Abrdn Targets Red-Hot Private Equity Market to Improve Fortunes

(Bloomberg) -- Abrdn Plc has set up a new unit that will focus on taking equity stakes in companies, becoming the latest investment giant seeking to profit from an ongoing private equity boom.

The 530 billion-pound ($713 billion) asset manager created the new unit after completing a strategic review of its private markets business, according to people familiar with the matter. As part of this initiative the firm is weighing the launch of a stable of private equity funds in 2022, one of the people said.

The funds would be in addition to the firm's established business of placing client money with other managers.

Abrdn is considering launching funds focused on growth equity, impact investing and co-investments next year, with each seeking to raise hundreds of millions of pounds of capital, the person said. No final decision has been taken yet on which strategies to target, the person added. 

Private markets have become hugely popular in the years since the global financial crisis, with investors hunting for high yields in an otherwise low-growth environment. The industry has tripled in size over the last decade and is set to top $1 trillion by year-end, Hugh MacArthur, head of global private equity at Bain & Co, wrote in July. 

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The industry continues to provide a reliable revenue stream for fund managers through fees even as other investment strategies, such as exchange-traded funds, have seen the fees they charge investors cut to almost zero.

Seeking Renewal

The push into private markets is abrdn's latest attempt to revive its flagging fortunes.

The company has seen its assets under management and administration shrink by more than 100 billion pounds since mid-2017, when it was created in a merger between Standard Life and Aberdeen Asset Management.  

Abrdn watched as strong demand for private investment, plus the high potential fees on offer, tempted traditional rivals, including BlackRock Inc. and Schroders Plc, into launching new private market funds in recent years. 

However, managing and owning assets requires a different skillset to picking stocks or running index funds, and replicating the success of dedicated private equity firms has proven tricky. One of the toughest obstacles is attracting talent when competing with some of the best remuneration packages in finance.

Abrdn's new unit aims to streamline decision-making and give senior executives more say over issues like compensation, one of the people said. 

Its private equity strategy is being led by Mark Redman, a former global head of private equity at Ontario Municipal Employees Retirement System, one of Canada's largest pension funds.

At Omers, Redman successfully led an overhaul of the pension fund's private equity program, which saw it shift from investing in buyout funds to doing deals itself.

Abrdn's new private equity unit will work in conjunction with its existing private markets strategy. Historically that unit has focused on investing in funds managed by private equity firms, as well as making co-investments in individual assets alongside these managers. 

Other asset managers have largely steered clear of directly investing in companies. Record inflows of money into private equity have driven asset prices up, causing industry participants to question whether returns are sustainable. 

Stephen Bird, chief executive officer at abrdn, said when he was appointed in Nov. 2020 that he wanted to increase investments in private companies, as well expand its passive business. Growth in the passive sector is yet to materialize, with some recent executive hires having already departed.

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