23rd Jul 2015 09:47
LONDON (Alliance News) - Aberdeen Asset Management PLC shares dropped on Thursday morning after it said its assets under management fell in the third quarter of its financial year, sapped by heavy net outflows related to volatile trading in Asian and emerging markets
Aberdeen shares were down 6.3% on the news mid-morning, comfortably the worst performer in the FTSE 100.
The asset manager said its assets under management fell to GBP307.3 billion at the end of June, down from GBP330.6 billion at the end of March. Aberdeen attributed the fall to market conditions and foreign exchange movements, as Asian and emerging markets were hit by increasing expectations of a rate hike from the US Federal Reserve and by volatility in the Chinese stock market.
Net outflows in the quarter hit GBP9.9 billion, amid institutional investors continuing to reduce their exposure to Asia and emerging markets equities. The figure was an acceleration of the outflows the company saw in the second quarter, which totalled GBP6.5 billion, increasing net outflows for the first half to the end of March to GBP11.3 billion.
Numis said the outflows were well ahead of its estimate of GBP5.6 billion thanks to weaker-than-anticipated flows in high-margin equities and low-margins solutions mandates.
In the first half, market movements and portfolio performance had more than offset the net outflows, meaning Aberdeen's assets under management rose. The market movements and performance added GBP13.5 billion to assets under management in the first half, with GBP4 billion of that coming from positive currency fluctuations, a trick not repeated in the third quarter.
"Market and foreign exchange movements together with low-margin outflows from certain fixed income and solutions clients accounted for a large proportion of the decline in assets under management. In addition, macro-economic factors and investor sentiment towards Asia and emerging markets continued to weigh on equity flows," said Martin Gilbert, Aberdeen's chief executive.
"Despite this the long term investment case for Asia and emerging markets is unchanged and we believe that committed investors will be rewarded over time," said Martin Gilbert, Aberdeen's chief executive.
Gilbert's comments echoed those from Chairman Roger Cornick in the group's first-half results announcement in May, when he said global economic and political uncertainty meant operating conditions for Aberdeen would be challenging in the near term, though he said the group remains well-positioned to benefit over the long term.
Aberdeen said that while it has seen in recent weeks that markets remain "susceptible to policy-led economic factors", there has been some recovery in mid-July. The group said its strong balance sheet and cost discipline should make it resilient in what will prove a challenging period for the company.
Aberdeen said gross inflows in the quarter were GBP9.6 billion, down from GBP9.6 billion a year earlier, while its gross outflows hit GBP19.5 billion, as market conditions remained tough. It said the outflows were exacerbated in the quarter by restructuring activity at a major client, though Aberdeen expects some of those outflows to be reinvested in the fourth quarter. The majority of the fall in assets under management was down to foreign exchange and market movements, it reiterated.
In its equities franchise, Aberdeen's gross outflows were broadly flat against the second quarter, but gross inflows slowed due to the market conditions. This resulted in GBP4.5 billion in equities net outflows in the quarter, up from the GBP3.1 billion in net outflows in the second quarter. The outflows mainly came from Asia Pacific and global equities, in both cases largely from withdrawals from a small number of institutional funds, while global emerging markets equities outflows were broadly flat on the second quarter.
Fixed income net outflows rose to GBP1.4 billion, including some seasonal outflows from low-margin SWIP liquidity funds. Aberdeen's higher-margin emerging market debt funds, though still taking a hit from sluggish investor sentiment, return to net inflows in the third quarter following two quarters of net outflows.
Aberdeen Solutions, which includes multi-asset and multi-manager, alternative, hedge fund, property, and private equity funds, saw net outflows of GBP3.9 billion from lower-margin accounts in the quarter. Aberdeen kicked-off the roll out of its solutions business to try to tap into the changing pension environment in the UK during the quarter and launched a cross-border multi-asset income fund for Asian and European investors. It is also working on the launch of a liquid alternatives fund which will target institutional investors looking to diversify into hedge fund-lite strategies, it said.
Shore Capital said that thanks to the "prolonged weakness" it sees in flows and investment performance for Aberdeen, its inclination is to value Aberdeen at a discount to the average investment management sector multiple.
Mike van Dulken, Accendo Markets' head of research, said that despite Aberdeen management blaming foreign exchange movements and market conditions and low margin outflows from fixed income products for the decline in assets under management, any measures they are taking are "clearly not compensating adequately" for the effects of global monetary policy.
"Furthermore, the outlook looks little to get excited about, especially with the prospect of rate rises in the agenda on both side so of the pond," van Dulken added.
Aberdeen also released a brief statement on Thursday saying it has appointed PricewaterhouseCoopers LLP as its new auditor, with effect from its 2016 financial year. PwC will replace KPMG LLP on the audit contract.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
ADN.L