STANDARD Life Aberdeen has settled a long-running dispute with rival Lloyds Banking Group, with the latter agreeing to pay the Edinburgh fund manager £140 million in compensation for severing a £109 billion asset management contract.
Lloyds announced it was terminating the contract in February last year, bringing an end to an agreement that had seen Standard Life Aberdeen and legacy business Aberdeen Asset Management run the money for Lloyds' pensions arm Scottish Widows since 2014.
Scottish Widows chief executive Antonio Lorenzo said at the time that the August 2017 merger of Aberdeen with Standard Life had resulted in the portfolio being managed by “a material competitor”.
Standard Life Aberdeen disputed the claim and, despite Lloyds agreeing new management deals with BlackRock and Schroders, instigated arbitration proceedings.
Those proceedings ended in March, with a tribunal finding that Lloyds had not been entitled to terminate the contract before the agreed end date of April 2022.
There had been speculation following the decision that Standard Life Aberdeen would pursue Lloyds for as much as £300m to take account of the loss of three years’ worth of management fees.
However, the pair have agreed that £35bn of assets will remain under the management of Standard Life Aberdeen until at least April 2022, while Lloyds will make a payment of £140m to compensate Standard Life Aberdeen for the loss of fees for managing the remaining assets.
Around £30bn of the assets remaining at Standard Life Aberdeen are invested in passive portfolios while the remaining £5bn is in more lucrative real estate mandates.
Standard Life Aberdeen chief executive Keith Skeoch said he was pleased with the agreement, noting that it “represents a fair and positive outcome for both parties”.
“We look forward to building on our relationship with Lloyds Banking Group and continuing to deliver positive outcomes for their customers,” he said.
“The retention of assets in our passive strategies as well as active real estate portfolios positions us to benefit from scale and growth in these growing parts of the asset management industry.”
With the settlement agreed, Lloyds will transfer the other £74bn of assets to Blackrock and Schroders over the next nine months, during which time Standard Life Aberdeen will continue to receive a management fee.
A spokeswoman for Scottish Widows said the business is “pleased to have been able to reach agreement with Standard Life Aberdeen”.
“We will continue to work closely with Standard Life Aberdeen to ensure there is no disruption to performance or service as we begin the process of an orderly transfer of assets to our new partners,” she said.
“There will be no immediate changes for our customers and we’ll keep them updated throughout this process.”
Aberdeen Asset Management was tasked with running the money invested across Scottish Widows’ pension and wealth arms after buying that firm's investment business, Scottish Widows Investment Partnership, in 2014.
Scottish Widows shied away from the deal after Aberdeen joined forces with its pensions rival Standard Life, agreeing to pass £80bn to Schroders and the remainder to Blackrock for a five-year term instead.
As part of that deal, Lloyds and Schroders have established a financial planning joint venture for affluent customers, with the former owning a 50.1% share and the latter 49.9%. It was intended that £13bn of wealth assets run by Standard Life Aberdeen would transfer to that.
Since the dispute between Lloyds and Standard Life Aberdeen first arose the latter has transformed itself significantly, selling its insurance arm to Pearl Group to reinvent itself as an investment business.
Shares in Standard Life Aberdeen closed 1% up at 310.4p yesterday while Lloyds' share price remained flat at 57p.
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