‘Snake Oil Salesman’ Becomes Biggest Money Manager in Scotland

By Peter Woodifield and Andrew MacAskill

July 1 (Bloomberg) -- Being vilified by politicians is a career enhancer if Martin Gilbert is any example.

Gilbert, the chief executive officer of Aberdeen Asset Management Plc, was condemned by a U.K. lawmaker in 2002 as a “sophisticated snake oil salesman” for his company’s part in selling funds that lost 620 million pounds ($1 billion). Gilbert completes a purchase today that makes his firm Scotland’s largest fund manager, with about $230 billion of assets.

“He is an example of someone who confronted the mistakes he made and learned the lessons,” said John McFall, the Labour Party member of parliament who disparaged Gilbert seven years ago. “Martin’s story is relevant to what is going on in the financial industry.”

The rehabilitation of the 53-year-old Scot contrasts with the public outcry against former chairmen and CEOs ranging from Fred Goodwin, who led Royal Bank of Scotland Group Plc to the biggest loss in British history, to Citigroup Inc.’s Charles O. “Chuck” Prince, UBS AG’s Marcel Ospel and Merrill Lynch & Co.’s Stanley O’Neal, who presided over unprecedented losses before their premature departures during the past two years.

Goodwin, ousted last October as the U.K. government bailed out RBS, was grilled by the cross-party Treasury Committee on Feb. 10, with McFall asking him if “hubris on your part” brought down the bank.

“People’s memories are ultimately short,” said Colin McLean, CEO of Edinburgh-based SVM Asset Management Ltd., which oversees about $1 billion for clients. “What has happened doesn’t necessarily rule them out of another role.”

Acquisition Trail

Gilbert led a group in 1983 that bought an investment trust in Aberdeen in northeast Scotland from local law firm Brander & Cruickshank. The trust had 50 million pounds of client money, according to Aberdeen’s Web site.

Gilbert built Aberdeen in less than two decades into a company whose stock market value swelled to 1.1 billion pounds by 2001. He then was responsible for wayward investments that caused Aberdeen to lose more than 95 percent of its value in two years, prompting rebukes from government officials during regulatory probes.

Since then, Gilbert revived the firm by acquiring assets and clients from banks, such as the 212 million-pound purchase four years ago of Deutsche Bank AG’s U.K. fund business.

“We are determined not to make the same mistakes again,” Gilbert said in a telephone interview from a lounge in London’s Heathrow Airport en route to the U.S. to meet fund directors.

Split-Capital Trusts

Aberdeen was the biggest manager of split-capital trusts, a type of closed-end fund in Britain that came under the scrutiny of regulators after 27 of them collapsed.

Gilbert defended himself and his company in July 2002 in front of McFall’s panel of lawmakers. The Guardian newspaper at the time reported how Aberdeen was branded at the London hearing as “the unacceptable face of capitalism.”

Many of the split-capital trusts invested in each other, hastening their demise as the FTSE 100 Index sank to an eight- year low in 2003.

Aberdeen’s stock market value plummeted to 47 million pounds in April 2003 as the company was forced to sell six mutual funds to New Star Asset Management Plc to cover bank loans. The next year, Aberdeen’s sponsorship of the annual Boat Race along London’s Thames River between Oxford and Cambridge universities expired.

In December 2004, Aberdeen paid 78.3 million pounds for an industry-wide settlement of 194 million pounds to reimburse split-cap investors who had been attracted by slogans such as “the one-year-old that lets you sleep at night.”

‘Lucky to Survive’

“We were lucky to survive as a business,” said Gilbert, the son of a rubber planter from Aberdeen, during the telephone interview. “There are not many businesses that took the battering we took and made it through.”

The company no longer sells funds directly to individuals and has retreated from marketing.

Aberdeen today completes its 250 million-pound purchase of 75 billion francs ($68 billion) of assets from Credit Suisse Group AG’s Global Investors unit. Aberdeen will then manage about 140 billion pounds, overtaking Standard Life Plc and Lloyds Banking Group Plc’s Scottish Widows, the Edinburgh stalwarts founded in the 19th century.

The Scottish company will have about 1,850 workers and a market value of about 1.3 billion pounds with the completion of the Credit Suisse deal. Aberdeen’s shares have risen 19 percent during the past six months, while the FTSE 100 Index has declined to 3 percent.

Paying Stock

Gilbert is paying stock to avoid overloading the company with debt. Zurich-based Credit Suisse, Switzerland’s biggest bank by market value, becomes Aberdeen’s largest shareholder, with a 25 percent stake.

It follows the purchase an Australian unit of Deutsche Bank in March 2007 and a distribution agreement in October with Mitsubishi UFJ Financial Group Inc., Japan’s largest lender. That deal enables Aberdeen to tap Japanese investors in return for Mitsubishi buying up to 20 percent of the company.

“Fortunes and empires have always been built in choppy times and taking risks,” said Guy De Blonay, who helps manage about 43 billion pounds at Henderson Group Plc, including Aberdeen shares. “We are going to see more business people who have been bruised trying to regain their reputations.”

To contact the reporters on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net.