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Legal & General’s new chief executive António Simões unveiled a major overhaul of the insurer, including putting its housebuilding business up for sale, announcing the departure of its head of asset management and a new shareholder return strategy, starting with a £200m buyback.
Simões promised a “simpler, better connected L&G” on Wednesday in his first major strategic 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, the UK’s largest asset manager but L&G’s smallest division by operating profit, and the group’s alternative assets unit, Legal & General Capital, which invests shareholders’ money in assets. such as infrastructure and construction projects.
It is also putting some ancillary assets up for sale, notably its homebuilder Cal. As a result, the group said it would return more to shareholders than originally planned through a combination of dividends and buybacks over the next few years.
Analysts at JPMorgan welcomed the shareholder return plan, but RBC Capital Markets said the new targets for how much excess capital L&G would generate were behind consensus.
“This raises the question of the affordability of the promised returns to shareholders,” RBC analysts wrote.
Shares in the group were down 5 per cent in morning trading, compared with a small rise in the FTSE 100.
As part of the overhaul, Michelle Scrimgeour will step down from her role as chief executive of LGIM. The group said it had begun looking for a replacement.
Scrimgeour will stay on until a successor is found and will lead the creation of the new combined division with Laura Mason appointed as managing director of private markets in the new division.
The FTSE 100 group is also looking to expand in the fast-growing market for corporate pension deals, where companies pay insurers to take over their pension liabilities.
L&G aims to complete up to £65bn of pension deals in the UK by the end of 2028. It negotiated £13.7bn globally last year. However, this business is unpopular with some investors because it is capital intensive and difficult to predict.
The group also wants to increase its assets under management in the private markets for third-party investors and expand its superannuation business.
Overall, it aims to achieve compound annual growth in its core operating earnings per share in the range of 6 to 9 percent through 2027.
Fahad Changazi, an analyst at Mediobanco, said there could be cultural issues with the merger of LGIM, which is “like a big British institution”, with Legal & General Capital, which is “more of a hedge fund”.
Peel Hunt said the asset management overhaul would be Simões’ “toughest challenge”, with a new chief executive for the division needed “as soon as possible”.
Simões told reporters during a media call that there are opportunities to avoid duplication of costs between the two units, but this does not include job cuts. “It’s a growth plan and we’re investing in growing the business, so it’s not about redundancies,” he said.
In March, Simões promised to make a “simpler investment case” for the group. Under his predecessor, Sir Nigel Wilson, it focused more on investing in “socially useful” assets such as science parks and affordable housing. Simões said on Wednesday that the group’s “sense of purpose” would remain central to its strategy.
Shares in L&G are down 7 percent overall this year, compared with a 9 percent drop in rival Phoenix Group and a 9 percent rise in Aviva.