Bloomberg News

Aberdeen Buying Widows Fortifies Edinburgh Before Scotland Votes

November 19, 2013

Aberdeen Asset Management (ADN) Plc’s purchase of Scottish Widows Investment Partnership helps cement Edinburgh’s position as a financial center as politicians spar over whether Scotland should gain independence.

The 560 million-pound ($902 million) acquisition of Lloyds Banking Group Plc’s (LLOY) fund management business will make Aberdeen the largest publicly traded fund manager in Europe by assets, overseeing about 336 billion pounds. More than half of that will be managed in Edinburgh, Aberdeen Chief Executive Officer Martin Gilbert said yesterday.

“We have had a clear declaration about maintaining assets in Edinburgh,” said Colin McLean, who oversees $970 million as managing director at SVM Asset Management Ltd. in Edinburgh. “So from that point of view it’s good.”

Since the 2008 financial crisis, fund management has outstripped banking and life insurance to become the linchpin of Scotland’s finance industry. Along with North Sea oil and tourism, it’s one of the pillars of the semi-autonomous Scottish government’s vision for full independence from the rest of the U.K. A referendum is scheduled for Sept. 18,

Banks, insurers and money managers account for 8 percent of the Scottish economy, employ more than 100,000 people directly and a further 100,000 jobs are dependent on them, according to Scottish Financial Enterprise.

Endorsement

“It’s a ringing endorsement of Scotland as an international financial center,” Owen Kelly, chief executive officer of the lobby group, said by e-mail. “This deal brings about the formation of the largest independent asset manager in Europe, which chimes with the strong performance we are seeing across the asset management sector in Scotland.”

While Scottish Financial Enterprise is officially neutral about independence, it has said there are more questions than answers about issues such as financial services regulation and what currency an independent Scotland might use.

Aberdeen CEO Gilbert has backed Scotland having more responsibility for raising taxes and spending, without saying whether he supports leaving the U.K. A poll published this month showed support for independence trailing backing for remaining in the U.K. by 18 percentage points.

The Scottish government in Edinburgh welcomed the Aberdeen acquisition, it said in an e-mailed statement yesterday. The deal will expand asset management expertise in Scotland and help to develop new markets, it said.

U.S. Railroads

Money management runs deep in Scotland, which developed closed-end funds in the 1870s to help finance the development of U.S. railroads. While about 500 billion pounds is overseen from Edinburgh and more than 800 billion pounds in Scotland overall, it compares with an estimated 5.4 trillion pounds managed in the U.K. at the end of 2012, mostly in London.

Aberdeen, Standard Life Investments and Baillie Gifford & Co., three of Scotland’s biggest fund managers, have grown funds under management rapidly in the past decade. Together with Scottish Widows Investment, they oversee $1 trillion, or 617 billion pounds, of assets today. That’s almost three times the 211 billion pounds they oversaw a decade ago.

Assets at London’s four largest fund managers increased almost 80 percent over the period.

The growth of Scottish asset managers has attracted U.S. fund companies including BlackRock Inc., the world’s largest fund manager, and Bank of New York Mellon (BK:US). BlackRock employs 550 people in its Edinburgh office after setting up a global operations center there in 2011.

That contrasts with the travails of the two largest Scottish banks and its life insurance industry. Royal Bank of Scotland Group Plc received the biggest government bailout of any lender in the world, while HBOS Plc, created by the takeover of Bank of Scotland by Halifax Plc in 2001, had to be rescued by Lloyds, now 33 percent owned by the government.

As for life insurance, 25 years ago Scotland had at least 10 independent companies, mostly customer-owned. Apart from Standard Life Plc, they have all been acquired by other insurers including Aegon NV and Prudential Plc.

“Edinburgh will be a very important center for us,” Gilbert said yesterday.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net


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