What's going on?

Aye, Scotland! Edinburgh-based investment manager Standard Life is buying rival Aberdeen Asset Management in an �11 billion deal that will create Britain�s biggest investment management firm! (tweet this)

What does this mean?

This deal is an indication of the industry�s challenging environment: most funds that are actively managed (i.e. there�s someone there who picks investments in an effort to outperform the market) have performed worse than the overall market. At the same time, there has been a huge shift of investor money into so-called �passive� funds which simply track the overall market and charge their investors significantly lower fees. The result has been downward pressure on the revenue that �active� investment managers can charge. To combat this, some managers are joining forces with each other (i.e. merging) in order to cut costs and try to protect their profits.

Why should I care?

For the stocks: Investors appear to like the deal!

Aberdeen�s current shareholders will own one third of the new company while Standard Life�s current shareholders will own two thirds. The stock prices of both companies jumped more than 5%, suggesting investors believe in the deal�s rationale.


The bigger picture: The environment for �active� managers is improving � time will tell if it will lead to better performance.

One factor often cited in defense of active management is that the years since the 2008 financial crisis have largely been dominated by big macroeconomic themes, like the extraordinary support that central banks have provided to the market. Such factors tend to influence the entire market rather than individual companies, thus providing fewer opportunities for active managers to differentiate themselves with their stock picking abilities. However, in recent months this trend seems to be reversing with individual sectors performing more differently � meaning the time should be ripe for active managers to outperform. It will be interesting to see if they are able to.