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Legal & General’s new chief executive António Simões has unveiled a major overhaul of the insurer, including putting its housebuilding business up for sale, announcing the departure of its asset management chief and a new shareholder return strategy, starting with a £200mn buyback.
Simões promised a “simpler, better-connected L&G” on Wednesday, in his first big strategy announcement since he joined the group in January from Santander.
The changes include creating a single asset management division that will bring together Legal & General Investment Management, the UK’s largest asset manager but L&G’s smallest division by operating profit, and the group’s alternative assets unit, Legal & General Capital, which invests shareholder money in assets such as infrastructure and building projects.
It is also putting some non-core assets up for sale, notably its housebuilder Cala. As a result, the group said it would return more than previously planned to shareholders over the next few years, through a mixture of dividends and buybacks.
Analysts at JPMorgan welcomed the shareholder return plan, but RBC Capital Markets said new targets for how much surplus capital L&G would generate were behind consensus.
“This prompts the question on the affordability of the promised shareholder returns,” RBC analysts wrote.
Shares in the group fell 5 per cent in morning trading, against a small rise in the FTSE 100.
As part of the overhaul, Michelle Scrimgeour will step down from her role as chief executive of LGIM. The group said it had begun its search for a replacement.
Scrimgeour will stay on until a successor is found and will lead the setting up of the new combined division with Laura Mason, who has been made chief executive of private markets in the new division.
The FTSE 100 group also wants to expand in the fast-growing market for corporate pensions deals, where companies pay insurers to take on their pension liabilities.
L&G is aiming to complete up to £65bn of pension deals in the UK by the end of 2028. It agreed £13.7bn globally last year. However, the business is unpopular with some investors for being capital-intensive and hard to forecast.
The group also wants to increase its assets under management in private markets for third-party investors, and expand its workplace pensions business.
Overall it is aiming to deliver compound annual growth in its core operating earnings per share of between 6 and 9 per cent until 2027.
Fahad Changazi, analyst at Mediobanca, said there could be cultural issues with merging LGIM, which is “like a great British institution”, with Legal & General Capital, which is “more like a hedge fund”.
Peel Hunt said the asset management overhaul would be Simões’s “toughest challenge”, with a new CEO for the division needed “as soon as possible”.
On a media call, Simões told journalists there were opportunities to avoid cost duplication between the two units, but that did not include job cuts. “This is a growth plan and we are investing to grow the business, so this is not about redundancies,” he said.
In March, Simões promised to develop a “simpler investment case” for the group. Under his predecessor Sir Nigel Wilson it had focused more on investing in “socially useful” assets such as science parks and affordable housing. Simões said on Wednesday that the group’s “sense of purpose” would remain central to its strategy.
Shares in L&G are down 7 per cent overall this year, against a 9 per cent fall for rival Phoenix Group and a 9 per cent rise for Aviva.
