The group attributes the growth to strong fund performance coupled with good persistency, bringing net fund flows of £3bn. Funds under management have grown 13% to £362bn.
Along with higher market levels and fund flows, LGIM fared well due to improved margins, which the group attributed to a higher fee to fund ratio. The active side of its business drew more assets than its index funds so far this year with £2.6bn in net flows versus £0.4bn.
That said the proportion of funds under management (FUM) in index funds at LGIM is still twice that of its active management business with £232.8bn in passive investments versus £129bn, as of 30 June 2011.
International equities has been a big draw in LGIM’s index business, with £0.2bn in inflows over the first half of the year compared to net outflows of £1.4bn in UK equities. Fixed interest had the steepest increase with net inflows of £1.6bn.
In looking ahead, Legal & General cited regulation as one of the biggest risks it faces in all aspects of its business: “Current areas of uncertainty include the regulatory implementation of Solvency II; the timetable and form of changes arising from International Financial Reporting Standards (IFRS) 4 Phase 2; and FSA consultation on the operation of With Profits Funds. We also continue to work with our business partners in their transition to the Retail Distribution Review regime.”
In addition to continued global economic uncertainty, the group also notes financial services contagion risk is an area it needs to watch closely: “As a UK based group, our earnings are influenced by the perception of the UK financial services sector as a whole. Investment market performance, actions by regulators against organisations operating in the financial services sector and shock events can impact the confidence of retail investors in the sector.”
