Fund management veteran Martin Gilbert has spied an opportunity thanks to the structural challenges faced by the larger firms in his industry and is looking to capitalise by executing a buy-and-build strategy using the recently revamped AssetCo (ASTO:AIM) vehicle.

Gilbert, the founder and former CEO of Aberdeen Asset Management now part of the renamed Abrdn (ABDN) after the merger with Standard Life in 2017, told Shares in an exclusive interview that he believes that thematic ETF’s and advisor platforms are two segments of the industry well placed to grow.

In addition Gilbert, as chairman of AssetCo, is targeting strategic acquisitions of undervalued asset and wealth management businesses. To date AssetCo, which was created from a cash shell in early 2021, has made three acquisitions which span these different categories: thematic ETF provider Rize, financial adviser technology and investment solutions platform Parmenion and specialist Edinburgh based fund manager Saracen.

Given Gilbert’s impressive track record of acquiring businesses at Aberdeen (assets under management increased from £95 billion in 2007, to £500 billion in 2017) investors should back this new venture at £15.50.We believe he can replicate his previous success by leveraging his extensive network of contacts and breadth of experience.

WHY THE FUND MANAGEMENT INDUSTRY IS UNDER PRESSURE

Gilbert believes that the outlook for the larger fund managers is a challenging one.  Fee compression has resulted from the continued shift of assets out of active and into passive management. Another impediment has been the effect of money moving out of public to private markets.

He says: ‘Although the big asset management firms have attempted to re-engineer their businesses to be more prominent within private markets, it continues to be dominated by leviathans like Blackstone.’

This is significant because the assets being moved are considerable. It has been estimated that about 5% of world assets are in the process of being moved from public to private markets.

AssetCo’s deputy chairman and CEO Peter McKellar was head of private markets at Standard Life Aberdeen.

The AssetCo strategy is about navigating the challenges facing the sector by being a ‘fund manager of the future’.

PLATFORM OPPORTUNITY

Gilbert acknowledges that the recently acquired Parmenion, which started life as an independent business in 2007, and was acquired by Aberdeen Asset Management in 2016, was somewhat neglected under the auspices of Aberdeen primarily because it already owned two larger platforms.

There are several reasons to believe that Parmenion will thrive under the new combined ownership of AssetCo and Preservation Capital Partners.

The advisor platform space is one of the most attractive sub-sectors within the UK wealth management industry and Parmenion has consistently achieved market leading adviser ratings.

It has a competitive price offering and proprietary technology with rich functionality. Only 50% of clients currently take a full discretionary fund management service, with another 20% taking a partial offering. Consequently there is a significant opportunity to increase the group margin through upselling.

The business is highly scalable, with sticky assets and recurring revenues. There is also considerable scope to broaden the product offering to include ETFs and difficult to access areas like private markets.

PASSIONATE ABOUT THEMATIC INVESTING

Gilbert is passionate about the long-term growth opportunities for thematic investing maintaining that ‘there is definitely a massive interest in thematic investing especially amongst the next generation’.

This enthusiasm prompted AssetCo to acquire a 63% stake in thematic ETF issuer Rize for £16.5 million in cash in July. It also committed a further £5.25 million to fund the growth of the business.

One notable point of differentiation between Rize and its counterparts is that the former develops its thematic strategies in house, working with thematic sector experts. This is in marked contrast to many other ETF providers, who licence off the shelf indices.

Rize currently has five ETF’s available to the market. These included Rize Sustainable Future of Food (FOOD), Rize Cybersecurity and Data Privacy (CYBR), Rize Medical Cannabis and Life Sciences (FLWR), Rize Educational Tech and Digital Learning (LERN) and Rize Environmental Impact 100 (LIFE). There are plans for an additional three launches later in 2021 based around digital payments and crypto currency, and emerging market e-commerce.

The three dominant players in the ETF industry – Blackrock, Vanguard and State Street – have been slow to launch thematic ETFs. This has created a window of opportunity for the smaller specialist providers like Rize.

However given their considerable resources and distribution power these operators could pose a considerable threat to Rize if they entered the thematic ETF space in earnest. Gilbert is aware of this threat. ‘Hopefully you creep under the radar and get to a reasonable size before you are noticed,’ he says.

LOOKING FOR VALUE IN ACTIVE MANAGEMENT

Gilbert believes there is significant value in active managers too and insists that he is ‘a great believer in active equities’, albeit with some key caveats, ‘as long as you perform obviously, and as long as you are a boutique you have a really good chance of doing well’.

Saracen was acquired by AssetCo for £2.75m in May 2021 and is a good example of the type of business Gilbert is interesting in buying.

‘It is sub-scale, has good performance and hasn’t really grown because it’s too small and is unknown,’ Gilbert says.  One of the additional appeals of acquiring the Saracen business is that it has all the necessary FCA authorisations to manage funds in the UK.

In the short term Saracen could benefit from AssetCo’s broader distribution capabilities but longer term the objective will be to leverage the business authorisation, network and brand as a platform to build a more diversified specialist active equities business.

Gilbert notes there are other examples of asset managers which are performing well but are struggling to secure inflows, observing that this is ‘often because the founder or CEO is an investment led individual with good numbers, but they don’t understand why their performance is not selling, but performance needs to be sold it doesn’t sell itself’. This is where AssetCo believes it can add value.

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