UPDATE 2-Aberdeen assets dip as client withdraws 4 billion pounds

Mon Jul 28, 2014 5:34am EDT

* Assets under management dip 0.6 pct to 322.5 bln stg

* One client withdraws 4.2 bln stg from equity funds

* Market performance helps soften the blow

* Says investor sentiment has improved

* Shares biggest fallers on FTSE 100 index (Adds analyst, shares, background)

By Simon Jessop and Nishant Kumar

LONDON, July 28 (Reuters) - Emerging markets-focused fund manager Aberdeen Asset Management said assets dipped in the June quarter after clients withdrew 8.8 billion pounds ($14 billion), offsetting improved market performance and an uptick in broader investor sentiment.

Aberdeen said in a third-quarter trading statement on Monday that assets under management (AuM) fell 0.6 percent from the previous three months to 322.5 billion pounds, hitting its shares.

Emerging market stocks have risen strongly this year, up around 17 percent, despite investors' fears about the pace of economic growth in China and the prospect of tougher sanctions against Russia over the conflict in Ukraine.

Aberdeen said about half the money pulled, 4.2 billion pounds, was the result of one institutional client withdrawing funds from its low-margin equity products.

The fund manger cited poor performance as the reason, RBC Capital Markets analyst Peter Lenardos said in a note to clients.

The company also saw 3.3 billion pounds leave funds acquired through its purchase of SWIP, the fund arm of Lloyds Banking Group, although much of the low-margin outflow had been expected, Aberdeen said.

Excluding the large client withdrawal, underlying net outflows from global emerging market equities were 200 million pounds, boosted by net inflows of 100 million pounds into Asia-Pacific equity funds.

FTSE FALLER

Aberdeen stock was down 3.2 percent at 0808 GMT, the biggest faller in the blue-chip FTSE 100. Volume was three-quarters of its 90-day daily average after an hour of trade.

That also left the shares on course to post their biggest daily fall in nearly five months, Thomson Reuters data showed.

Before the results, two analysts had a "strong buy" recommendation on Aberdeen, 11 called it a "buy", four were "hold", with just one calling it a "sell" and one a "strong sell", Thomson Reuters data showed.

Rival fund managers Schroders and Jupiter Fund Management, both of which report later this week but which do not have such an emerging markets focus as Aberdeen, were down around 0.3 percent.

Commenting on Aberdeen's single biggest outflow, JPMorgan analyst Edward Morris said in a note to clients that while the company had alluded to it at half-year results in May, the withdrawal was bigger than he had expected.

However, Morris said he rated the stock "overweight" and raised his target price to 520 pence, given the firm's improving revenue margin and strong operating leverage. The shares currently trade around 445 pence.

"It has excellent long-term investment track-records in a number of important product categories," he said.

Aberdeen said the integration of SWIP was on schedule in terms of both timing and expected cost savings and it remained confident of boosting revenue and profit through organic growth, citing a new business pipeline of more than 2 billion pounds.

The fund manager said the effect of the outflows on annual net fee income would be relatively small because margins on the lost business were low. The blended average fee rates charged by its funds remained unchanged at around 50 basis points for Aberdeen funds and 17 basis points for the SWIP funds, it said.

"Encouragingly, investor sentiment towards Asia and emerging markets recovered somewhat during the quarter," Chief Executive Martin Gilbert said in a statement. ($1 = 0.5890 British Pounds) (Graphics by Nishant Kumar; Editing by Erica Billingham)