A rumoured Scottish Widows purchase of Standard Life’s pension book looks less likely following Lloyds Banking Group’s decision to pull its multi-billion investment deal with Aberdeen Asset Management, say industry experts.
Lloyds announced yesterday that it had given notice to Standard Life Aberdeen terminating the partnership it entered into with Aberdeen following the sale of Scottish Widows Investment Partnership in 2014. This included long-term contracts for the management by Aberdeen of £109bn of assets on behalf of Scottish Widows and LBG Wealth.
Sources close to both providers say the announcement makes any rumoured purchase of the Standard Life pensions book by Widows less likely as the termination of the asset management deal removes one potential synergy from a potential deal. They also point to the frosty language used by Lloyds in its announcement of the withdrawal, where it described Standard Life as ‘a material competitor of Scottish Widows and also of Wealth’, citing this as the reason for the severance of the deal. Widows may also feel they now have the tools needed to target growth amongst larger workplace schemes in the emerging secondary AE market following the acquisition of the Zurich workplace pensions business, with its master trust and investment platform.
Rumours had also circulated of a purchase of the Scottish Widows book by Standard Life, although industry insiders had questioned the logic of such a deal following Widows’ purchase of Zurich’s pensions book.
There will be no immediate changes for customers. Following completion of the review, Scottish Widows and Wealth anticipate implementing the new arrangements by the end of H1 2019.
The funds withdrawn represent around 17 per cent of Standard Life Aberdeen’s assets under management, and 5 per cent of revenues. Standard Life Aberdeen’s share price fell 6 per cent on the announcement and have slipped slightly lower since then.
A statement from LBG says: “These contracts enabled Scottish Widows and Wealth to terminate the contracts in the event that Aberdeen was subject to a change of control with a material competitor. Aberdeen recently completed a merger with Standard Life plc, which is a material competitor of Scottish Widows and also of Wealth. At the time, Scottish Widows and Wealth agreed to delay a decision regarding the exercise of their termination rights for a period of six months following completion of the merger, during which period the parties agreed to discuss in good faith ways to build a successful relationship and address the competition issue.
“As no agreement has been reached, Scottish Widows and Wealth have decided to terminate their partnership agreements with Standard Life Aberdeen and to review their long-term asset management arrangements. Aberdeen has delivered good service and performance and Scottish Widows and Wealth would welcome their participation in the review if Standard Life Aberdeen is able to resolve the competition issue.”
Antonio Lorenzo, chief executive of Scottish Widows and group director of insurance & wealth, says: “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. Therefore, we will begin an in-depth assessment of the market to identify a long-term strategic partner, or partners, to manage the current £109bn of assets.”
Hargreaves Lansdown senior analyst Laith Khalaf says: “This is a blow for Standard Life Aberdeen, but has 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.
“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, which was built on scale. However while almost a fifth of Standard Life Aberdeen’s assets look like they might be walking out the door, this only equates to 5 per cent of revenues, as these investment services are relatively low margin. It’s also worth noting the sort of funds involved are not run by the star managers of the stable, rather they are the sort of strategies that feature in older pension contracts sold under the Scottish Widows banner.
“Lloyds and Scottish Widows now have twelve months to find a new home for this money. 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. 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.
“There’s a possibility Standard Life Aberdeen may retain this chunk of assets, subject to further negotiations. There’s also an outside chance Lloyds may look to rebuild its own investment management capabilities, as it launches a new three year strategy next week. This would make some sense now the bank has recovered from the financial crisis and will be looking for opportunities to grow and diversify. However twelve months doesn’t give the bank a great deal of time to pull off such a big u-turn, having sold SWIP to Aberdeen only a few years ago, so this doesn’t look like a serious prospect for the time being.”
