Legal and General Investment Management’s (LGIM) results dampened what was an otherwise strong year for Legal & General (L&G), as negative market movements knocked £271.5bn off the value of its investments.
The group’s annual report described 2022 as a “profoundly challenging year for all asset managers” as it revealed a 16% drop in LGIM’s assets under management (AUM), from £1.421trn to just under £1.2trn, falling below levels at the end of 2020.
A 43% year-on-year increase in net flows saw LGIM attract £49.6bn of new business, but this did little to offset the damage caused by the difficult market.
LGIM’s total income fell into the red, landing at -£78.5bn in 2022, comparing very unfavourably with income of £35.9bn in 2021, and it was the only arm of L&G in which pre-tax profits shrank during 2022, falling by 19% to £340m.
LGIM accounted for the smallest proportion of group profits in 2022, as it did in 2021.
The report stated that the group remains confident that LGIM will “continue to make an important profit and cash contribution” despite the lower opening asset position in 2023.
Steve Clayton, the head of equity funds at Hargreaves Lansdown, highlighted that much of LGIM’s loss of AUM can be attributed to its central position in what he called the “gilt market meltdown” of last autumn.
“With Liability Driven Investment mandates from many pension funds, L&G saw the pressures on pension funds as the gilt market tumbled in reaction to Kwasi Kwarteng’s mini-budget only too clearly,” he said.
In all, L&G profits rose 12% to £2.5bn, and Clayton pointed to a more positive outlook for the wider group: “The group is bringing in new assets at pace and pension funds are increasingly looking to L&G to assume their liabilities in exchange for substantial premiums.”
He also noted that the firm’s dividend, currently 19.3p, is set to rise by 5% this year and next, giving the firm a yield of 7.8%.
Mark Crouch, an analyst at social investing network eToro, called L&G’s numbers “really robust”, but did highlight that LGIM had been hobbled by volatile markets.
“L&G isn’t exciting, but there is plenty more for investors to cheer in its full-year results. It’s cash generative, highly capitalised, has grown its dividend and has a highly diversified business model”, he added.
By midday today (8 March) shares in L&G were down 2%, hitting £2.60. Compared with a year ago, shares are up 6%.