FTSE 100 asset manager Aberdeen summed up the big problem with being in its line of business right now — fear.
The emerging markets specialist money manager put out a trading update for the three months to December 31 on Wednesday, showing net outflows of £9.1 billion ($13 billion) in the quarter and gross outflows of £20 billion ($28.6 billion). Aberdeen’s assets under management for the quarter came in at £290.6 billion ($416.5 billion).
While both outflow figures are lower than the previous quarter’s outflows, it still shows that clients are pulling their money out of the market at an alarming rate. And it’s Aberdeen’s 10th consecutive quarter of net outflows.
CEO Martin Gilbert says in the update (emphasis ours):
Like the rest of the industry, we continue to contend with the structural imbalances of the global economy and the cyclical slowdown in emerging markets, as well as the impact of falling oil and commodity prices. Despite the day-to-day fluctuations in investor sentiment, we remain focussed on those issues that we can control. We are committed to our fundamental approach to investing, managing the business efficiently with a keen focus on costs and most of all striving to deliver the long-term returns that our clients and shareholders have come to expect from Aberdeen.
Perhaps the most pertinent phrase there is “day-to-day fluctuations” — in other words, fear. In general, the mood in the markets has been downbeat since the start of the year because of oil prices and emerging market struggles.
This makes investors skittish and more likely to pull their money on a whim and stuff it under the metaphorical mattress. Or in the case of Middle Eastern investors, just use it for cash flow while oil prices suffer.
This makes asset managers’ job more difficult for two reasons. Firstly, someone like Aberdeen is laying down long-term bets and pulling money out of them before they’re fully cooked can scupper them. And secondly, it increases market volatility.
If a client wants their money out during a time of market ructions, which is likely with the “day-to-day fluctuations in investor sentiment,” Aberdeen will have to sell shares or foreign exchange or whatever into a market that’s looking for buyers, not sellers. That’s likely to spook the market even more — in effect, it makes the problem worse.
Aberdeen says in its update:
We expect market conditions to remain difficult and this is likely to be reflected in flows for the remainder of the year. Against this backdrop, we remain committed to controlling costs and driving efficiency in our business.
The company is already cutting £50 million in costs but says it has identified further cost savings that it will update the market on in its interim results in May. There were reports a few months ago that Aberdeen was informally sounding out potential buyers of the business.