Aberdeen Eyes Asia, US; No Plans for Degi Sale

ABERDEEN, SCOTLAND-Investment manager Aberdeen Asset Management, after 'changing the guard' at the head of its property division, will deepen its European funds and expand in Asia and US post-crisis. It has no plans to sell German fund business Degi, says incoming head of property Andrew Smith. He succeeds Rickard Backlund who is stepping down to take an advisory role.

Smith, appointed in spring, also says that investment patterns are changing: After the global crisis, UK and US institutions focused on home markets but now are once again looking at cross-border diversification. The group has re-organised real estate activities, playing down its Aberdeen Property Investors brand and integrating more closely into the group. In real estate it manages around $31.6 billion in assets across many markets, with a traditionally strong position in Nordics and UK, plus the large Degi business bought from Allianz in 2008.

“The property team has been part of a wider Aberdeen Asset Management for some time and one of the things we want to do is to really benefit from being part of a wider multi-asset business,” says Smith. His history with Aberdeen has been curious. He joined in 2002 as head of investment strategy and was part of a package sold to investment manager Arlington – taken over soon afterward by Goodman. Aberdeen repurchased the business last year after the Australian manager ran into problems. “I've joined the company twice but I didn't actually leave in the meantime!” he says. 

How does he view the state of real estate investment as he takes over? “I think we have seen a pause in cross-border investing by a lot of property investors. If you look back two or three years, a lot were moving to more of a cross-border approach through pooled funds or funds of funds. It was becoming a much more global industry and in Europe more pan-European. The downturn focused many investors more on domestic markets, with people pulling back a little. But that's changing again now. It was only going to be a temporary setback as part of risk aversion. More European investors are now contemplating raising allocations to foreign property.”

Aberdeen currently manages 15 institutional funds open for investment, of which three are pan-European, six are Nordic or Nordic-country focused, two are UK funds and one targets Germany. It also runs three fund of funds. “Certainly we would like to expand the range,” says Smith. A sale of Degi is not on the cards despite the fact that it, as other German open-end retail fund managers, has encountered turbulence and closures dues to runs on capital. Its Degi Global fund earlier this year re-closed after it was obliged to make sharp valuation writedowns.

“That's not the route we are following,” says Smith. “We are focusing on using the Degi platform for building more of a solid institutional fund management business in Germany. The priority is to make sure we can stabilise the retail funds and the liquidity issues they face on behalf of existing investors.”Turning to current plans, Smith says Aberdeen may eventually fill in its gap with a country fund for France where it already $1 billion invested via pan-European vehicles. Russia, where it dropped plans for a country fund as the global crisis hit, is gradually coming back onto the radar. “After the scale of the downward valuation in Russia of something like 70% peak-to-trough, you can't ignore the fact the market looks fundamentally more attractively priced than a year or two ago.”

One big focus is beyond Europe: Aberdeen is working on its third Asian fund of funds, and looking harder at the US. “I think the enormous opportunity at the international level is segregated accounts; more investors are interested in having their own portfolios rather than going through pooled vehicles,” Smith says. “But beyond Europe, there could be opportunities, certainly in Asia but also North America as well. Aberdeen has a strong presence for other assets classes in North America but we don't have a property platform there yet.” Would the group look at a manager acquisition there? “It's really a case of looking for opportunities that fits the existing business,” he says. “Beyond Europe the opportunity would probably be to buy somebody or work in collaboration with a local manager. As far as Europe's concerned it's more an organic strategy because of the business we've already got.”

Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.