Standard Life Aberdeen’s CEO Looks to Deals in Passive Shift

(Bloomberg) -- Standard Life Aberdeen Plc’s new Chief Executive Officer Stephen Bird is on the hunt for acquisitions and new technology to lead the money manager into a strategy that’s become indispensable to the industry’s growth: passive management.

In his first published interview since taking the helm in September, 53 year-old Bird said he plans to reverse an investor exodus by building a stable of passive products that could eventually account for as much as 30% of its assets. The 512 billion-pound ($677 billion) firm, which relies almost entirely on stock pickers and bond specialists to choose investments, needs to ease its reliance on active managers and embrace the global swing toward index investing if it’s to thrive and grow, Bird said.

Passive business “is an essential component of a full solution provider. We are screening for which technology, which people, which capabilities can help us get there,” said the ex-Citigroup Inc. banker. “An ideal active-passive split would be 70/30.”

Bird wants to turn Standard Life Aberdeen, which traces its roots back nearly 200 years, into a “21st century competitor.” He’s chasing a chunk of the business that index giants BlackRock Inc. and Vanguard have already been enjoying for years as investors fled higher-fee active managers in favor of cheaper funds that simply track markets. That’s seen the global universe of passive funds soar to $12 trillion of assets under management, according to Morningstar Inc.

“If you stay as an old traditional asset class asset manager, you will be extinct,” he said. “But if you say I’m going to go closer to my clients, I’m going to listen more intently to them, I’m going to connect to them more seriously, then you’re high value.”

Bird has his work cut out. He’s inherited a firm that’s suffered a constant string of investor outflows since it was formed by the merger of U.K. giants Standard Life and Aberdeen Asset Management three years ago. His focus will now be on streamlining its various brands into one that people will remember, and investing in data analysis and cutting-edge technology such as artificial intelligence and cloud computing.

Investor Flight

When the Standard Life Aberdeen merger completed in August 2017, the newly created firm had 670 billion pounds in assets. It’s since suffered withdrawals every year since the tie-up, with about 25 billion pounds pulled in the first half of this year. The company also lost its title as the U.K.’s largest stand-alone asset manager to Schroders Plc.

“I did the analysis and I could see, we’ve not been growing,” Bird said. “When you don’t grow, you have to ask yourself: wait a minute, how clear is my identity?”

Bird plans to harness his experience of 21 years at Citigroup, where his most recent role was head of global consumer banking. He stepped down from the lender last year after Jane Fraser rose to the bank’s No. 2 job, putting her in position to then succeed Michael Corbat as CEO. Bird’s name later came up among potential candidates to head HSBC Holdings Plc, a job that went to Noel Quinn.

Bird’s overhaul of Standard Life Aberdeen involves investment in key areas, such as developing inexpensive exchange-traded funds. The company will hire more staff to build up its ETF business, while also seeking to boost investments in assets such as private companies, infrastructure and real estate. It may opt for so-called bolt-on acquisitions of smaller companies to build its offerings.

Active Management

“I’ve got an M&A screen that I developed with team here,” Bird said. “I identified a gap. One was passive globally. We can either buy proprietary ETF technology, buy an ETF business or build it. The other gap was in private markets.”

Bird is still a firm believer in active management, saying that the coronavirus has shaken up and exposed weak businesses, giving stock pickers a chance to shine in some situations. But he insists that can’t be an excuse to be complacent about the potential of new technology that’s on offer.

“We are thinking of acquisitions but it won’t be traditional asset managers,” said Bird. “We don’t want to buy an old asset manager. Everything you see us do will look very 21st century.”

The merger that created Standard Life Aberdeen was meant to produce a firm capable of competing with the industry’s heavyweights. Martin Gilbert, one of its co-CEOs following the tie-up, said at the time that the goal was to amass enough assets to join the “$1 trillion club.”

Bird said that bar has been raised.

“Minimum efficient scale is larger than that now,” he said. “We’re focused on growing our business. The revenue line goes up and the expense line goes down. Once that starts to happen, you’re on the journey toward efficient scale. For me, I’m not into sort of vanity statistics. I’m absolutely driven by power metrics.”

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