Blueprint: Stephen Bird first met BlackRock’s Larry Fink a decade ago
It is an asset manager steeped in nearly 200 years of history – but new boss Stephen Bird is not scared to shake things up at Standard Life Aberdeen. The Scottish banker, who became chief executive in September, is preparing a revolution at the flagging FTSE100 funds giant.
In his first newspaper interview since taking over, Bird lifts the lid on a bold plan to rebrand the business and launch ‘robot’ funds next year – a radical move for a fund manager that has long prided itself on expertly picking stocks for its investor clients.
Bird’s vision is to turn Standard Life Aberdeen into the UK’s answer to America’s BlackRock, the largest fund manager in the world with $7.8trillion (£5.9trillion) of assets.
BlackRock’s growth was catapulted by a move into so-called exchange traded funds, or ETFs. These are dirt-cheap, computer-run funds that track the rise or fall in the prices of specific groups of shares, bonds or commodities such as gold. There is no fund manager selecting stocks – just a computer following instructions – and the funds are listed on the stock market like shares and so can be traded throughout the day.
More than £5trillion has been invested in ETFs worldwide. Bird says: ‘If you think of how complex it is today buying bonds, for example, there are many things that the computer does better than man – and we have to do both.’
The 53-year-old reveals he has drawn inspiration for Standard Life Aberdeen’s big shift from Larry Fink, the boss of BlackRock who led the charge with his range of ETF robot funds called iShares. They first met more than a decade ago while he was working in Asia.
‘Larry used to come and see me in the Far East, and we talked about the value of iShares,’ Bird says. ‘Larry is happy to advise me and support me.’
So will the BlackRock model be the blueprint for the modernised Standard Life Aberdeen?
‘I think they’ve done a brilliant job,’ Bird replies. ‘That would be a huge ambition. But there’s a lot of learned lessons from what they got right.’
As a former hotshot banker, Bird is unusual as an outsider at the top of the fusty world of fund management. But after recent fund outflows, the likes of Standard Life Aberdeen can no longer afford to rest on their laurels.
As well as stiff competition from the rise of ETFs and so-called passive investing, the downfall of former star fund manager Neil Woodford has dented confidence in ‘active’ stock-pickers.
‘I’ve got fresh eyes, and fresh eyes are valuable,’ Bird says confidently. ‘I said to folks, ‘Look, I’m the reset guy, I’m the reboot guy.’ I didn’t come from Aberdeen, I didn’t come from Standard Life.’
He arrives at a crucial moment as investors tire of stock-pickers who charge more than robot funds but struggle to outperform them.
Standard Life Aberdeen saw investors withdraw £17.4billion from its funds last year. Profit before tax of £584million was a tenth lower in 2019 than the previous year. And the group lost a lucrative contract to manage more than £100billion of pension money for Lloyds Banking Group in 2018.
The company was created through a mega-merger between Standard Life and Aberdeen Asset Management in 2017 with a market value of £11billion.
But the merger has not gone smoothly, with rumours of rifts caused by trying to combine two cultures and Standard Life Aberdeen’s market value slumping to £5.8billion. It now manages £512billion, down from £670billion.
‘Since the merger, the business hasn’t proven it was greater than the sum of the parts,’ Bird admits. ‘We’ve seen significant outflows of funds, albeit much better this year than in prior years. Another weakness is confused branding. We have six brand names and six websites. So we’re going to fix that.’
Questions have also been swirling in the City over Standard Life Aberdeen’s dividend, which yields a return of more than 8 per cent on the current share price.
Bird would not be drawn on this, but analysts reckon the board will cut the dividend early next year.
Bird reveals he is also planning a cost-cutting drive. The company will merge two of its websites for financial advisers, called Wrap and Elevate, over the next six months.
He says there is a big opportunity to grow in the UK’s wealth management market by offering financial advice for complicated issues such as tax and pensions, while providing access to simple investments such as ETFs online.
‘The UK is a fantastic wealth opportunity and Covid has accelerated this,’ Bird says. ‘People that are fortunate enough still to be working are saving like crazy.’
Bird is talking from Standard Life Aberdeen’s Edinburgh headquarters via a Zoom video call. He cuts a more casual figure than in his banking days, with a grey jumper and a shirt that is unbuttoned at the top.
But his ambition clearly hasn’t waned. He makes no secret that his plan was to become the chief executive of a big financial services company and reveals he was close last year to becoming chief executive of HSBC.
‘The whole thing was just taking too long,’ he says. ‘I thought they were very uncertain about what they wanted to do. I had a very strong view about what had to be done. I’m really glad I didn’t go there. I think this is a much more fitting opportunity for me. I think we are much more in control of our destiny here.’
Bird was also offered the job of chief executive of Dutch bank ING recently but turned it down, he says, because interest rates were so low it would have made running a bank extremely difficult. He also reveals how close he came to replacing Mike Corbat as chief executive of Citi, where Bird has spent nearly all of his career since 1998.
‘Mike came to me and said, ‘Stephen, look, I’m going to make a decision for the long term, for my succession.’ And he said, ‘I’ve chosen Jane Fraser, your colleague, to be president, because I think Jane is going to be ready in the future.’ He said, ‘You’re ready now.’
‘I said to him, ‘Absolutely. I am going to choose to leave because I’m going to go and run my own place.’ And I chose to leave on the best possible terms.’
He was wooed to Standard Life Aberdeen by Douglas Flint, the chairman of the asset manager and former chair of HSBC.
The move meant Bird, originally from Motherwell in Scotland, could return to his roots after more than two decades of travelling and living abroad. He says: ‘[Douglas] wanted someone who understood the global opportunity, understood the Asia opportunity, understood digitisation and understood wealth.’
As a former banker, there is speculation that Bird might look to make acquisitions at Standard Life Aberdeen. ‘We’re actively assessing bolt-on capabilities – any good company should actively be doing that,’ he confirms.
Like other companies, Standard Life Aberdeen is trying to adapt to lockdown and the impact of Covid.
‘We were able to have 6,000 people working from home. The only thing I would say is, I was initially told, ‘Oh, everybody’s working from home, it’s fine’. It’s not.’
Bird says he’s changing the office to ensure more people come back. The company has created ‘collaboration zones’ in its Edinburgh office, with whiteboards and socially distanced seating.
The company is redesigning its London office in the same way and Bird says: ‘It’s much more efficient – and it’s a space that makes you want to get out of the house.’
SO WHAT ON EARTH IS A ROBO ETF?
It may have a complicated name, but an exchange traded fund (or ETF for short) is actually a very simple investment.
It’s another word for a robot fund that invests in shares in an index such as the FTSE100.
Robot fund: It may have a complicated name, but an exchange traded fund (or ETF for short) is actually a very simple investment
Unlike traditional funds where a manager picks stocks they believe will beat the market, a computer simply follows instructions to invest in a certain basket of shares, bonds or commodities such as gold.
To buy an ETF, investors purchase a share in the fund through the stock exchange.
Like shares, ETFs can be bought and sold throughout the day.
The annual fee is typically very low – around 0.25 per cent compared to nearer 0.75 per cent on traditional funds – but there will usually be fees for buying and selling through a fund supermarket such as Hargreaves Lansdown or AJ Bell.