Aberdeen sued for £165m over split cap fund loss

Aberdeen Asset Management has been sacked as the manager of a property and split-capital investment trust, which is now suing the stricken fund manager for £165m of losses.

Shares in Aberdeen dropped by a third on the news that the Jersey-based Real Estate Opportunities (REO) fund was seeking to recoup the £165m loss on its investments incurred last year.

Aberdeen managed the £128m UK property portfolio and the £15.5m income portfolio of bonds and split-capital funds that made up the majority of the REO trust. The income portfolio lost £165m last year, and after an investigation by the law firm Slaughter & May on REO's behalf, the REO board believes Aberdeen is responsible for the loss.

A statement from REO said the investigation "raised a significant number of issues, which discussions with Aberdeen have failed to resolve". It is understood that the board believes court proceedings are the only way for REO to recover its losses.

The legal action is a major blow to Aberdeen, which is struggling under debts of up to £170m and a shrinking market capitalisation of £78m after five other split-capital investment trusts fell into administration.

Shares in Aberdeen fell 27 per cent, from 61p, to 44.5p on this latest news.

REO has ceased all payment of management fees to Aberdeen on termination of the contract and is withholding payment of the past six months' fees. This loss in fee income, about £3m, will equate to a near 10 per cent drop in Aberdeen's bottom line.

The company is already planning to pay an uplift to investors in its now collapsed Progressive Growth fund.

Aberdeen is also still under investigation by the Financial Services Authority and may be forced to pay fines and compensation if the regulator finds evidence of mis-selling and collusion by its fund managers. Any further compensation payouts would cripple Aberdeen's precarious finances. Chris Fishwick, the disgraced Aberdeen fund manager at the centre of the FSA investigation and the Treasury Select Committee inquiry into the sector, managed the REO trust and sat on its board.

REO has now appointed Investec to manage its portfolio.

Aberdeen said yesterday that REO had no grounds to terminate the contract.

"Whilst sympathetic towards all investors who have suffered from price falls in REO's income portfolio, Aberdeen has at all times properly performed all its obligations," a spokeswoman said. She said the company would "vigorously defend its position", and would continue to press REO for its fees.

The company is trying to sell its property fund management division to help pay down its debts and says it has received around 50 expressions of interest.

The business could fetch up to £100m and an update on the sale's progress will be made next month.