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Lloyds sacks Standard Life Aberdeen as Widows manager

Standard Life Aberdeen shares tumble 5% after Lloyds bank drops rival fund manager from mandate running £109 billion of pensions for its Scottish Widows arm.

Lloyds sacks Standard Life Aberdeen as Widows manager

Lloyds Banking Group (LLOY) has dropped fund manager Standard Life Aberdeen (SLA) from a contract that saw it run £109 billion of Scottish Widows clients' pension investments.

The move will cost the newly merged investment group £40 million in the form of an impairment charge, sending its shares sliding 19p or 4.9% to 370p.

A decision has long been expected after Aberdeen Asset Management, which had run the funds since 2013, combined with Scottish Widows' competitor Standard Life last year. 

Scottish Widows, which is owned by Lloyds, initially agreed to wait six months following the completion of the merger before a decision was made. That six-month period ended this week, and this morning the bank confirmed it would seek a new asset management partner. 

'Given the merger of Standard Life and Aberdeen has resulted in our assets being managed by a material competitor, it is now appropriate to review our long-term asset management arrangements to ensure they remain up-to-date and that customers continue to receive good service and investment performance,' Scottish Widows chief executive Antonio Lorenzo said. 

He added: 'We will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109 billion of assets.'

Aberdeen has managed the assets for Scottish Widows since 2014, when the asset manager acquired Scottish Widows Investment Partnership (Swip) for £550 million. Under this deal Aberdeen took on the mandate for around £100 billion of Lloyds assets through the Swip business. 

In a statement Standard Life Aberdeen co-chief executives Keith Skeoch and Martin Gilbert (pictured) said they were 'disappointed by this decision in the context of the strong performance and good service we have delivered' on the contracts. 

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the news was a blow for Standard Life Aberdeen, but had been 'on the cards ever since the merger'.

'Standard Life and Scottish Widows are long standing rivals, and the prospect of one group managing the fund range of the other was never going to sit entirely comfortably in the corridors of power in Edinburgh,' he said.

'Losing this book of business would strike a sour note for the Standard Life Aberdeen merger, and undermines some of the rationale for joining forces.'

Scottish Widows said the changes would be made to the funds' management by the second half of next year. 

Loss of the mandate would represent around a 15% hit to Standard Life Aberdeen's assets, although given the low margins on the funds this will only account for around 5% of revenues.

Numis analyst David McCann estimated this would lead to a 8% loss of profits and 5% of value for the group.

'This is because Lloyds pays an estimated 0.14% fee margin (versus Standard Life Aberdeen average 0.34%) and in our view the attributable earnings are worth a lower multiple than the group (Swip was bought was bought by Aberdeen in a competitive bid process for an eight times price-earnings multiple and given the run-off nature of more than 50% of the assets),' he said.

'We believe the direct financial impact will be less material than one might think given the scale of the asset loss.'

Khalaf said Lloyds would face challenge in finding a replacement manager for the assets. 'You might think that with £109 billion of assets on offer this might be an easy task, but these funds have to be managed at relatively low cost with enough margin for both the investment manager and Lloyds to make a turn,' he said.

'They will also find the field of suitors may be limited by the fact that some of the candidates come with the same baggage as Standard Life Aberdeen, namely a presence in the workplace pensions market.'

2 comments so far. Why not have your say?

Dave Knight

Feb 15, 2018 at 15:31

So where is the management going now?

Back in house with SWIP or what?

report this

J Thomas

Feb 15, 2018 at 19:53

Two co-chief executives; yes that was always going to work....I suppose they can both blame each other for the contract losses.

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