Edinburgh investment giant Abrdn plc confirmed on Wednesday it will axe 500 jobs as part of a “new transformation programme targeting an annualised cost reduction of at least £150m by the end of 2025.”
The programme includes “the removal of management layers.”
Abrdn also confirmed it will soon close its office at 10 Queen’s Terrace in Aberdeen and that all 90 staff there will be asked to work from home.
The investment group reported H2 2023 net outflows of £12.4 billion as its year-end 2023 assets under management and administration fell slightly to almost £495 billion from almost £496 billion at the end of June.
Abrdn said the “transformation programme” is designed “to restore our core investments business to an acceptable level of profitability and allow for incremental reinvestment into growth areas.”
It said the move “marks another step on Abrdn’s journey to align its resources and capabilities to meet client needs and reinforce areas of strength across the group.”
Abrdn published an update on its year-end 2023 assets under management and administration (AUMA) including second half 2023 net flows, and revenue margin guidance.
The firm said: “Going forward, Abrdn intends to provide the market with a trading update, including AUMA and net flows, for the first and third quarters of the year.”
Abrdn 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.
“The new transformation programme announced today, when completed, will deliver a step change in our 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.”
On the “new transformation programme” Abrdn said: “The transformation programme targets an annualised cost reduction of at least £150m compared to 2023, with approximately 80% of the savings benefiting the Investments business.
“This target excludes any cost reduction from previously announced divestments, including the sale of our European-headquartered private equity business.
“The programme includes the removal of management layers, increasing spans of control, further efficiency in outsourcing and technology areas, as well as reducing overheads in group functions and support services.
“The bulk of the savings will be in non-staff costs. The programme is expected to result in the reduction of approximately 500 roles.
“The Investments front office will see a modest adjustment: our focus remains on delivering excellent service and strongly competitive investment performance to all our clients, supported by the group’s strong risk management and control environment.
“A streamlined operations and management structure will enable the Group to deploy its resources more efficiently and improve management accountability.
“The increased profitability will enable incremental investment in the capabilities to deliver excellent customer outcomes.
“Implementation of the programme is expected to take place primarily in 2024, with c. £60m benefit expected to accrue this year and will be completed by the end of 2025.
“To achieve the desired simplification and cost savings, total implementation costs are estimated to be around £150m.”
Abrdn said the slip in AUMA to £494.9 billion “was impacted by £(6.9)bn of corporate actions which primarily related to … disposal of our discretionary fund management £(6.1)bn and US private equity £(4.1)bn businesses … acquisition of the healthcare fund management business, Tekla + £2.3bn, and four closed-end funds from Macquarie +£0.7bn.”
The firm said: “H2 2023 net outflows of £12.4bn represented 3% of opening AUMA. Net outflows (excluding liquidity) were £9.5bn with outflows in Investments and Adviser partly offset by positive flows in Personal.”
On its investments business, Abrdn said: “As we anticipated, during H2, Investments has continued to face structural headwinds. High inflation and geopolitical uncertainty 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 …
“Institutional and Retail Wealth net outflows in H2 2023 were £11.2bn. Net outflows (excluding liquidity) of £8.3bn were driven by equities and fixed income, reflecting the challenging market environment and our exposure to Asia and emerging market solutions …
“Insurance Partners net outflows in H2 2023 were £1.3bn, as strong bulk purchase annuity and workplace pensions were offset by outflows from heritage business, in line with its expected run-off …
“Investments AUM as at 31 December 2023 was £366.7bn, down slightly from 30 June 2023, with positive market movements offset by net outflows and the disposal of the US private equity business in H2.”
On its Adviser business, Abrdn said: “H2 2023 net outflows were £1.5bn. Q3 2023 in particular saw the lowest advised platform market net flows on record1, reflecting economic uncertainty and the impact of the higher cost of living on disposable incomes …
“AUMA ended the year 2% favourable at £73.5bn compared with 30 June 2023 …
“The Adviser Experience Programme technology upgrade is now embedded and operating effectively. The business is expanding its offering for clients through the launch of adviserOS and delivery of the Abrdn SIPP.”
On 2023 full year financial performance, Abrdn said: “Investments AUM as at 31 December 2023 was £366.7bn, marginally below 30 June 2023 (£367.6bn).
“Average AUM in the second half was £362.7bn, and in the first half the average AUM was £372.5bn. In the second half, Investments revenue margin was lower, impacted by outflows in higher margin asset classes, resulting in Investments revenue margin in H2 of 22.4bps compared to 24.6bps in H1.
“Group revenue has been supported by higher interest income including the benefit of changes in the short-term yield curve compared to Bank Base rates.
“For the group overall, Management expects 2023 adjusted operating profit to be broadly in-line with consensus, and adjusted capital generation to be above consensus, owing to higher interest income on the group’s cash balances.”
On the closure of its Aberdeen office, Abrdn said: “Like many companies, we have been rationalising our property footprint as working practices have evolved over recent years.
“There is no associated impact on jobs for our Aberdeen-based colleagues and we will continue to have a team based in the north-east.
“We are working closely with our colleagues to help them transition to the new working arrangements and they will continue to play an important role across multiple departments within the company.”
Martin Gilbert, former co-CEO of Abrdn and also co-founder and former chief executive of Aberdeen Asset Management, told a local newspaper: ““Clearly this is a sad day for the business to have to make these changes, a decision which I am sure will not have been taken lightly.
“It’s only natural to feel for the staff concerned, many of whom I know personally.
“Working from home, supported by the company is a different operating proposition but I hope it allows the team to continue to contribute for the long term in Aberdeen …
“I well remember co-founding Aberdeen Asset Management in 1983 and moving into the office at 10 Queen’s Terrace. It will always have a place in my heart.”