Martin Gilbert

Betting on Emerging Markets

AberdeenGilbert-Bloomberg
Aberdeen Asset Management CEO Martin Gilbert is hoping for a bounce-back in emerging markets.
  • Why it matters

    Why it matters

    Despite the recent volatility and fears, Aberdeen’s CEO still believes the future is bright for investing in emerging markets.

  • Facts

    Facts

    • Aberdeen Asset Management has a total of £330.6 billion, or €457 billion, under management.
    • Martin Gilbert co-founded the fund manager, which is based in London, in 1983.
    • Aberdeen Asset Management replaced Schroders in recent years as the largest listed asset manager in Europe.
  • Audio

    Audio

  • Pdf

Martin Gilbert is a veteran of the financial world. As a co-founder of Aberdeen Asset Management, he’s helped build the British firm from scratch in 1983 to become the biggest listed fund manager in Europe, a distinction it earned a few years ago by replacing Schroders at the top spot.

But as Aberdeen’s head, Mr. Gilbert also received his share of criticism over the years. That’s especially true of the last few years, as the company has suffered setbacks in the volatile emerging-market regions where Aberdeen has long been a major player. Some customers have voted with their money in the past two years and withdrawn cash.

Despite the recent troubles, Mr. Gilbert isn’t about to change a proven strategy and is confident emerging markets are primed for a rebound. Nor is he thinking about retirement just yet. The 60-year-old manager, speaking to Handelsblatt at the company’s London headquarters, said: “I still think I’m 30.”

Handelsblatt: Your company has had a bad run since 2013 with large capital outflows. What’s the problem?

Martin Gilbert: Yes, it has been tough for us because we have been so big in emerging markets. We were fortunate to be so big in that area for a long time – but not for the last two years. But it’ll come back because developed markets look quite expensive at the moment. So I would say emerging markets have good value. The key thing for us is not to change your style and your asset allocation because that would be a mistake – you’d be finished as a business.

But looking at the United States, the Federal Reserve could be raising interest rates this year. That could put more pressure on emerging markets. Could your outflows even accelerate?

Yes, that could happen. Theoretically, a rate rise in the U.S. leads to a stronger dollar, which will not be good for emerging markets. But we look at it differently. Many companies in emerging markets are doing well, and the economies are growing faster than developed market economies. We need a change in sentiment – especially among retail investors. Institutional investors haven’t been as skeptical.

Concerns over Greece and the fear over a U.S. rate rise might cause market volatility to spike, trigger outflows and cause an alarming lack of liquidity. A few weeks ago, you set up a $500-million credit line to fund redemptions as a precaution against a sell-off in the bond markets. Will that be enough?

That’s just in case it really gets ugly. And certainly our funds have lines of credit to meet short-term redemptions.

Could it become a new normal for asset managers to set up additional credit lines, for example, as a precaution and also to adapt to new conditions in the bond markets – more volatility and less liquidity – since banks have withdrawn from the market?

Absolutely. There will be more volatility in bond markets and less liquidity when certain events happen. Luckily enough, we are not that big in bond markets; we make 60 percent of our business with equities.

Due to those fundamental changes taking place in the bond markets, some regulators see a need for more regulation. They worry about problems when panicky clients want to sell quickly and head for the exit at the same time. Do you agree that such scenarios and risks are a cause for more regulation?

We have already seen much more regulation since 2008 – the world of asset management has changed since then. The regulators are doing a good job; they make fund managers think about what happens in certain scenarios and to prepare for it. Risk management in our industry is much more developed than in the past. Much more risk management goes on.

 


Video: Martin Gilbert offered his take on the global economy in this interview back in May.

 

What about designating some asset management firms as systemically-important financial institutions that require additional monitoring and regulation, something regulators had considered until recently. Would that go too far from your point of view?

I would think so. But it’s not up to us to decide but to the regulators. And luckily we are too small to be systemically important.

But you have grown. You recently took over local rival Scottish Widows. Are you planning more acquisitions?

Scottish Widows was a really good acquisition for us. That grew our passive business, our bond business, our property business. We are always looking for more acquisitions – especially bolt-on acquisitions, which will give us some sort of capability we do not have.

Who could that be?

We’d love to find an Asian property manager, that sort of thing. That’s the type of bolt-on we’d like to do. But that’s just an example. We don’t have a specific company in mind at the moment.

You are planning a trip to the Silicon Valley. Will you be looking for acquisitions?

Yes, we are going to the U.S. West Coast to look at what is happening there and what kind of new developments are coming. When you look at the banking sector, we have seen a lot of disruption.

There are also new ideas around for the asset management industry?

We want to make sure we keep ahead of the game. We want to try and understand what’s happening there. I was absolutely shaken recently when I went to a presentation about how to make an app and found out how easy it is and that it doesn’t take long at all. I made an app – it took me 45 minutes to make a golf-app to keep your golf score.

Handelsblatt: In what areas are you looking for new ideas, or do you see a possibility to cooperate with a company in Silicon Valley?

It will all be around platforms and how to distribute our products and how we deal with people. We’ll have to think about the younger generation and how they will interact with us, because they will not want to phone a call center in Aberdeen.

You are one of the longest serving CEOs among the FTSE-100, along with WPP-CEO Martin Sorrell, whom investors are already urging to offer more clarity on his succession. How long do will you wait with a succession plan?

I still think I’m 30 and don’t need to think about it. But of course, the board thinks about it. What I said to the board is that I’ll give them a notice of two years before I want to go. I have not done that yet. And as long as Martin Sorrell keeps working, I have to keep working. I can’t let him beat me.

Sounds like you will still be Aberdeen-CEO when the U.K. decides whether or not to leave the European Union. What’s your opinion on that?

I’m not going to tell people how they should vote. I said this with regard to the Scotland referendum last year and I say the same with regard to the referendum about Britain’s future in the European Union.

But the British finance industry, especially banks, are against a so-called “Brexit” and say it would be negative – you don’t agree?

For fund managers, it would not make such a difference because the fund management industry tends to be centered in Luxembourg as far as Europe is concerned. Nothing really changes. Potentially, it could get more complicated to attract new employees from the continent. I think there are more negatives for the U.K. than there are for fund managers, because the U.K. is trying to attract more funds back to London. That’s an issue because I think no one is going to move a fund from Luxembourg to London if Britain left the E.U.

Katharina Slodczyk is a correspondent for Handelsblatt in London. To contact the author: slodczyk@handelsblatt.com.

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