Abrdn : Annual report and accounts 2023

Annual report and accounts 2023

abrdn plc

abrdn.com

Three years ago, we set out to fundamentally reshape our business.

Against a challenging backdrop, our strategy has formed a company that is better positioned for growth, driven by the evolving needs of our clients and customers.

Our reporting suite

This report forms part of our reporting suite.

Sustainability and TCFD report

The focus of this report is to extend our climate-related disclosure beyond our Annual report and update on other material sustainability topics for abrdn.

Stewardship report

Sets out our application of the 12 principles of the UK Stewardship Code, as investors.

Modern slavery statement

Our disclosure in line with the UK Modern Slavery Act, detailing our work to mitigate related risks.

This annual report and accounts 2023 for abrdn plc, and the strategic report and financial highlights 2023 are published on our website at www.abrdn.com/annualreport

Access to the website is available outside the UK, where comparable information may be different.

APM	Certain measures such as adjusted operating profit,
	adjusted profit before tax, adjusted capital generation and
	cost/income ratio, are not defined under International
	Financial Reporting Standards (IFRS) and are therefore
	termed alternative performance measures (APMs).

APMs should be read together with the Group's consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows, which are presented in the Group financial statements section of this report. Further details on APMs are included in Supplementary information.

See Supplementary information for details on assets under management and administration (AUMA), net flows and the investment performance calculation. Net flows in the Highlights page excludes liquidity flows as they are volatile and lower margin. It also excludes Lloyds Banking Group (LBG) tranche withdrawals in 2022 relating to the settlement of arbitration with LBG.

Contents

Strategic report

At a glance	2
Chairman's statement	6
Chief Executive Officer's review	9
Our business model and strategy	12
Performance overview	18
Our businesses	20
Sustainability	38
Key performance indicators	60
Chief Financial Officer's overview	62
Risk management	76

Governance

Board of Directors	82
Corporate governance statement	86
Audit Committee report	98
Risk and Capital Committee report	107

Nomination and Governance Committee report 111

Directors' remuneration report	115
Directors' report	135
Statement of Directors' responsibilities	141

Financial information

Independent auditor's report	144
Group financial statements	160
Company financial statements	271
Supplementary information	286

Other information

Glossary	300
Shareholder information	303
Forward-looking statements	304
Contact us	IBC

This symbol indicates further information is available within this document or on our corporate website.

Download this report from: www.abrdn.com/annualreport

Highlights	STRATEGIC
REPORT
Adjusted operating profit APM
£249m
2022: £263m
IFRS loss before tax
(£6m)
2022: (£612m)1
Full year dividend per share
14.6p
2022: 14.6p
Investment performance
(% of AUM above benchmark over three years)
42%
2022: 65%
Net flows
(Excl. liquidity and LBG)
£13.9bn
outflow
2022: £10.3bn outflow
MSCI ESG rating
AA
2022: AAA

1. Comparatives have been restated for the HASL implementation of IFRS 17. Refer Basis of preparation in the Group financial statements section.

Annual report 2023

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At a glance

abrdn is a modern investment company that helps clients and customers plan, save and invest for the future

Specialist asset management

Investments

Our capabilities in our Investments business are built on the strength of our insight - generated from wide- ranging research, worldwide investment expertise and local market knowledge.

UK savings and wealth platforms

Adviser

Our Adviser business, the UK's second largest advised platform by AUA, provides financial planning solutions and technology for UK financial advisers which enables them to create value for their businesses and their clients.

interactive investor (ii)1

Powered by the UK's second-largestdirect-to-consumer investment platform, our interactive investor business enables individuals in the UK to plan, save and invest in the way that works for them.

Our clients:

• Insurance companies
• Sovereign wealth funds
• Independent wealth managers
• Pension funds
• Platforms
• Banks
• Family offices

Adjusted operating profit

£50m

AUM

£366.7bn

Cost/income ratio

94%

Our clients:

• Financial advisers
• Discretionary fund managers

Adjusted operating profit

£118m

AUMA

£73.5bn

Cost/income ratio

47%

Our clients:

• Individuals

Adjusted operating profit

£114m

AUMA

£66.0bn

Cost/income ratio

60%

Read more about our three businesses on pages 20 to 37. Overall performance summary is included on page 70.

1. Personal has been renamed ii and includes Personal Wealth unless otherwise stated.

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STRATEGIC REPORT

Our purpose

To enable our clients to be better investors

What sets us apart

A diversified business supporting clients at all financial stages

	Diversified,multi-	Positive and	Embedding
Trusted brands	clientsegment
business model	decisive action to	AI and
with strong
creatingaresilient	strengthen the	technology in
market positions
organisation	business model	the business

	Industry-
Strong	leading platforms	Operating in	Strong balance
commitment to	enabling	markets with	sheet and
sustainability and	enhanced client	structural growth	shareholder
climate action	service and value	characteristics	returns

Shaped by our cultural commitments

We put the client first

We are empowered

We are ambitious

We are transparent

Read more about our culture on pages 48 and 49.

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Our strategy in action

Our strategy in action

At the start of 2021, we set out our three-year strategy to build a diversified business that could be successful through market-cycles. We have refocused on areas of strength, selling non-core elements with lower growth and profitability, and making strategic and bolt-on acquisitions to add high value capabilities.

abrdn has fundamentally transformed. We now have a differentiated value proposition, providing full lifecycle service through our investment content and wealth platforms.

December	February	March	July	September	October	December	January	December
2020	2021	2021	2021	2021	2021	2021	2022	2022

Acquisition of majority interest in Tritax, bringing exposure and expertise in the fast-growinglogistics and e-commercereal estate market. Completed April 2021.

Sale of Parmenion Capital Partners

demonstrating our commitment to simplify our operations and reconfigure our business for growth. Completed June 2021.

Sale of Bonaccord Capital Partners and Hark Capital, simplifying our business in the US.

Acquisition of interactive investor, the UK's leading subscription based D2C investment platform, significantly expanding our Personal business. Completed May 2022.

Purchase of

Macquarie Delaware Funds, adding significant scale to three of our existing US closed-endfunds. Completed July 2023.

Reset our	Standard Life	Acquisition of	Monetised a 4%
relationship with	Aberdeen	Finimize, with	holding in Phoenix,
Phoenix Group	officially becomes	the intention	raising £0.3bn with
with a simplified	abrdn plc, building	to enable it to	the intention to
and extended	on our heritage	become the	return this capital
strategic	with a highly	number one	to shareholders.
partnership to	differentiated	information
manage their	brand creating	platform for
assets until at	unity across the	modern
least 2031, and	business.	investors.
sold them the
Standard Life
brand.

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STRATEGIC REPORT

December	February	February	February	May/	June	July/	October	December
June	October
2022	2023	2023	2023	2023	2023	2023
2023	2023

Completed £300m share buyback.

Commenced in July 2022.

Delivery of Phase 2 of Adviser Experience Programme, one of the largest and most complex changes since we launched the platform, making it faster and more flexible. Further phases will complete in 2024 and 2025.

Sale of remaining shares in HDFC Life and HDFC Asset Management.

Since December 2020, total net proceeds of £2.1bn has been generated through these stake sales.

Sale of US private equity business followed by sale of European headquartered private equity business,

underlining our commitment to exit non-core businesses that no longer align to our overall product strategy. US sale completed October 2023. European sale expected to complete in the first half of 2024.

Completed £300m share buyback.

Commenced £150m share buyback in June 2023, and extended to £300m in August 2023.

Sale of discretionary	Managed Portfolio	Acquisition of the	Proposed acquisition
fund management	Service team	healthcare fund	of four closed-end
business, concluding	moves to Adviser	management	funds from First
that another owner	from Personal,	capabilities of	Trust, cementing
would be better	unlocking greater	Tekla, including	our position as the
placed to invest to	opportunity for	four NYSE listed	third-largest
deliver scale	growth.	healthcare and	manager of
in the business.		biotech thematic	closed-end
Completed		closed-end funds.	funds globally.
September 2023.		Completed	Expected to
		October 2023.	complete H1 2024.

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Chairman's statement

Adapting to succeed in an evolving sector

Context is important when reviewing progress made during 2023.

Last year, many of the headwinds facing active asset managers grew stronger, accelerating our drive to reshape abrdn to be more resilient within and across economic cycles. Notably, the year saw continuation, right across the market, of asset allocations trending away from investment in equities, from emerging markets and from commercial real estate, all reflecting both changes in risk appetite as well as the re- emergence of competing cash and liquidity products with attractive yields, as interest rates rose markedly to combat stubbornly high inflation.

This latter point was particularly relevant as, both in the UK and in the US, investors could capture risk-free returns in excess of 5% for the first time in 15 years at a time of heightened economic uncertainty. Continuing outflows from UK equity funds marked 43 consecutive months of outflow, in part due to the change in risk preference described above. Equally important was the continuing run-off of closed defined benefit UK pension schemes' investment in UK listed equities, as they completed their transition to liability driven strategies or transferred their obligations to the insurance market.

Investment through defined contribution retirement schemes compensated only partially, as contribution rates are significantly lower than those of defined benefit pension schemes and equity allocations there are primarily to global equity products in which UK listed companies are a very small component. Recently released ONS figures illustrate the impact of these structural shifts in asset allocation, evidencing that UK pension schemes and insurers combined held only 4% of UK listed equities, declining from around half in the early 1990s.

This structural shift in the relative importance of the UK institutional market underlines the significance of our recent diversification to get closer to the end investor through investment in our Adviser and ii businesses. As will be noted in our results for 2023, in a weak year for our Investments business, in part due to continued restructuring, our two platform businesses grew their contribution to adjusted operating profit to £232m, thereby contributing 93% of the Group total.

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Macroeconomic and geopolitical backdrop

Investment activity in 2023 also faced challenges from the macroeconomic and geopolitical environments. The horrendous attack against Israel on October 7th precipitated a powerful military response which is still ongoing, with fears of a wider Middle East conflict impacting investor sentiment. This added to concerns over the continuing war in Ukraine. Economically, cost of living burdens in the UK from continuing inflation constrained the flow of funds into retail savings products and indeed we saw some withdrawal from savings pots as household budgets were stretched. With major elections in 2024, notably in the US and the UK, but extending into some 50 countries, the resulting politically charged policy narratives added to investment uncertainty. Helpfully, market levels improved in the final quarter of 2023 as feared recessions seemed less likely and inflationary threats were downgraded leading to markets discounting earlier and larger interest rate reductions than previously expected.

UK Capital Market restructuring initiatives and demographic saving challenges

The decline in UK institutional participation in UK listed equity markets referred to above, together with a decline in new listings in London and UK listed company departures to other listing venues deemed more attractive, precipitated considerable attention from within the financial industry, the media and government. This led to a number of initiatives supported by government, industry and the regulatory community to remove barriers deemed to contribute to a lack of competitiveness, as well as introducing reforms designed to modernise UK capital markets. Of particular note were the so-called Edinburgh Reforms, the Mansion House Reforms as well as the work of the Capital Markets Industry Taskforce and the FCA's proposed listing regime reforms.

As a leading investment business in the UK, we supported these initiatives and believe adoption of the measures contained within them are hugely important to the delivery of a stronger UK economy and a more competitive financial sector environment, through which UK listed businesses can attract both the funding and talent to be more successful. In 2023 we cosponsored a report by the think-tank New Financial that provided an analysis of many of the key issues underlying this agenda and we look forward to playing our part in supporting adoption.

The Mansion House Reforms were also particularly important in highlighting the relatively lower returns in pooled retirement savings in the UK in defined contribution schemes, as a consequence of both the large number of small schemes and a lower risk appetite within such schemes than seen in other leading economies. The savings gap opening up from this low risk tolerance, together with the lower mandatory contribution rates in the UK, risk contributing to a demographic timebomb as current generations of scheme participants are likely to reach retirement with inadequate funds to meet their expectations of a comfortable retirement. Our industry along with our regulators and policymakers need to work together to

ensure people are properly informed of the responsibility increasingly placed on the individual to build adequate funds to support retirement. This is a theme where abrdn plans to have a leading voice and we are positioning our Adviser and ii businesses to play a prominent role; Stephen highlights the steps we are taking in his review.

Progress on delivering on our strategic ambitions and performance in the year

With revenue growth in 2023 expected to be very challenging given the economic and geopolitical backdrop described above, we set one of our priorities for 2023 to eliminate some £75m of costs, excluding that derived from business disposals. In part, this was achieved through consolidating or closing sub-scale funds and sharpening the focus of the investment strategies offered to clients. All of this was achieved and is discussed more fully in the Chief Executive Officer's review.

However, the scale of revenue reduction in 2023 as a consequence of market levels, risk reduction by clients to less remunerated strategies and net outflows in the Investments business far exceeded the cost savings achieved, leading to the continuation of an unsatisfactory ratio of cost to revenues in the Investments business. Performance in our other two businesses was good and in line with our expectations but that good performance was overshadowed by the unsatisfactory profitability within Investments. As a consequence, the Board spent the majority of its meetings in 2023 analysing in detail the shape of the Investments business against market trends and determining what actions were necessary and within our control to rebuild the profitability of the business on a sustainable basis.

This culminated in the announcement made on

24 January that a more significant reorganisation and simplification of the business than previously contemplated was needed to address the ongoing pressure on revenues from changing patterns of asset allocation, in particular the greater institutional adoption of passive and low cost thematic strategies. As announced, the actions planned throughout 2024 and 2025 are designed to take at least £150m from the cost base within the Investments business and from functional costs. Stephen discusses the necessary actions in more detail in his review.

To build a sustainable business and to grow we need to invest at the same time and this requires reallocation of capital resources within abrdn.

During 2023 we completed the disposal of our non-core stakes in HDFC Life and HDFC Asset Management, which augmented our capital position by £576m. The sale of abrdn Capital which was announced alongside our 2022 results completed in September 2023 at the agreed price of £140m adding a further £124m to our capital position. We also completed the sale of our US private equity and venture capital business in October and in the same month announced the sale of our European-headquartered private equity business to Nasdaq-listed Patria Investments. This reshaping of our footprint and capabilities allowed us to focus on

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STRATEGIC REPORT

Chairman's statement continued

business areas where we have better growth prospects and comparative advantage and by reducing complexity, we are reducing costs.

As promised, we reinvested a portion of the capital released through the above disposals to fill out gaps in our Investments business and add technology capabilities and marketing resources in our Adviser and

1. businesses. In October, we completed the acquisition of the healthcare fund management capabilities of Tekla Capital Management bringing into the Group $2.8bn of funds under management and more importantly, adding a distinctive capability in listed healthcare and biotech thematic closed-end funds. Together with other recent closed-end fund acquisitions this positions abrdn as the third largest manager of closed-end funds globally. Investment in our Adviser and

1. business during 2023 to build organic growth opportunities are covered in Stephen's review.

When we reported our results for 2022 we indicated that our intention was to make a similar return of capital in 2023 as had been delivered in 2022, dependent on successful non-core stake realisation and retaining necessary funds for investment; this we have delivered through a further buyback of c£300m of shares and the maintenance of the interim dividend at 7.3p per share. The Board is recommending to shareholders a final dividend of 7.3p per share subject to their approval at the upcoming AGM to bring the total return to shareholders in respect of 2023 to £567m (2022: £595m).

We are updating one of our key performance indicators moving forward, from adjusted capital generation to net capital generation. This metric more closely aligns with the dividend paying capability of the Company over the long term.

Board

As previously announced, both Stephanie Bruce, our CFO and Brian McBride, a non-executive director did not seek re-election at the 2023 Annual General Meeting at which their significant contributions to the development of abrdn were recognised. We wish them both well in the next stages of their careers.

In October last year, we welcomed Jason Windsor as our new CFO. Jason joined from Persimmon plc having spent the vast majority of his career hitherto in financial services. His financial industry experience and expertise were gained notably through 12 years at Aviva, latterly as Group Chief Financial Officer. Prior to that, he spent 15 years at Morgan Stanley in both London and Singapore, rising to be a Managing Director within its Investment Banking Division. Jason has made an excellent start at abrdn, and we all are looking forward to working with him more closely in delivering our strategy.

Catherine Bradley has advised that she will not seek reelection at the Company's Annual General Meeting on 24 April 2024 and will stand down from that date as a Non-Executive Director and as Chair of the Audit Committee. On behalf of the Board and all my colleagues, I would like to thank Catherine for her significant contribution to abrdn and our Board and

Committee discussions. Earlier this year Catherine took on the chair of ii, our direct-to-consumer investments business, and she has concluded she should dedicate her available time commitment to this responsibility. I'm delighted she will remain connected with abrdn through her ii appointment where we will continue to benefit from her breadth of consumer, financial and regulatory experience as we continue to grow ii and the critical role it plays within the Group.

Outlook

Given all current uncertainties, it is hard to form a clear outlook for 2024 and beyond. Our base case assumes no major escalation in global inflationary pressures across the major global economies or an escalation of geopolitical tensions and assumes policy interest rates in the US and the UK have peaked. We assume that, notwithstanding some harsh rhetoric inevitable in an election year, the US-China mutually beneficial trade relationship will remain intact. With the US appearing to be successful in engineering a soft landing after an aggressive succession of interest rate hikes, upside to the global economy rests upon the US maintaining its solid growth trajectory and China resuming its contribution as a key driver of global growth and as a major part of the supply chain in the transition to a lower carbon future. Given other geopolitical tensions, the US- China relationship remains a top issue in the investment world. Their shared global economic leadership has led to an understanding of mutual dependency and notwithstanding tension over high-end semiconductors and critical minerals, the resumption of trade dialogues and senior visits are encouraging for the global economy. Outlook for the UK and the rest of Europe is more muted, with it recently being confirmed that the UK had entered a modest recession; the investment picture is likely to remain cautious given electoral uncertainty and the lagging impact of wage increases and tax changes on consumer confidence.

We enter 2024 with a clear plan of what we need to do to build a sustainable business with good growth prospects and an efficient cost structure; our industry is evolving rapidly as technology enables the offer of ever more sophisticated tailored investment themes and solutions at low cost. Proximity to the end consumer and an understanding of their investment preferences and the route through which they choose to invest will be critical. abrdn is well positioned for this evolution in terms of the mix of our businesses and the talent and financial resources needed to succeed.

Sir Douglas Flint

Chair

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