SCOTLAND’S failure to create its own state has directly led to the decline of its economic prowess. This is especially true in the financial sector where, for almost four centuries, tiny Scotland was a global innovator.

As proof, witness the sad decision by iconic fund manager Abrdn – they dropped all the vowels in 2021 – to close its office in the very city which gave it birth and a brand name. Abrdn’s HQ building will be sold, effectively sundering a historic business link with Scotland’s oil capital.

Scotland’s famous asset management business is going the same way as its retail banking – downsizing and losing control to foreign, absentee owners.

There is a supreme irony here because one of Abrdn’s constituent parts – the old Standard Life, as was – deliberately and with political malice aforethought attempted to sabotage the 2014 independence referendum by announcing it would move its operations to London should the Scots vote Yes.

Then first minister Alex Salmond, a former senior economist at RBS, had toiled behind the scenes to reassure the Scottish financial institutions that an indy Scotland would be good for them.

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He thought he had their agreement to stay neutral in the referendum debate. But Standard Life weighed in publicly just before the referendum vote in a clear bid to nix the result.

Unionist politicians practically wet themselves trumpeting the Standard Life announcement. But now it is a case of “Standard Life no more!” “Abrdn almost no more!” “Scotland’s pension and funds industry almost no more!” But then, perhaps that was what the senior managers and owners wanted all along and independence would have stopped them. Talk about duplicity.

But there is more to this. Without a Scottish state to protect it from predatory competition in this new, populist era, the once-great Scottish asset management industry is in sharp decline.

Abrdn is laying off 10% of its workforce. The Financial Times reports that the mood inside the firm is “melancholic”. Investors have pulled out £12.5 billion in funds from the troubled company and funds under management have hit a record low.

Back in 2013, Abrdn was the second-largest fund manager in Europe. It invested savings and pension pots on behalf of savers from the UK and abroad. That meant Abrdn was a key player in international capitalism.

Today, things are different. Rising interest rates have lured investors into cash products, where clients can make a 5% return by simply parking their money. Paying fees to Abrdn only makes sense if the company’s asset managers can provide above-market returns.

Alas, Abrdn has lost its magic touch, and its investments on behalf of clients are performing less well than in the past. This is partly because Abrdn’s traditional investment market in Asia is under-performing as the Chinese economy has slowed precipitously. Abrdn has failed to keep up with these shifts in the global economy.

Abrdn (it’s a truly awful name) is the product of a botched merger in 2017 between Aberdeen Asset Management (AAM) and the much older Standard Life, which was Edinburgh based.

Both companies were seeking scale to navigate churning global markets in the wake of the 2008 financial crisis. But the merger failed to gel because of the marked differences in corporate culture between the two constituent parts.

AAM was headed by the flamboyant Martin Gilbert, who had close ties to Salmond. It was a risk taker. Standard Life, on the other hand, was led by conservative City of London veteran Keith Skeoch.

Gilbert and Skeoch agreed the merger over a burger and chips in the Balmoral Hotel in Edinburgh, agreeing to become co-chairs. Both of their companies were reeling from the new regulations in force since the financial crisis – regulations which had raised costs significantly.

The merger created a European giant that might have prospered with the backing of a supportive Scottish regulator. Or if it had benefited from Salmond, as an independent Scotland’s first prime minister, being able to knock heads together. But the No vote in 2014 saw off that possibility.

Instead, Gilbert and Skeoch and their respective worldviews clashed. Gilbert was a globe-trotter seeking out market trends. Skeoch was wedded to his desk. Gilbert oozed charm (I know, I was sometimes on the receiving end) while Skeoch was a taciturn technocrat.

Eventually, Gilbert was away from HQ once too often and was ousted in a palace coup in 2019. His exit removed the company’s entrepreneurial spirit.

However, the conservative Skeoch was unable to cut costs or rationalise the new company’s inflated internal structure. He himself was soon replaced by a complete outsider from an American bank, Stephen Bird. His first move was to change the company name to Abrdn.

You always know something is deeply wrong with a company when it changes its name, usually for something meaningless. The share price of Abrdn is now 67% down since the 2017 merger and has dropped a whopping 17% in the last 12 months.

The crisis at Abrdn is not the only canker in Scotland’s once dominant asset management industry. Last week Baillie Gifford, another Edinburgh asset manager, announced its own staff lay-offs plus the decision to close down four investment funds.

Famously, Baillie Gifford has invested clients’ money in US high-tech companies such as Tesla and Meta. But rising interest rates have made bonds a more attractive investment and hurt the price of shares, particularly in high-tech. That impacted negatively on Baillie Giffords returns.

Fortunately for Baillie Gifford, US tech shares have been staging a recovery as a result of massive subsidies from the Biden administration – the sort of industrial policy an indy Scotland could pursue.

However, these developments have come a bit late for Baillie Gifford. The weak share price of asset managers such as Abrdn and Baillie Gifford have made them a target for predators. A New York hedge fund called Saba Capital has used these low valuations to grab a stake in various Baillie Gifford listed funds. Saba is an “activist” investor. It buys stakes in companies and funds, then argues for them to be broken up in order to release capital.

Saba is in it for the short-term. Its approach is not patient investment. This could spell doom for what is left of the Scottish asset management industry. An independent Scotland with its own financial regulator could restrain the likes of Saba from buying up Scottish companies and gutting them.

Alas, thanks to the assistance of pro-Unionist managers at the old Standard Life, the Yes case was mischievously distorted by claims that independence would undermine the Scottish financial sector.

In fact, the lack of strong Scottish supervision allowed the Scottish banks to implode from sheer greed and mismanagement.

Now the asset management sector is in crisis. Again, this could have been avoided, or at least mitigated, by strong yet supportive regulation by a Scottish government operating in Scottish interests.

A continuing weaknesses in the SNP prospectus for independence is the ambiguity

over the timetable for creating a Scottish currency – and so for establishing a wholly Scottish system of financial regulation. The events at Abrdn and Baillie Gifford show this is not a decision we can afford to delay.