International Adviser: Can you explain what impact acquiring Scottish Widows Investment Partnership (SWIP) at the end of last year has had on your international cross-border business?
Nicholas Shaw: So far, the deal hasn’t completed. The integration process will begin once we have obtained regulatory approval, which we hope will be by the end of the first quarter.
The immediate and clearest impact is on the UK, where the vast majority of the assets and people are based. However, from an international distribution perspective, we are assessing a number of asset classes, which will be enhanced with the capabilities of SWIP, particularly on the fixed income, property and solutions side.
It should broaden out the scope of our offering, which is positive. Within fixed income, there is an absolute return bond strategy that should be of interest given the evolving fixed income environment.
There are also real estate funds that could be of interest outside of the UK. Some of the core asset classes – European and UK equities – will be significantly larger than they are today, giving us enhanced scale.
IA: In Aberdeen Asset Management’s most recent results, you had an outflow of assets in the last quarter of 2013. Why was this?
NS: Aberdeen is recognised as one of the leading emerging market managers, particularly on the equity side, but also in terms of emerging market fixed income. Over the past six months, we have seen clients rotating away from emerging markets into developed markets. Emerging markets experienced outflows and, for the moment, the trend of clients looking towards developed markets continues. We consider the sell-off as an opportunity.
IA: Recently, you attended the World Economic Forum in Davos, Switzerland. What insights did you gain from the discussions there?
NS: One of the many interesting speakers was the Prime Minister of Japan, who talked about the progress of ‘Abenomics’.
While challenges remain for the Japanese economy, arguably there may be lessons for European countries to learn. Other subjects included the potential of Africa, as well as the consequences of an ageing population in developed markets.
One of the main topics of conversation for cross-border distribution, specifically, was the RDR in the UK, and its equivalent in Switzerland, the Netherlands and other countries. That is changing the face of distribution and has implied outcomes.
One trend I see no sign of slowing is the move from a broader open architecture offering towards a more guided approach.
IA: Aberdeen has formed a partnership with the Federation of European Independent Financial Advisers. What are your expectations there?
NS: Aberdeen’s got a good brand in the UK. For IFAs dealing with expats in Spain, Malta and elsewhere in Europe, it seems sensible to link up with the trade body and support that.
Hopefully, some of our fixed income and equity income products will be appealing to the retirement market.
IA: What exactly does your job at Aberdeen involve?
NS: It has got two parts. On the one hand, ensuring we have the right infrastructure in place and the right offering, to distribute Aberdeen’s capabilities through financial institutions, which is a fairly broad church. It ranges from banks, insurance companies, through to independent asset managers. We have teams located all over Europe. A key part of how we approach things on the business development side at Aberdeen is that we have local teams in markets to support the relationships.
The other part, and this is important too, given we’ve been talking about some of the cross-border groups, is to ensure oversight and coordination around our largest cross-border relationships.
I’m based in Zurich, Switzerland, but travel over to London frequently and in each of the key financial institution markets.
IA: Which European countries do you see as being the most important markets for Aberdeen?
NS: The markets are important across the board. Switzerland’s a key market for us. Frankfurt is another important one, while Paris and Milan are also key offices. And a team from Luxembourg covers the Benelux financial institutions. Spain is the newest addition – we opened there last year in Madrid. It’s a great market, home to a number of leading global banking groups that provide access to some of the exciting growth out of Latin America, such as Santander, BBVA and Sabadell. Also, the vast majority of the big international banks have local distribution of some size and importance in the Spanish market.
IA: How does your product range differ from one country to another?
NS: The product range is the same, in that we are typically talking about our Luxembourg SICAV. The product appetite can vary, depending on the market and also the profile of the end investor.
In the wholesale distribution space, or the private banking space, clients tend to prefer the building blocks, such as emerging markets and Asia.
They would be less inclined, typically, to allocate to a global equity fund. However, a retail investor likes a global equity product, though it can depend on the investor type. There are some markets that are more fixed income orientated than others.
Where we have seen good flow over the past 12 to 18 months is in emerging market fixed income, which.
We acquired a well-recognised manager in the US at the beginning of last year called Artio Global Investors, which includes in its range a Global High Income Fund and a Total Return Bond Fund.
We also have a long-standing Luxembourg fund that’s been performing very well, the Euro High Yield Bond Fund, which could attract further interest in the next 12 months.
Asian fixed income is another area where we have a fairly developed offering. It’s still an under-invested asset class from the Western investor perspective. We had phenomenal success with an Asian Local Currency Short Duration Bond Fund the year before last, and we expect our Asian fixed income offering will broaden out over time.
IA: By contrast, have you been surprised by any funds or sectors that have proved unpopular?
NS: The requirement for a track record can be a frustration. We launched a very good fund investing in a relatively new asset class – Emerging Markets Corporate Bonds – but you need a three-year track record before sales take off. The herding around investments is also something that is a struggle for all of us.
IA: How would you describe the pattern of investor behaviour in Asia?
NS: What’s interesting, particularly on the private banking side, is how a lot of the initial appetite in terms of the big funds that have generated strong flows in the international wealth space did come from Asia, and then transcended across to Europe. If you take the well-known fixed income funds, they were top of the pops for a good period in Asia before they started to gain market share over here.
Asia does bring its challenges. A lot of the money that went into the fixed income funds was also very quick to leave when sentiment for bonds changed. But if you’re an international bank and you’ve got a phenomenal success story out of Asia, you perhaps think, ‘Can we replicate that success over in Europe?’ That’s an interesting shift.
Sometimes, distributors are looking for more thematic equity propositions like the China consumer.
We would typically veer away from launching such thematic strategies, preferring broader regional or single country funds, which we believe are more sustainable over the long-term.
IA: What proportion of business do you have through local populations in the markets you operate in, as distinct from expats and others?
NS: It would be mainly local, though in certain markets that’s very difficult to ascertain. A Swiss bank in Zurich will have its Latin America and Eastern European desks. For example, they’re selecting from the same product offering and we wouldn’t get a look through as to whether the client was Mexican or Swiss. We are very active in Dubai, which is expat, almost by definition. We’refly-in, fly-out at the moment but it’s something we are reviewing. We’re looking to open an office there.
IA: Are you planning on entering any new regions or markets?
NS: Yes. This will be the first year of having the team based locally in Spain, so we would expect some really good activity there and, by extension, in Portugal and Andorra.
We are also currently looking at Turkey. That is a market we continue to follow with respect to developments, and we are already engaged with a number of the largest banks in the region.
In Latin America we have a man based in São Paulo and we are looking to launch two local funds into the Brazil market.
We’re also looking at Mexico. We’ve got a big presence in the Chilean pension schemes, which buy a lot of Luxembourg funds, and we’re building our US offshore platform.
The head of our US offshore business was over here recently and we now have four people covering that exciting market.
The trend I referred to earlier, towards a more guided approach, means you need a good strength of products across a variety of different areas, but you also need to demonstrate an ability to support that relationship locally using the local language, marketing and sales support.
Happily, Aberdeen is now recognised as one of the leading global brands to pass the distributor selection test.
IA: You have more than $60bn in Luxembourg, out of a total group figure of $324bn. Do you expect this percentage to increase?
NS: If you look at that $60bn breakdown, that is focused on a lot of our Asia, GEM and global equity funds, and the focus now is on increasing the size of other funds such as the Global High Yield Bond Fund.
There’s huge scope for growth under that umbrella. In relative terms to the rest of the business, strategically we would love to grow our Americas business and the onshore part of that is out of scope for that fund range. We would, of course, hope that the global umbrella increases over time in absolute terms.
