The Scotsman Who Can’t Stop Making Deals
“That’s where I sat. That’s where it all began.” Martin Gilbert is pointing to the spot where his desk was when, in 1982, he joined the old-line law firm of Brander & Cruickshank in Aberdeen, a granite-gray Scottish city facing the North Sea. The space he worked in doubled as a boardroom, so Gilbert would regularly have to step outside when his superiors gathered for their monthly meetings.
That didn’t last long.
In less than a year, Gilbert and two colleagues mounted a contentious buyout of the law firm’s investment trust unit. The deal would prove to be only the first of more than 40 that Gilbert, now 62, would undertake during his career in finance. At the end of four quarters, Aberdeen Fund Managers Ltd. boasted eight employees and a gross profit of $112. The little Scottish startup would eventually become Aberdeen Asset Management Plc, one of the U.K.’s largest money managers, its headquarters in London but its roots in Aberdeen.
It all went swimmingly—until it didn’t. Gilbert has navigated at least 16 market downturns, but nothing hammered his reputation as much as a 2002 parliamentary investigation into so-called split capital trusts, with one legislator accusing Gilbert of selling snake oil. Gilbert survived to steer Aberdeen through the financial crisis, and in 2012, with about £174 billion ($234 billion) under management, the company made it onto the FTSE 100 Index, affirming his ambitions.
That same year, however, Gilbert sensed danger. “I knew everything was going too well,” he recalls. “Emerging markets were flying high, and money was flooding in. I just kept telling the board to prepare for something, that it’s all going to change.” He was right. Bond purchases had been fanning a bull market in emerging economies where Aberdeen had bet two-thirds of its assets. When it became evident the U.S. Federal Reserve was going to enact policies that would curb the bond spree, markets lurched.
Investors began yanking billions of dollars from Aberdeen. By mid-2013 the firm had lost more than $5 billion, then an additional $7.2 billion by January, and a further $6.8 billion by the following June. And that was just the start. All the while, passive funds were siphoning investors from active ones such as Aberdeen. Clients would continue to pull money for, as Gilbert puts it, “four desperate years,” during which he would scramble to manage costs and diversify the business. It would be his last crisis as chief executive officer of Aberdeen Asset Management.
By January of this year, Gilbert had come up with a plan. He and Keith Skeoch, the CEO of Standard Life Plc in Edinburgh, agreed to do a deal. Skeoch, a fishing buddy and friend of 30 years, had also experienced massive withdrawals from his flagship funds. In March the two men announced an all-share transaction that would give Standard Life a 66.7 percent stake in the new, combined company, Standard Life Aberdeen Plc. The rationale for the Aberdeen-Standard Life union—strength in numbers, economies of scale—was pretty straightforward.
What’s much less straightforward is its management structure: The fishing buddies will be co-CEOs. This decision was something of a wet blanket in financial circles. “I would have thought that having one CEO would be better,” says Mark Dampier, research director at Hargreaves Lansdown Plc, a financial-services company, who knows both men. “But it depends.” Although two executives successfully ran Dampier’s company for years, he says he’s always found it “a bit strange” to have two heads of business. Gilbert and Skeoch being so different, however, could be a winning combination. “Martin comes more from the business side,” he says. “Keith is an investment man—which is why it might just work.”
To address concerns, Gilbert and Skeoch have sought to clearly delineate their roles at the new company. Skeoch will manage day-to-day business operations, according to a company announcement specifically addressing the qualms; Gilbert will be responsible for “external matters” such as client engagement, marketing, and business development. “Those that know us know we’re very different,” Skeoch has said. “And do you know what? That’s why we get on. … We’re complementary.”
In July, Gilbert has just returned from Dundonald Links on Scotland’s southwest coast, where Aberdeen Asset Management, by then in its final days, sponsored the Scottish Open. He’s upbeat about the co-CEO arrangement with Skeoch and pokes fun at himself. “He’s much more thoughtful than I am on things like pension reform or MiFID II,” Gilbert says, dressed casually in chinos and a white shirt with a sweater sitting askew on his shoulders. “That is where his strengths are, whereas I can just bullshit better than he can.”
The down-in-the-weeds nitty-gritty of fund management hasn’t interested Gilbert as much as the big, bold brushstrokes since early in his career. Born into a Scottish rubber-planting family that had settled in Malaysia, Gilbert returned to Scotland for his schooling and then went on to the University of Aberdeen, where he got an undergraduate degree in law and a graduate degree in accountancy. He hasn’t actually managed money himself since 1986, when he began running the business full time.
The rise of Gilbert and Aberdeen was one of the great success stories in British finance. And yet over the company’s 35-year history, it’s lurched from one crisis to another—from the crippling departure of its largest client, Aberdeen Trust, in 1985 to the so-called taper tantrum in 2013 that led to the barrage of client redemptions that still persists.
Gilbert’s lowest moment came when he was summoned to appear before the U.K. Parliament’s Treasury Select Committee in 2002 after the dot-com bubble burst, wreaking havoc on Aberdeen’s funds. John McFall, committee chairman at the time, said Gilbert and Aberdeen, the largest purveyor of split capital trusts, were no better than “sophisticated snake-oil salesmen.” The sting of opprobrium has since faded. “I’m pretty thick-skinned,” Gilbert says. But was the criticism deserved? “Yeah, I think so. You’re never as bad as people say you are. And you’re never as good as people say you are.”
At the time, many players in the City, London’s financial district, had written the CEO off, but he managed to cling on. “I never saw him panic, nor, no matter how dark the hour, saw him lose his sense of humor,” says M&G Investments CEO Anne Richards, who worked with Gilbert for 13 years at Aberdeen. “I think both of these things are invaluable lessons for leadership.”
Gilbert says he learned other lessons over his career. He nurtured a deep distrust of market excesses that would help prevent Aberdeen from making the same mistakes in the next bull market. And he piloted the company clear of high-debt instruments such as collateralized debt obligations that would engulf other fund managers.
Some of his best moments, he says, have been calling the market out. At the Fund Forum Conference in Monaco in 2006, he warned that CDOs would blow up; three months later, he recalls, “the things started dropping like flies.” At the same gathering the next year, he told the audience to be wary of the credit default swaps market. Sure enough, “the next thing, AIG goes bust!” he exclaims, recalling the collapse of the insurance giant. He jokes that after 2007 the conference organizers “didn’t invite me back for a while.”
As for where the next crunch might come, Gilbert singles out the entire asset management industry, which he says is overcrowded. This leaves open the possibility that the Aberdeen-Standard Life deal is not the last he’ll be doing. In fact, he says he still has his sights on the U.S. market. He doesn’t like being called a dealmaker—“I think of myself as a business builder,” he says. But he has a history: He doubled and then quadrupled Aberdeen’s assets through mergers and acquisitions.
Before Gilbert hashed out a deal with Standard Life’s Skeoch, Aberdeen explored the possibility of getting bigger but staying independent. Gilbert’s team sniffed around in Europe, dropping out of an auction to buy Pioneer Investments in Milan after balking at the price, and in the U.S. briefly considered the acquisition of Legg Mason Inc., people familiar with the matter say.
In the end, Gilbert sidled up to Skeoch and Standard Life. Gilbert, big on bigness, is keen to position Standard Life Aberdeen as the No. 1 active asset manager in Europe. He pushes Amundi SA, which manages $1.5 trillion, out of the picture, arguing that the comparison is unfair because Amundi is owned by a bank, Crédit Agricole SA.
Standard Life Aberdeen oversees about $900 billion. That’s not quite enough for Gilbert, but he’ll need Skeoch’s help reaching his goal. Fortunately, his old fishing buddy might be just the guy to help make their unorthodox CEO arrangement work.
Gilbert is sitting behind a huge oak boardroom table that once graced the old Aberdeen Stock Exchange. “If you’re not in that $1 trillion club,” he says, “you’re not really up there. You’ve got to be bigger. You’ve got to be better.”
Jones covers U.K. finance and investing for Bloomberg News in London.