RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

Continue Reading

Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

Continue Reading


Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

Continue Reading


Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

Continue Reading


Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Categorized | Financial

Aberdeen: hosting parasitic passives

Posted on November 28, 2016

Existential angst can be a problem for Aberdonians. It isn’t just the long Northern winters. Or the three-nil drubbing the local football team received from Celtic on Sunday in the Scottish League Cup final. Aberdeen Asset Management, the granite city’s investment champion, finds itself challenged by a shift towards passive management as most primarily active investors do.

A 40 per cent drop in full-year pre-tax profits to £222m is a poor advertisement for the group’s specialisation and its accompanying bias towards emerging markets. Revenues fell as investors pulled a net £32.8bn from Aberdeen’s stewardship. Assets under management rose 10 per cent to £312bn. But this reflected acquisitions, of which chief executive Martin Gilbert is a skilful exponent.

The difficulty he shares with other asset managers of an active stripe is the high fixed cost base that comes with employing teams of well-paid stock pickers. That creates financial strains when trends are unfriendly. Aberdeen will pay out 100 per cent of underlying earnings in dividends this year. This is unsustainable. The company has net cash of £548.8m but also has to reassure regulators it can withstand any run on its funds.

The position of all active managers is precarious. Last week a report from the Financial Conduct Authority criticised the high profits made by active managers, which, on average, underperform indices after fees. In the US, one-third of US mutual funds are now passive, compared with one-quarter three years ago.

Index funds are certainly cheap. That is because they are free riders, like our Christmas mistletoe which grows as a parasite on other plants. They only exist thanks to a host organism, in this case active funds. These determine which stocks the indices should include and the relative weighting of each. The proportion of funds managed passively will naturally be limited by rising returns from the dwindling active part of the industry.

The problem for groups such as Aberdeen, which sensibly offers index funds itself, is that this pivot point still appears to be a long way off. Before it is reached, heavy costs cuts will be required, and with them, fund manager job losses.