Aberdeen’s Young says Asia CEO handoff won’t trip up firm’s rally

Hugh Young, the longtime head of Aberdeen Standard Investments' money management business in Asia, will pass the baton he's run with for the past 29 years to a successor at the start of March — a handover he's confident won't trip up the firm's recent recovery from a tough stretch of underperformance.

An uneventful transition would be welcome for the Edinburgh-based money management firm — just now emerging from a period of painful outflows in the wake of Aberdeen Asset Management PLC's August 2017 merger with Standard Life PLC.

Late last month, Aberdeen Standard Investments announced that effective March 1, Rene Buehlmann, former head of UBS Asset Management's Asia-Pacific business, will become only the second CEO of Asia the firm's roughly 600 employees in the region have known since Mr. Young established its Asian beachhead in Singapore in 1992.

"I've enjoyed management over the years," Mr. Young said in a Feb. 2 interview, but "I think it's time to pass on to fresher blood."

And the timing for Mr. Buehlmann to take the helm could be "fairly impeccable," he said, with a number of the firm's offerings in the region — including Asian equities, fixed income, multiasset and real estate — sporting healthy three-year numbers again.

Company officials said the firm's global emerging markets strategy is among those bouncing back now. The strategy saw more than $9 billion in outflows between 2018 and 2020 after weak performance between 2017 and 2018 dragged down three-year returns, sending assets tumbling to a low of $16 billion in early 2020 from $44 billion at the time of the merger. But for the 12 months ended Dec. 31, the strategy outperformed its benchmark by 6.44 percentage points, bringing its three-year returns back into positive territory with an annualized gain of 95 basis points. As of Sept. 30, strategy assets were back up to $19.2 billion, according to eVestment LLC.

Elsewhere, ASI's Asia-Pacific ex-Japan and China A-shares strategies strongly outperformed their benchmark by 5.88 and 12.71 percentage points for the year, respectively.

In line with that improvement, "we've had quite a nice amount of money in the door" this year, Mr. Young said. He declined to provide details.

A Hong Kong-based spokeswoman for the firm said Mr. Young's Asia-Pacific team oversaw a combined $36 billion across all asset classes as of June 2020, roughly 6.4% of the U.K.-centered firm's total assets under management at that time.

The pickup in the firm's performance over the past year is providing clients with some reassurance as they digest news of ASI's leadership shuffle.

"There is always a risk" when significant leadership changes occur and it's too early to know what the changes at ASI portend, noted Charles Wu, chief investment officer of State Super, a A$44 billion ($33.9 billion) Sydney-based super fund. He said his team reached out to the firm's managing director in Australia to get a better understanding of the organizational changes afoot.

Still, Mr. Wu noted, "on the actual number front, our investment in the ASI Australian small-cap strategy has delivered strong excess returns since May 2018 (and) last year was high single digits." He declined to say what State Super's allocation to ASI's strategy is at present.

Mr. Young said his part in the revamped lineup — taking on the newly created title of chairman, Asia and focusing on investing — amounts to jettisoning administrative responsibilities he wasn't hellbent on retaining and getting back "to what I enjoy doing."

One Aberdeen executive, who declined to be named, said employees welcomed the news that "Hugh is staying on as chairman" and that a "client guy" like Mr. Buehlmann is being brought in to complement Mr. Young's talents as an investor.

It's always difficult to manage the departure of these "very iconic figures in the industry" but Stephen Bird, the Citibank veteran who became CEO of parent company Standard Life Aberdeen PLC five months ago, seems to be managing Mr. Young's transition "very gracefully," the executive added.

Still, Mr. Buehlmann — or any other executive for that matter — could face challenges taking the reins from someone who's succeeded in quietly establishing a singular money management culture in Singapore over a 29-year span.

"It's not a hard-nosed investment banking culture," Mr. Young said. "It's a fairly — in a sense — free and easy culture, which superficially you could mistake for a lazy culture but actually people work very hard," he said.

The trick is to find "passionate people," Mr. Young said. "You don't need to beat them up because they're passionate and then you can be free and easy and passionate — a nice combination," he said. That kind of environment "allows you to be your own person rather than just having to go for broke on the money side," he added.

The firm's regional headquarters in Singapore is located in a two-story Chinese shophouse near the Raffles section of the city's center — both a short walk and a considerable psychological distance from the skyscrapers that house the vast majority of money managers in Singapore.

The offices, meanwhile, are dominated by Mr. Young's eclectic art collection, giving them as much the feel of an avant garde museum as a workplace.

Mr. Young said he didn't spend a lot of time thinking about how to go about crafting Aberdeen's culture in the region. "It just happened and … as I was employee No. 1 and the boss, I guess it's reflective of me," he conceded, while noting that a firm's culture is forever evolving over time.

Boiling Aberdeen's culture in the region down to its essence, Mr. Young said "it's still ultimately that collegiate aspect — not having stars, working together and being polite to people. In some sense, big elements of it are non-numeric so it's not just 'have you performed well, have your stock recommendations gone up or have you sold a lot.'"

But the poor performance of 2017 prompted ASI's team to "look closely at what we're doing, what we've done wrong," Mr. Young said.

While the central goal of putting together a portfolio of really good quality companies remained unchanged, some choices, like remaining very light in China over governance-related concerns about that country's variable interest entities structure — which allow a public company to retain a controlling interest in an entity without holding a majority of its shares — were re-examined.

It took a long time to get comfortable with VIEs and "we still see the vulnerabilities of those structures but … with the benefits of hindsight, we should have closed our eyes and plunged in regardless," Mr. Young said.

Ironically, Aberdeen Standard Investments' China A-shares strategy has been one of the firm's biggest magnets for investment flows over the past year, Mr. Young said. A spokeswoman for the firm said the fund just reached $6 billion in assets under management, almost double the year-earlier total.

Mr. Young said while retail investors account for some of those inflows, private banks and insurance companies are making allocations as well. When insurers are constructing their portfolios this year, they're saying "let's have 2% or 3% in China. Previously, it would have been zero," he said.

Mr. Bird, the parent company's newly installed CEO, has publicly said that the firm's far-flung money management business, with offices in more than 30 countries globally, can be streamlined to work out of "fewer hubs." On Jan. 28, the company announced that Aberdeen Standard Life's Indonesian office will be shut down by mid-2021. It has 10 offices in the Asia-Pacific region, including Indonesia.

Mr. Bird has likewise backed an expansion of Aberdeen Standard Life's passive, exchange-traded fund offerings, which ASI established a beachhead in with its April, 2018 acquisition of New York-based ETF Securities Advisors LLC's $2.8 billion U.S. business.

Mr. Young, a veteran of active management, called passive strategies a commodity business he can't get excited about. But he conceded that growing opportunities to partner with sophisticated clients, constructing broad portfolios to meet their needs, make it a commodity that a "fully fledged asset manager" has to have.

Looking back at the continued growth of Aberdeen Standard Investments and what that has meant for the money manager's culture in Asia, Mr. Young said while he continues to place considerable importance on things that can't be measured, as "you become a bigger company with human resources teams, people want to rank these things. It's inevitable but that's what I get less passionate about so in some sense I'm quite happy with my new role, stepping away from those elements," he said.

Going forward, Mr. Young said clients and consultants who have known him as the face of the company over the past three decades shouldn't see his decision to step back from a management role as a major source of uncertainty. "I'll still be around as chairman, for what it's worth. The driver obviously will be Rene and I'm there to offer advice if he needs it," he said..