Legal & General’s profits dropped 40% in H1 2024, compared to the same time period last year, according to its latest half-year report. The firm made a total profit of £220m after tax, falling from the £371m it reported during H1 2023.
Its retirement and retail divisions saw higher growth in operating profit, with both increasing 6% in the first half of the year, but this was offset by a 14% decline in its asset management arm.
The group’s debt costs increased by £1m to £107m, while investment projects and expenses increased by £6m to £86m.
Legal & General’s core operating profit stood at £849m for H1 2024, compared to £844m over the same period last year.
In terms of the asset management arm of the business – which was recently formed by combining LGIM (Legal & General Investment Management) and LGC (Legal & General Capital) to create a single £1.1trn entity – operating profit for H1 2024 stood at £214m, compared to £249m in H1 2023. Revenues ticked up by 6%, which the firm said reflects “a conscious shift towards higher margin business illustrated by UK DC and Wholesale, despite lower average AUM”.
See also: Quilter sees 164% increase in core net inflows in H1 2024
Net outflows within Asset Management reached £31.3bn during the first six months of the year, compared to outflows of £19.3bn over the same period last year.
Legal & General added: “[Legal & General Asset Management] has significant market share of the UK pensions industry, which supports the growth of our other divisions – e.g. conversion of our strong Defined Benefit (DB) client relationships into buy-out partners for Institutional Retirement.
“Private markets will be a major driver of Asset Management growth both directly in L&G and through our origination partners. We can access and originate differentiated investment opportunities in private credit, real estate and infrastructure for our clients and for our annuity balance sheet as it grows.”
Looking ahead, Legal & General aims to expand its private markets platform, targeting £85bn of assets under management by 2028. As at 30 June 2024, it held £52bn in the asset class.
The firm launched its L&G Private Markets Access fund for DC investors at the beginning of last month.
“Our private markets platform is well positioned to match our strong multi-sector investment propositions and continues to strengthen its operational capabilities to support the growing global demand for our products,” Legal & General stated.
‘A positive set of results’
Quilter Cheviot equity research analyst Tom Gilbey said it was a “positive set of results” because Legal & General’s core operating profits were 2% above market expectations. They rose to £849m over the period – up 0.5% compared to last year.
Its aims to create a “simpler and better-connected business” have been costly, according to Gilbey, who said the increased costs of combining the departments has weighed on profitability.
“The decline in asset management’s operating profit reflects increased investment in modernising the platform and driving growth, as announced at the capital markets event,” he added.
“Revenues in this division have risen, signalling a positive direction. This business not long ago brought together LGIM and LGC to create a single, global, public and private asset manager.”
The change triggered several senior members at the investment management business to leave, including CEO Michelle Scrimgeour and head of wholesale distribution Steven de Vries.
See also: LGIM promotes Ben Cherrington to head of UK wholesale
But with teething issues out of the way, Gilbey said Legal & General is “poised for solid future growth,” with the firm aiming to grow operating profit by 6-9% annually by 2027.
Phil Smart, partner and UK head of insurance and investment management at KPMG – the accountancy firm that built the half-year report – echoed the same sentiment, stating that concerns surrounding the change in strategy have largely receded.
“Nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed,” he said.
