Aberdeen Asset Management is likely to see its revenues reduced by £12m in 2003 as it will be forced...
Aberdeen Asset Management is likely to see its revenues reduced by £12m in 2003 as it will be forced to either waive or reduce fees on a further eight split-cap trusts, according to Schroder Salomon Smith Barney (SSSB).
Following severe problems within the sector, Aberdeen announced it is waiving management fees charged to two of its splits: Preferred Income and High Income.
Carolyn Dorrett, analyst at SSSB, said the move will reduce Aberdeen's annual fee income by £2m, in addition to an estimated £6m of lost revenues from the reduction in assets under management across the group's split-cap investment trust range.
In assessing the impact of the splits crisis on Aberdeen's 2003 profits, SSSB chose a scenario that reflects the perceived systematic risk within the splits sector, which it believes could result in yet more trusts breaching their banking covenants.
So far, seven of Aberdeen's splits have either suspended their dividends or been restructured to avoid further breaching of their banking covenants.
Dorrett said that, using SSSB's scenario, a further three trusts may face funding difficulties due to significant holdings in other splits.
He said: 'Overall, we estimate Aberdeen's profit before tax in the full year 2003 will be £42.4m, which would represent a year-on-year decline of 12%.'
The difficulties experienced in the splits market have also fed through to the Aberdeen unit trusts that invest directly in the area.
Aberdeen Progressive Growth, its fund of zero dividend preference shares, has fallen 42.9% over the year to 12 March 2002, rating it bottom out of 33 funds in the UK other bond sector.
Gary Marshall, sales and marketing director at Aberdeen, said the fund has considered investing in derivatives and structured products but at present there is not enough liquidity in the market to do so.
He said: 'At the moment, the fund is sitting tight and trying to ensure recovery of value within the existing zeros in the portfolio. There is more benefit to be gained by doing this than trying to get out of the zeros at depressed prices.'
The lack of liquidity in the splits market has also put on hold the planned merger of the Aberdeen Fund of Investment Trusts with the Aberdeen Fixed Interest fund.
Marshall said the merger was meant to take place last September but the sector plummeted just before it was due to go through, so it was decided to hold off as it would be detrimental for shareholders to merge at that time.
The decision to merge the fund into the Fixed Interest fund was taken due to its small size, Marshall said, and the fact it does not really fit into Aberdeen's range of funds.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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