STANDARD Life has highlighted muted demand for its flagship fund as it reported net outflows of £3.7 billion in the first half of the year, while signalling that its mega merger with Aberdeen Asset Management is on track to complete next week.

The Edinburgh-based investment giant’s £11bn tie-up with Aberdeen, due to complete on August 14, is expected to lead to around 800 redundancies from a global workforce of 9,000. With annual savings of £200 million targeted, the enlarged business will have £670bn of assets under administration.

Unveiling interim results ahead of the merger, Standard Life said demand for its flagship for GARS (Global Absolute Return Strategies) fund had been affected by its “weaker” performance last year in the period. Demand from institutional investors was also affected by the Aberdeen merger, admitted chief executive Keith Skeoch, although he emphasised that the performance of GARS had improved in the first half.

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Standard Life declared gross inflows had been “resilient” at £20.7bn over the period, down marginally on the £21.8bn booked at the halfway stage last year. However redemptions climbed to £24.4bn, up from £20.9bn in the first half of 2016, amid £5.6bn of outflows from its GARS fund.

Neil Wilson, senior market analyst at ETX Capital, said Standard Life’s “struggle to stem flows” highlights a problem facing the active fund management sector, adding that Aberdeen has been “suffering net outflows for years.”

And Eamonn Flanagan, analyst at Shore Capital, claimed merger with Aberdeen “still feels like a defensive move by both companies”, aimed at cutting costs and helping the organisations compete with passive investment funds.

However an upbeat Standard Life boss Keith Skeoch hailed the company’s first-half performance, while underlining the potential for growth created by the merger.

Despite the GARS outflows, he said Standard Life had continued to make good progress towards “creating a world class investment company” in the first half, as operating profits rose by six per cent to £362 million and fee-based revenue rose five per cent to £836m.

The company, which said assets under administration (AUA) climbed one per cent to £361.9bn, said there would be an interim dividend of 7p, up 8.2 per cent on last year.

Mr Skeoch, who will run Standard Life Aberdeen jointly with Aberdeen boss Martin Gilbert when the merger goes through, told analysts: “My perspective was this was a strong performance, as evidenced by the continued growth in profits and dividends. Gross and net inflows benefited from a record six months for our retail platforms, and continued steady inflows into workplace. Institutional and wholesale redemptions were impacted by the lagged impact of 2016’s investment performance, which actually came back strongly in the first half of the year.”

He added: “The proposed merger, largely as anticipated, also resulted in slower gross flows, particularly in the institutional channel.

“It’s the diversification of these flows, and the strong relationships we enjoy with customers and clients, combined with continued financial discipline, that provides the foundations for continued strategic delivery.”

Nicholas Hyatt, analyst at Hargreaves Lansdown, said: “There are two sides to today’s numbers. On the one hand profits and dividends have delivered a meaningful improvement. On the other, Standard Life continues to struggle with outflows from the flagship GARS fund, with knock on effects on margins.

“However, these results are really something of a side show. The merger with Aberdeen Asset Management is due to complete on Monday, and a couple of basis point declines in margin here and there will be overshadowed by £200m in cost savings the combination is expected to deliver, equivalent to 34 per cent of Standard Life’s total expenses.”

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