INTERVIEW: Aberdeen's Vanhanen keeps his eyes on core

Pertti Vanhanen, global head of property at Aberdeen, has his eyes firmly fixed on core investments despite rising prices in this segment.

The acquisition of SWIP from state-backed Lloyds Investment Group in November last year added £132 bn of assets to Aberdeen Asset Management's platform, propelling it into the largest listed investment firm in Europe.

The recent merger has also improved the revenue mix of the business from 75% sourced from equity clients to a 60:40 split between equities and the three other capabilities, Vanhanen said. ‘Last year the sell-off of emerging market equities had a negative impact on our revenues so it’s good that the business is better balanced now. Encouragingly we’ve seen inflows of around £200 mln into one of SWIP’s UK property funds following the completion of the acquisition,’ he added.

So far this year, Aberdeen has invested €1 bn in property in Europe, including the UK, compared to €1.5 bn last year. ‘We don’t have a set target for the year,’ Vanhanen said. The biggest deals so far this year include SWIP’s purchase in January of Windsor Shopping centre for £103 mln and the acquisition of a residential asset, Chausseestraße, in Berlin for €88 mln.

'Over the past two years, Aberdeen and SWIP together have accounted for €3 bn of acquisitions and disposals (Aberdeen does not publically break them down). We have also disposed of some assets from the DEGI fund.’ (Aberdeen bought German fund manager DEGI for €110 mln in 2007.)

Vanhanen was quick to dismiss concerns voiced by some analysts that the acquisition might have been a mistake for Aberdeen. Some analysts have claimed that the takeover has had a negative impact on the group’s business, citing Aberdeen’s fall in first-half profits as clients moved money out of emerging markets.

Aberdeen’s underlying pre-tax profits fell 3% to £217 mln in the six months to 31 March 2014, broadly in line with City forecasts. Assets under management dropped 5% to £190.4 bn, excluding funds brought in by SWIP. Revenues fell 2% in the period to £503.5 mln, due to net outflows of £8.8 bn, with clients pulling their money out of core emerging market equity funds amid fears that the Chinese economy was slowing, coupled with concerns regarding Fed tapering in the US.

CORE FOCUS
Following the merger, Aberdeen will continue to focus on core assets. ‘The investment climate is challenging at the moment because core property in gateway cities in Europe has got expensive. Core property remains our top priority. There has been a rush to value-added assets for many investors but, so far, we don’t really see the need to do that. Our basic platform remains Aberdeen and, in addition, we have incorporated good ideas from SWIP. We still have a risk-averse approach to investment – that’s in our DNA,’ said Vanhanen.

Retail assets are high up on Vanhanen’s wish list, particularly shopping centres that are anchored by a supermarket. Aberdeen is also targeting offices in second-tier cities across Europe, as well as prime logistics, due to their good returns. ‘Ultimately, the geographical allocation is less important than the deal itself. We don’t exclude many markets – other than Southern Europe right now. The question you have to ask yourself is whether you can find a better opportunity, say, in a secondary city in Germany than in the centre of Madrid and the answer to that is probably ‘yes’,’ Vanhanen said.

Going forward, Aberdeen would like to invest more in the Nordic region, which is performing well, as well as Germany, France and the Netherlands. ‘We already have dedicated residential funds in Germany and Sweden and we are open to launching similar funds in other European markets if we find the right opportunities. We are hoping to launch another fund in Europe later this year but unfortunately we’re not in a position to talk about it yet,’ he said.

One existing fund garnering investor interest, according to Vanhanen, is Aberdeen’s European Balance fund, a euozone fund investing in markets such as Germany, France, the Netherlands and Finland.’ It has been avoiding Southern Europe because we think we can find better opportunities elsewhere,’ said Vanhanen. The fund has outperformed over the past three years returning 3.8% per year compared to the IPD benchmark average of 1.5%.

Sara Seddon Kilbinger
Correspondent German-speaking countries and UK