At least three employees have alleged there is a poor risk culture at the $1trn asset manager that starts at the senior management level, the Financial Times has reported.
The complaints were submitted to the regulator in recent weeks under whistleblower rules.
In one of the complaints seen by the FT a whistleblower stated that “the risk culture of LGIM has become so toxic that it is reaching a crisis level”.
“Investors in Legal & General and LGIM products, many of them UK retail investors, are having their savings and investments put at risk by the current toxic risk culture,” they added.
The whistleblowers flagged several failures by LGIM’s internal risk and compliance team to report trading errors, which goes against company policy.
One of the alleged mistakes resulted in significant losses for one of the firm’s large retail investment trusts. The reports assert that analysts miscalculated the duration of several funds, resulting in incorrectly executed trades and potentially losing clients millions of pounds.
LGIM had been looking into this matter since earlier this year after it was flagged via its own internal whistleblowing procedures, a document seen by the FT confirmed.
Two other errors were uncovered in the provisional findings of the internal investigation, including an incorrect client transaction for USS, the UK’s largest pension fund.
Surprising
A source told Portfolio Adviser they were surprised by the news in light of the group’s public efforts to promote gender equality and harness the power of its shareholder votes to pressure companies to do more on executive pay and climate change.
Last May the firm’s head of personal investing Helena Morrissey (pictured) launched the ‘Girl’ fund, a passive fund that tracks companies with diverse boards.
Adrian Lowcock, head of personal investing at Willis Owen, was similarly bemused given LGIM’s focus on ESG initiatives.
While the whistleblowers’ complaints “have clearly implied a different culture within LGIM,” he said it was too soon to jump to conclusions.
“While this is naturally disconcerting for investors, I think it is too soon to press any panic buttons,” said Lowcock. “Investors should wait for the regulator to conduct its investigations so they can make decisions with the full facts. The case involves a few errors made in the LGIM process but the information available doesn’t make it clear if the problem is widespread within the firm.”
However, Lowcock said the whistleblowing incident could complicate the firm’s ability to choose a successor for outgoing CEO Mark Zinkula.
“This news could not only damage his reputation but could potentially raise concerns over the succession process,” said Lowcock. “Investors and shareholders want to avoid any boardroom battles.”
LGIM did not respond to Portfolio Adviser‘s request for comment.
The fund group told the FT that it does not comment on individual performance, disciplinary or whistleblowing activities. It added: “We take these issues very seriously, and in the months since these allegations were first made we have been conducting a full investigation using external advisers.”
