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António Simões, the new CEO of Legal & General, has unveiled a major overhaul of the insurer, including putting its residential building business up for sale, announcing the departure of its asset management director and a new shareholder return strategy, starting with a buyback of £200 million.
Simões on Wednesday promised a “simpler, better connected L&G” in his first major strategy announcement since joining the group from Santander in January.
The changes include the creation of a single asset management division that will bring together Legal & General Investment Management, Britain’s largest asset manager but L&G’s smallest division by operating profit, and the group’s alternative assets division, Legal & General Capital, which invests shareholder money in assets. such as infrastructure and construction projects.
It is also putting some non-core assets up for sale, most notably housebuilder Cala. As a result, the group said it would return more to shareholders than previously planned in coming years, through a combination of dividends and buybacks.
Analysts at JPMorgan welcomed the shareholder return plan, but RBC Capital Markets said new targets for how much excess capital L&G would generate were behind consensus.
“This raises questions about the affordability of the promised shareholder returns,” RBC analysts wrote.
The group’s shares fell 5 percent in morning trading, versus a small rise in the FTSE 100.
As part of the overhaul, Michelle Scrimgeour will step down from her role as CEO of LGIM. The group said it had begun its search for a replacement.
Scrimgeour will remain in place until a successor is found and will lead the creation of the new combined division, together with Laura Mason, who has been appointed CEO of private markets in the new division.
The FTSE 100 group is also looking to expand into the fast-growing corporate pension contract market, where companies pay insurers to take on their pension liabilities.
L&G aims to complete up to £65 billion of pension deals in Britain by the end of 2028. Last year, £13.7 billion was agreed globally. However, the company is unpopular with some investors because it is capital intensive and difficult to predict.
The group also aims to increase its assets under management in private markets for external investors and expand its corporate pensions business.
Overall, the company aims to achieve a compound annual growth rate of its core operating earnings per share between 6 and 9 percent through 2027.
Fahad Changazi, an analyst at Mediobanca, said there could be cultural issues in merging LGIM, which is “a big British institution”, with Legal & General Capital, which is “more like a hedge fund”.
Peel Hunt said the asset management overhaul would be Simões’ “toughest challenge”, requiring a new CEO for the division “as soon as possible”.
During a media call, Simões told journalists that there were options to avoid duplication of costs between the two units, but that did not imply job losses. “This is a growth plan and we are investing to grow the business, so this is not about layoffs,” 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 beneficial’ assets such as science parks and affordable housing. Simões said on Wednesday that the group’s “purposefulness” would remain central to its strategy.
Shares in L&G are down 7 percent overall this year, compared with a 9 percent fall for rival Phoenix Group and a 9 percent rise for Aviva.