Legal & General’s pretax profit has risen by 7% to £2.66bn, despite a fall of 19% in the profit of its investment management arm LGIM.
LGIM reported operating profit of £340m for 2022, down from £422m the previous year. Legal & General Capital increased its profit by 10% to £509m.
In its full-year results this morning, L&G said the fall in LGIM’s profit was “primarily due to the impact of market movements on assets under management”, which decreased by £225bn to £1,196bn over the year. LGIM has £1.2tn of AUM, of which £441bn, or 37%, are international assets.
External net flows also remained strong, increasing by 43% to £49.6bn. L&G said 43% of these flows were from international clients.
“However, the positive impact of these higher margin flows has been offset by defined-benefit flows, with clients selling higher fee-generating products to meet collateral requirements,” it added.
The impact of inflation and market movements, alongside lower revenue, increased the cost-to-income ratio to 65% from 58%.
L&G said it was “carefully balancing cost control with selective ongoing investment to modernise, diversify and internationalise LGIM”.
LG Capital was boosted by strong performance in its alternative asset portfolio, where operating profit increased to £400m from £350m.
LGC invests in specialist commercial real estate, clean energy, housing and SME finance.
“Our diversified, multi-tenure housing portfolio has delivered another set of strong results, driven by Cala,” L&G said, while science and technology infrastructure investments through its Bruntwood SciTech joint venture and urban regeneration projects, such as Sky Studios in Borehamwood, “continue to generate attractive returns”.
L&G said it was continuing to search for a successor to long-standing chief executive Sir Nigel Wilson, who announced his retirement earlier this year.
L&G said LGC’s housing portfolio had made a good start “against a tougher backdrop”. Cala’s 200 sales, with reservations on private units at 41% of the target for the year, are below last year’s start, but L&G said that this had been “exceptional” and sales were in line with previous years.
The specialist commercial real estate portfolio has also made a good start to the year with two planning applications accepted for Ancora L&G in the US and progress made across the Oxford portfolio, notably with developments at Begbroke Science Park.
LGC said it expects to invest in and manage more than £30bn of alternative assets by 2025, with operating profit of £600m-£700m.
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