Martin Gilbert bestrides the domestic fund world like a colossus. Aberdeen Asset Management’s purchase of the rump of Scottish Widows makes it Britain’s biggest, and now he has the US giants with their trillions of dollars in his sights. As Aberdeen shares finally pass their previous peak in 2000, before the split-cap fall, it seems the shareholders are behind him.

SWIP’s clearly a snip compared to the silly price paid by Lloyds when it thought its semi-captive account holders would buy whatever investment product was thrown at them. Paying with Aberdeen’s highly-rated paper, plus an earn-out, makes the deal look even sweeter.

There are clear economies of scale in this business as funds are merged. Berenberg’s Pras Jeyanandhan expects earnings accretion of 7 to 12 per cent next year, even before Aberdeen plugs into Lloyds’ matchless customer list.

However, not everyone is convinced. Indeed, if Jason Streets at Jefferies is right, then Aberdeen’s shareholders would be better off today had Mr Gilbert stuck to his original, Singapore-based fund management business.

Mr Streets calculates that in the last decade Aberdeen spent around £1 billion buying asset management businesses which have returned just 5.5 per cent on that capital after tax, demonstrating that, as he says, “it is very hard to make deals in asset managment pay.”

While there are short-term gains, retaining the best stock-pickers is difficult and expensive. If a star manager leaves, the money leaves with him. Invesco has seen £500m drain away since Neil Woodford announced his departure. With two of his colleagues going too, that won’t be the end of the haemorrhage.

The reward for managing money is one of the City’s dirty little secrets. A £1bn fund charging a seemingly-reasonable 1 per cent generates £10m a year in fees. The proportion going to the individuals in charge is seldom disclosed, but few seem to be troubled by today’s inflated levels of executive pay. They have the votes, but are well-rewarded managers rather than owners..

The Retail Distribution Review has forced more transparency on fund costs, and is putting downward pressure on fees, but there’s a long way to go. The old investment adage says that buying shares in the fund manager is better than buying the funds it manages; Mr Gilbert must now show that buying the whole shooting match is better still, whatever Mr Streets says.

You are better off than you think. No, honestly. It’s just that conventional measures fail to show it. When the boffins calculate the nation’s prosperity, they struggle to put a value on technological gains.

You can debate how much Google, Twitter or Facebook do for you, but you can’t argue about the price. Hundreds of millions use them, and none pays a penny for what the New Yorker has dubbed the Gross Domestic Freebie. The stats say that the “information sector” of the US economy has barely grown in a quarter of a century, reflecting the fact that measuring the economic value of search, for example, is much harder than measuring falling sales of the New York Times.

The same effect in Britain might help explain why unemployment here is so much lower than expectations, why the UK’s “productivity” seems so poor, and why the housing market in London is overheating even before the recovery from a deep recession has got going. So cheer up, and log on.

Lies, damned lies, and PPI

So farewell then, Natalie Ceeney, bowing out after four years as Financial Ombudsman. Recently she claimed that we’ve hardly started sorting the great Payment Protection Insurance disaster, estimating that there were 50m of these policies, and that only a tenth of the holders had complained so far.

The first rule of statistics is that if one looks wrong, it probably is. There are only 62m people in the UK; some of us never had PPI and must regretfully tell those nice people on the phone that we’re unlikely to have a claim.

The Bank of England’s £25bn estimate for the final cost of PPI restitution is bad enough, but 50m claims? Sadly, Ms Ceeney will not be there to see whether her scary prediction was more than a cheap headline-grabber.

 

This is my FT column

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