Abrdn confirms 500 redundancies in cost-cutting ‘transformation plan’ amid £12.4bn outflows

£150m of costs will be cut across the business over two years

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Abrdn will make approximately 500 employees redundant following a sustained period of outflows from the Investments arms of its business, the company confirmed in a trading statement issued this morning (24 January).

Speculation that the business could see its workforce shrink by some 10% was first published by Sky News yesterday afternoon, with a source telling its city editor Mark Kleinman that 500 of 5,000 employees could lose their jobs.

Now, CEO Stephen Bird has confirmed that Abrdn is targeting an annualised cost reduction of at least £150m by the end of 2025, with 80% of these savings being made in the Investments part of the business. The target does not include any previously-confirmed divestments, but does include the “removal of management layers” which will “increase spans of control” for employees. This will be across group functions and support services.

Abrdn added that the front office of its investment arm will “see a modest adjustment”, although it stressed that the firm’s focus “remains on delivering excellent client service” and “strongly competitive performance” to its clients.

The firm will make further “efficiencies” in outsourcing and technology capabilities, with Abrdn stressing that “a bulk” of the savings will be not be made across staff costs.

It was also confirmed yesterday that Abrdn’s ABS managers Scott Duggal and Janaka Nanayakkara are due to depart the firm, as the fund moves to a new team.

CEO Stephen Bird said: “Market conditions have remained challenging for our mix of business, and this is reflected in our year-end AUMA, flow numbers, and margins. The board and I are committed to taking these significant cost actions now to restore our core investments business to a more acceptable level of profitability.

“Although our business model benefits from the diversification that comes from operating three businesses, we will not rest until all of them are contributing strongly to group profitability, as Adviser and Interactive Investor have done in 2023.”

He added the transformation plan will deliver a “step change” in the firm’s cost-to-income ratio.

“We exceeded our £75m cost reduction target for 2023 for Investments, but we recognise more needs to be done. After a root and branch review, we are now re-engineering and simplifying our business model to remove at least £150m of costs – mostly from group functions and support services.

“The programme will largely be implemented in 2024, completing in 2025. These changes will allow us to continue our focus on building a growth business.”

A saving of £60m expected by the end of 2024, while the remaining £90m is due to be slashed next year.

Outflows

The redundancies follow outflows of £12.5bn for the Investments arm of the business during H2 last year, with assets under management and advice standing at £366.7bn. This represents small reduction from £367.6bn at the end of H1 2023, with losses partially offset by positive investment performance.

Abrdn said investor sentiment suffered due to “high inflation and geopolitical uncertainty”, which “continued the trend to cash and de-risking of client portfolios”.

“The industry saw continued net outflows in H2 across global active mutual funds. The changing dynamics and challenges within traditional asset management are well known and we continue to reshape our business to take account of these factors.”

Elsewhere, the institutional and retail wealth part of Abrdn suffered gross outflows of £11.2bn in H2, but net outflows of £8.3bn which the firm said was driven by negative sentiment towards equities and fixed income. The arm also suffered £6.7bn gross outflows in H1, with assets now standing at £211.2bn.

Interactive Investor saw an inflow of £1.4bn in H2 2023 with assets at £61.7bn, while the Personal Wealth arm saw saw outflows of £300m. Assets here now stand at £4.3bn.

Overall, Abrdn’s AUMA is £494.9bn as at 31 December 2023, which includes a £6.9bn reduction due to “corporate actions”, including the disposal of its discretionary fund management arm – which contributed £6.1bn in AUM, and its £4.1bn US private equity business. It also acquired healthcare fund management business Tekla for £2.3bn, and four closed-end funds from Macquarie for £700m.

H2 2023 net outflows of £12.4bn represented 3% of the business’s opening AUMA. Net outflows excluding liquidity amounted to £9.5bn.

Abrdn has been hampered by lacklustre performance for some time, having been relegated from the FTSE 100 to the FTSE 250 index twice in 2023. In its H1 2023 results published in August last year, profits for Abrdn’s investment arm fell by 66% and fund flows plummeted 83% year-on-year.

Credit ratings issuer Moody’s downgraded Abrdn’s long-term issuer rating from Baa1 to A3 due to “idiosyncratic weaknesses in its profile” as well as “industry-wide headwinds.

CEO Stephen Bird has been streamlining the business’s product range and services in a bid to improve profitability, announcing a strategic review in July last year. The operation involved the launch of Abrdn’s Multi-Asset Investment Solutions franchise, which aimed to simplify the company’s product suite, improve performance and clarify performance objectives. This included folding the once-behemoth GARS fund into the firm’s Diversified Assets suite of funds, as well as closing three “other “liability-aware” absolute return funds.

Abrdn has also proposed merging several of its investment trusts over recent months, either with other internal investment companies, or with portfolios outside of Abrdn’s management. These include merging Abrdn Smaller Companies Investment Trust and Shires Income; the winding up of Abrdn China Investment Company into Fidelity China Special Situations; and folding Abrdn Property Income Trust into Custodian Property Income Reit.

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