Wilson: We want to double LGIM's market share

Nigel Wilson, chief executive of UK insurer Legal & General, hailed “record” results for the group’s asset management division as he set out a target for the near-£750 billion unit to double its global market share in the next decade.

Nigel Wilson, chief executive of Legal & General

Nigel Wilson, chief executive of Legal & General, wants to double the group’s market share in asset management by 2025

Legal & General Investment Management pulled in a net £38 billion of new inflows during 2015, the company said at its full-year results briefing on March 15, taking assets to £746 billion. The division also increased operating profits by 11%, to £355 million for the year.

Speaking on a conference call with analysts, Wilson said the “headroom for future growth” in asset management was “really striking”.

He said: “We are the 15th largest asset manager in the world but that gives us a market share of just 1% of global assets. Our ambition is to grow market share to a mere 2% by 2025 – that seems realistic over the next decade.”

Wilson also said the firm’s 2015 results underlined the fact that L&G is becoming more of an asset manager than an insurance firm: “Today we are substantially an asset gatherer, asset manager and asset originator.

“Across our three asset management businesses – Legal & General Investment Management, Legal & General Retirement and Legal & General Capital – we made £1.23 billion in operating profit in 2015, compared to £376 million achieved in insurance in the UK, the US and Asia.”

LGIM reported net inflows across “every client segment, region and product level” in 2015. Flows were also boosted by LGIM’s acquisition of Aerion Fund Management, the manager of the £12 billion National Grid Pension Scheme, and the resulting transfer of the mandate to manage these assets in the fourth quarter of 2015.

Overall, LGIM’s liability-driven investment and multi-asset funds attracted a net £27.9 billion during the year, accounting for the majority of net inflows. The firm’s active fixed income funds pulled in a net £6.8 billion – Wilson said 95% of these funds had outperformed their targets in 2015.

Mark Zinkula, chief executive of LGIM, said: “We are continuing to see a lot of activity in the LDI space. With volatile markets in the first part of this year, it will not be a straight path. But different kinds of hedging activity will occur and I expect this market to stay relatively healthy over the course of the year.”

Zinkula also highlighted his division’s improving performance in the retail funds market; the firm had net inflows of £1.2 billion in 2015 and was ranked sixth for UK retail net sales. He said: “We have rationalised our product offering and we expect to continue to grow our market share. We are doing well in passive but also in multi-asset and property.

“We have an outstanding fixed income team and they have not really been marketed in retail. So that will get focus.”

Despite growth in retail, L&G is exploring a sale of its Cofunds division, which is the UK’s largest mutual funds platform or supermarket, according to a person familiar with the firm.

L&G has not confirmed this and gave no update on this on March 15, but in response to one analyst’s question, chief financial officer Mark Gregory said L&G’s platform businesses were “cash generative for L&G, but not stunningly so”.

LGIM also contains the L&G group’s fast-growing defined contribution business, which has two business lines: it manages assets for external DC pension plans and sells L&G-branded DC plans to UK companies.

The latter business is newer and has struggled to make a profit. L&G said in its results briefing that the unit “delivered a breakeven result” in the fourth quarter and “the operating loss was reduced to £4 million for the year”, an improvement on a £15 million loss in 2014.

Wilson also praised the division for winning contracts to run pension plans for John Lewis and Tesco during 2015 – the latter is “the largest corporate pension scheme in Europe by number of members”, he said.

The insurer’s direct sales of individual annuities to consumers fell sharply last year, from £591 million in 2014 to £327 million in 2015, following the UK Chancellor’s reform in March 2015 that meant consumers no longer have to use pension savings to purchase them.

As a consequence L&G has prioritised bulk annuities – which involves acquiring, bundling and then managing down large books of annuities – but its deals in this field also dropped sharply by value in 2015, from £6 billion to £2.4 billion.

Kerrigan Procter, head of L&G Retirement, said L&G had signed two very big deals in 2014 – “ICI at £3 billion and TRW at £2 billion”.

He added that in 2015 the company had “closed really the same number of deals” but with a lower cash value. He said: “I focus really on capital and profitability, not so much the fluff in the middle, which is volumes”.

Wilson and Procter also said the company sees “plenty of opportunities” to acquire and consolidate books of individual annuities that are no longer wanted by other companies.

Wilson said: “Broadly, [running these books] relies on the same skills as bulks; you need administration, asset management skill and expertise in longevity risk. We have 550,000 individual annuity holders ourselves. We will pick between the best individual back-book deals, the best bulk-annuity back-book deals and the best front-book deals.”

International expansion is also a priority. Reacting to the results this morning, Steve Clayton, the head of equity research at Hargreaves Lansdown, said: “International expansion should open up further opportunities for the group.

“In October, L&G signed its first bulk-annuity contract in the US. The US defined benefit market is four times larger than the UK and demand for de-risking solutions is growing rapidly. The deal gives L&G an important foothold in this market and the opportunity to build its market share.”

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