Interview: Martin Gilbert
Martin Gilbert, the architect of a company that last year marked its 25th anniversary, looks like a man who is coping with the financial firestorm better than most. He wears an open-necked, slightly ruffled shirt, the large cufflinks cautioning against any hint at being too casual. After all, he has just completed another deal that he describes as transformational, and at a time when many of his peers are keeping their heads below the parapet. The 250m acquisition of the asset management arm of Credit Suisse was one of the last deals of last year and the chief executive believes it was an opportunity too good to miss.
"Let's face it, we are living in really tough times, but you have a choice: take out loads of cost, or do consolidating deals. We are doing both," he says. "What has changed in recent months is that businesses are available and we took a view that this deal would make us financially stronger and a survivor."
That last point has particular resonance for Gilbert, who came close to resigning after the disastrous split capital trust fiasco of five years ago when a number of clients lost a lot of money and he and the firm's standing plummeted to an all-time low. In a subsequent inquiry by the Treasury Select Committee, Gilbert was described by chairman John McFall as a "sophisticated snake-oil salesman".
He takes the criticism on the chin, and jokingly points out that he was not accused of being any old snake-oil salesman. "He did say 'sophisticated', so it was not that bad," says Gilbert, bursting into a self-deprecating giggle. He knows, however, that the crisis and its outcome was no joke. "Those were the dark days. You just hope to learn from it and, oddly enough, it made us as a company."
But as he saw the split cap trusts failing and people losing their investments he thought seriously about stepping down from the firm he founded with two lawyers at the age of 27. "You try to do the decent thing. It was one of those career-changing experiences," he says, recalling that someone had described the select committee hearing as one of the most aggressive there had been. "The irony is that I get on very well with John McFall, who has lifted the committee to new heights."
The company itself was close to going down at that point, though not so much because of the split caps debacle itself, but because it was close to breaching banking covenants. In the end, the banks were supportive.
The crisis may now be history, but like the disasters that struck the nearby church, it can never be forgotten and the rebuilt Aberdeen has emerged as one of the better bets in the recession now blighting the financial services sector.
Gilbert has grown the firm through a mix of acquisition and organic development, though a bid for rival fund manager New Star is unlikely due to the need to raise debt to pay for it. The deadline for offers is tomorrow and despite links between the two firms, including their joint acquisition of Edinburgh Fund Managers and Gilbert's close relationship with New Star boss John Duffield, Aberdeen's name will not be on the shortlist. "We think it will go to a cash buyer and we are unlikely to be interested in it because of our reluctance to take on debt," he says. "It would be a really nice fit for us. We would love to own it because it is a very good business, but our reluctance to take on debt will preclude us from the process."
Even cash is not tempting sellers of assets, he says, including Credit Suisse, which preferred its all-share offer to a rival cash bid from Schroders. Cash is out of favour in the current market as it means selling at the bottom with no potential upside that can be achieved from taking shares that are likely to be near the bottom of the cycle.
The Credit Suisse deal adds 40bn of assets to the 110bn already managed by the firm and will give it greater exposure in a number of markets, notably in Australia and Switzerland. The Swiss bank takes a 25% stake in the company and provides Aberdeen with a huge new distribution base via the second biggest private bank in the world.
Alongside this expansion, Gilbert is taking more cost out of the business and revealed last month that a further 20m on top of 57m already announced would be saved, mainly through natural wastage and reorganisation. Headcount will fall, though he says it will be "at the edges" and in most cases through disposal and non-replacement.
The company reported a slight increase in annual pre-tax profits from 94.3m to 95.1m, which was regarded as an accomplishment in the current trading climate, though Gilbert and his board are under no illusions about the outlook. "There is no question this is going to be a tough year for us. 2010 will have the full benefit of the Credit Suisse transaction, but in the meantime we are doing what everyone else is doing and cutting costs."
Gilbert admits he's no forecaster but points out that it is not his job to be one. He winces when reminded that last July he called the end of the credit crunch, telling an audience of fund managers in Barcelona the sector would "muddle through" and that "we're back to what I'd term normal banking".
That was just a couple of months before the markets went into freefall and a succession of world banks collapsed or had to be rescued by their governments. "I think I was a bit early with my prediction," says Gilbert, letting out another of those excitable giggles and conceding that he was shocked by the severity of the crisis. "The truth is that the ordinary man in the street doesn't understand how close we came to a collapse of the world banking system. It was just unbelievable."
He reserves his comments on the bankers themselves but says he supports the recent action by the Financial Services Authority to lift the ban on short selling while retaining the requirement for disclosure and a warning that it could re-impose the order. "I am not against short selling but they have to disclose. There is no question in my mind that it is too easy to make money by shorting a bank on rumours."
As for other corrective action that may now be required to restore greater confidence, Gilbert says he is "hot" on corporate governance and the firm has become a more active shareholder in recent times in monitoring companies and in voting. "We are a big investor and there is inevitably more pressure on us to be more involved in corporate governance in these companies. Good corporate governance leads to good companies," he says.
"We are not at the activist end on corporate governance, but we are moving up from being completely passive. We are more actively involved than five to 10 years ago.
"At that time I don't think we voted (at annual meetings and on other issues], and only if we had an issue. About 40% of shareholders didn't vote. It was seen as an administrative burden, but there is a growing trend for institutions to vote, especially the long-only guys like us."
This response to a new era of greater transparency and accountability coincides with the arrival of a new chairman for Aberdeen, Roger Cornick, a board member since 2004. He takes over from Charles Irby who, as Gilbert says, "has done his nine years" and leaves the firm in experienced hands.
"Roger was instrumental in building Perpetual (where he was deputy chairman], so he is very knowledgeable about the asset management sector." He says the board was keen to appoint someone with the relevant experience and Gilbert believes this encapsulates the new corporate mood in hiring non-executive directors. "It was a factor in the demise of the banks, wasn't it? Not enough bankers on the bank boards."
He also has firm views on the input of non-executive directors. "They should be questioning when things are going well and supportive when things go wrong. Too often it has been the other way around," he says.
"The time to be asking questions is during the good times, not when the proverbial hits the fan. They accept at face value that everything is hunky dory and this is exactly the right time to be questioning if that is the case."