expanded the company’s wealth management arm — a sensible move given the UK’s well-documented shortage of financial advisers. And the acquisition of Interactive Investor, the country’s second-largest consumer investment site, was another step in the right direction.
Bleak though the outlook for Abrdn appears, all of those measures should help the firm to stay competitive in a very fast-changing landscape.
But there is a bigger reason not to join the chorus of criticism as Bird departs: he was always on a hiding to nothing. The company made its name and built its success on active money management, which is clearly in a state of terminal decline. There was little or nothing he could do about that. Trying to diversify the business, and reduce its reliance on active fund fees, was unquestionably the right thing to do.
Let’s not kid ourselves that either Standard Life or Aberdeen ever had brilliant fund managers. Its funds performed no better or worse than those of other UK’s fund houses. But in an era when financial advisers raved about active funds and “star” managers were heavily promoted every weekend in the national press, no one seemed to mind (or even notice) that hardly any of them beat the market in the long run. Active management was money for old rope.
Of course all that has changed. Financial journalists like myself, who believe in telling investors what they need (and not necessarily they want) to hear, are no longer voices in the wilderness. That the vast majority of investors are better off avoiding active funds altogether has at last been generally accepted.
To suggest that, with the right CEO, an old-school active fund house could somehow help to stem, or even reverse, the seismic shift towards low-cost index funds is completely unrealistic. In that respect, Stephen Bird was always fighting a losing battle.
What next for Abrdn?
So where does Abrdn go from here? Matthew Lynn made some useful suggestions in the Telegraph. Firms like Abrdn, says Lynn, have treated the crisis facing active managers as if it’s a marketing problem when it’s not. Consumers, he argues, don’t want “gimmicks” or expensive rebrands” — they simply want better returns.
He is of course correct, but I disagree with Lynn on the solution. For him, it’s nothing to do with cost; it’s all about improving the product. But surely the product is what it is? It’s active fund management. Compared to low-cost index funds, active funds are, by definition, inferior products. The average active investor has to underperform the average passive investor net of costs. It’s just simple arithmetic.
Unfortunately, fund management companies can’t improve fund performance just like that. Yes, you can try to hire the best people and give them the best technology and resources to work with, but the odds of beating the market on a cost- and risk-adjusted basis and for long periods are heavily stacked against you.
For me, therefore, it does all come down to cost. Active funds are far, far too expensive. If fees were lower, active investors would at least have a better chance of outperforming.
Of course, fund house shareholders are bound to resist reductions in fees and charges. But if they want to start competing with index funds, that is their only option. As Vanguard has shown, if you reduce fees enough, investors are still willing to take a chance on active funds, at least for part of their portfolio.
It will mean making tough decisions. No more rebrands. No more sky-high salaries and bonuses. Perhaps no more full-page adverts in the Sunday papers. However the new boss decides to go about it, Abrdn has to make sufficient savings to fund substantial reductions in fees.
If that fails, Abrdn should seriously consider selling off its asset management in the business altogether — something its outgoing CEO is rumoured to have considered.
For decades, managing other people’s money was awesomely lucrative, but the future looks very different. Stephen Bird probably understood that better than most.
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