Laura Mason oversees the dragons’ den of real estate investment. At Legal & General Capital, the insurance group’s alternative assets arm, it’s her job to predict the future and back the right businesses before they become mainstream.
Five years ago, Mason oversaw LGC’s first investments into modular housing and venture capital initiatives. More recently, the group has backed data centres, suburban build-to-rent and heat pumps.
In July, Mason replaced Kerrigan Proctor as chief executive, and now has a mandate to grow the company’s net asset value to £5bn by 2025 and a goal to generate £600m in profit by 2050.
By the end of this year, LGC’s alternatives portfolio will be valued at around £3.5bn, contributing 40% of NAV. That’s a threefold increase from 2016, when alternatives made up just 20% of assets. “I have come back at this time when the model has almost proven itself and now we are really aware of our growth potential,” says Mason.
Those business lines not only draw in direct returns for LGC, but are also a platform for the wider £1.3tn group to enter new markets and secure third-party funding.
An example of this is L&G’s recently established £4bn strategy with NatWest, backing later living business Inspired Villages to provide 5,100 homes. “I certainly wouldn’t have imagined that the NatWest pension fund would be a potential large co-investor four or five years ago,” says Mason. “The world feels like it has come to us a little bit, in terms of some of the things that felt unusual to be doing, but now a lot of people want to be doing.”
To unlock that growth fully, Mason must keep finding the next big thing – the opportunity ripe for early stage investment and with the potential to bring on more multi-billion-pound partnerships.
Green shoots
Mason joined L&G in 2011 after eight years advising UK life insurers as a consultant at Tower Watson. In 2014, she helped set up LGC as director for direct investments. The focus then was how to put money to work in clean energy and clean tech, she says. Initial projects also included early concepts for affordable homes, build-to-rent and the first modular housing factory.
LGC targets 10-12% returns, taking significant risk and committing capital. How do Mason and colleagues decide which venture to back? She points to “big themes” that include climate change, electrification and changing housing needs. Such trends shape bigger demands across the built environment.
“The fact that the world is digitising – what does that mean for real estate and what real estate is needed to support that?” Mason asks by way of example. LGC’s work to answer that question has seen it make a £100m investment in Kao Data, which is backed by a consortium including Noe Group-owned Goldacre and HRL Morrison. “On a micro level, we are able to join the dots on investment,” adds Mason. “We are well set up to assess how you apply that in practice, particularly for real estate.”
The next phase for LGC will be achieving scale in those established lines and discovering how to “keep growing the green shoots that we planted four or five years ago,” Mason says, specifically in energy and tech. She describes those areas as “obviously global”, which means expansion beyond the UK.
Other areas are harder to grow. The modular housing business has lost money since its launch in 2016. Undeterred by a £30.3m pre-tax loss in 2020, this year the team announced plans to grow the workforce to 350 employees from 269, aiming to ramp up production to some 3,000 homes a year.
“There is a real opportunity,” says Mason. “I’m feeling quite optimistic in terms of the market changing. Actually, the world is changing.” As consumers demand energy-efficient housing, she says, the markets must respond.
Investors too are looking for green housing solutions in sub-sectors such as suburban BTR and affordable housing, providing opportunity for tie-ups across the businesses.
Bolt-on businesses
LGC can combine the businesses it backs in various ways – from modular construction to putting portfolio company Kensa’s heat pumps into rental housing – as well as tapping longer-term investment from the wider group.
In BTR, this strategy has seen LGC back initial site acquisitions via its Build to Rent Fund as part of a joint venture with PGGM.
The L&G balance sheet offers debt financing to add extra firepower, and Legal & General Investment Management funds take on the income-generating assets later down the line. “That’s a nice repeatable model for those asset classes,” says Mason. “In both affordable and suburban BTR we’ll be looking to replicate that.”
Rather than simply backing de-risked projects with consents, LGC’s involvement allows the group to shape the schemes. The company can work with partners such as Bruntwood SciTech or various universities and can build operational teams, as in the case of Inspired Villages, setting up the business for multiple funders.
People are recognising that the world is changing and how you invest is changing
“One of the things we deliberately try to do is look at investments where you see a long-term need for capital going into the sectors,” says Mason. This includes meeting the need for housing for the elderly and helping transition to net zero carbon. Although renewable energy options are becoming cheaper, challenges remain in retrofitting housing, embodied carbon and understanding wider ESG performance.
“That will be a very different type of market to the energy market that people have invested in before, where you invested in BP or Shell,” says Mason. “Now we need a huge amount of different types of technology. People are recognising that the world is changing and how you invest is changing.”
Small steps
LGC’s entrepreneurial and sustainable approach to investment is strengthened by a broader talent pool. L&G as a company talks about “inclusive capitalism”, a style of investing that delivers societal benefits as well as returns. “That appeals to people who come and work for us,” says Mason.
A decade ago, when Mason joined L&G, it was a “sea of grey suits”. But in the past five or six years the industry has made noticeable improvement in gender diversity, she says. For the past two years, Mason has chaired L&G’s global diversity and inclusion council.
“All these organisations have to morph and change, but cultures take a long time to change,” she adds, noting that her own choice to go into the sector was likely influenced by her father’s job and her own upbringing and education.
The biggest lesson for Mason has been to understand such transformations as a long-term trend, where small steps can reverberate. “Never belittle the little changes, because it all adds up,” she says. “How do you influence the younger generation to do different things? How do we think about the younger generation in a different way and make those proactive steps to encourage [people]?”
Mason believes that “philosophically… the UK is changing”. The requirement for specific qualifications down to high school level, she adds, is “so, so missing the point in what we are trying to do as a business”.
Perhaps it should come as no great surprise, given that Mason and LGC are setting the agenda for real estate activity across the group, that she would also look to influence its people for change.
Her biggest worry is missing the big opportunity through failure to do “every little thing we can do to influence and show the way”. “Everyone has their part to play,” she says. This is from broader D&I through to collective efforts to tackle climate change: “You can hopefully make your own small difference that gets some momentum – and we are in a very good place to be able to do that.”
To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews
