Legal & General’s Asset Management division is one of Europe’s largest institutional asset managers and a major global investor. L&G manages £1.1trn1 in assets, working with a range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors. Asset management is a critical driver of our group strategy. Created by combining our investment management (LGIM) and asset origination (LGC) capabilities, the division aims to work synergistically with our Institutional Retirement and Retail divisions to benefit our clients and customers, and deliver enhanced shareholder returns.
Our Private Markets business has assets under management of £52bn2 and is one of the largest private markets investment managers in the UK. Investing in both debt and equity and across the risk/ return spectrum, L&G actively invests in and manages assets across commercial, operational, and residential property sectors, as well as infrastructure, real estate, corporate and alternative debt.
Taking a long-term view to future proof our investments, L&G continues to lead the industry in ESG performance, considering all environmental, social and governance issues at asset level as well as portfolio level.
1 Firm AUM data as at 30 June 2024 2 Private markets
Sector forecasts
INDUSTRIAL:
Return expectations are comfortably ahead of all property, with multilet estates likely to outperform distribution warehouses, in our view. We still see structural tailwinds with good occupational prospects on top of reset yields. However, we are seeing more instances of yield compression in the direct market that is yet to be picked up by MSCI. Aside from multilet estates, we see opportunity in urban logistics and self-storage and although structural support for niche segments like cold storage and open storage is compelling it is difficult to deploy at scale in these areas.
OFFICE: Yields arguably now reflect additional risks from greater levels of depreciation and slower rates of rental growth over the long term; the risk premium relative to all property now appears sufficient. We do not expect largescale capital redeployment into the sector, however, with investors structurally more selective, especially on location. Instead, we see more rotation within existing office portfolios which are likely to continue to shrink overall. We note that building stock is reducing across the UK which over time will mitigate some of the risks around secondary product. We continue to expect wide dispersion in performance based on asset quality and location.
RESIDENTIAL: Challenges to development should support rental growth in the build-to-rent sector into the medium term but at lower levels compared to the last two years. We see value in London given the correction seen in 2022 and 2023. For PBSA, we remain optimistic although emphasise the importance of selectivity given recent falling student numbers at weaker universities. We do expect student numbers to recover over the next five years, however they are likely to remain focused on the better universities. For affordable housing, our long-term expectations suggest returns comfortably ahead of all property and we note recent yield expansion creates an attractive entry point into the market.
RETAIL: We see retail parks as increasingly favoured by the consensus and can expect some yield compression. We’re slightly behind consensus given more caution on rental growth and required capital expenditure. We prefer grocery-anchored parks and supermarkets more broadly. We continue to see shopping centres and high streets as structurally challenged and see deprecation as a significant risk in the former market.
OTHER: In leisure and hospitality, we see better value from hotels currently with generous yields, recovering visitor numbers and stabilising profit margins. The very high yield offered by the leisure sector is compelling but there are short-term risks to navigate, particularly from the cinema sector. In more specialist sectors, performance expectations from operational hotels, selfstorage, leisure parks and data centres are compelling. We also see better than average performance from other living sectors, urban logistics and life sciences.
Investment principles & strategy
As active managers, we place strong emphasis on income-producing assets across both our equity and debt strategies.
We are a leading investor and owner-operator, meeting the needs of our stakeholders by fostering long-term relationships that empower us to deliver both positive financial and social outcomes. Drawing on the power of our global reach, large-scale capital and operating expertise, we believe we are well positioned to grow the value of our underlying assets and generate long-term returns for our clients.
Legal & General’s success is built on the core values that are the foundation of everything we do:
Investing responsibly for the benefit of our stakeholders and society
Our commitment to responsible investing is driven by the recognition that real assets have a significant impact on society and its ecosystem.
Driving change
As the world continues to change we recognise the need to change with it. That’s why we refuse to accept the status quo across any of our strategies. We believe this presents opportunities for disruptive and innovative thinking – whether it’s rethinking the role of retail in our towns and cities, addressing social inequality, or determining the role of the office in a post-pandemic world.
Strategic corporate development
Strategic corporate development is considered fundamental to realise the ambitions of our Private Markets business. In light of the rapid growth anticipated for private markets demand across the next five years, we have dedicated Corporate Strategy specialists, exploring routes to build on our the strength of our deep heritage and core competencies, whilst also seeking selective opportunities in new markets, where we see scope to innovate. Our Corporate Strategy team is aligned to our wider Private Markets strategy, to modernise, diversify, and internationalise, taking a long-term view to bring about positive change and create sustainable investor value.
Performance verification
Legal & General measures fund performance against a number of benchmarks which are specific to investment strategy and style. We are also a participant in the Global Real Estate Sustainability Benchmark (GRESB) across all applicable funds. GRESB provides a measure of sustainability.
COMPLIANCE STATEMENT
* The AUM disclosed aggregates the assets managed by LGIM in the UK, LGIMA in the US and LGIM Asia in Hong Kong (2018-2019 only). The AUM includes the value of securities and derivatives positions. May not total due to rounding.
For professional clients only. Past performance is not a guide to the future. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. The Information in this document (a) is for information purposes only and we are not soliciting any action based on it, and (b) is not a recommendation to buy or sell securities or pursue a particular investment strategy; and (c) is not investment, legal, regulatory or tax advice. Legal & General Investment Management Limited. Registered in England and Wales No. 02091894. Registered Office: One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority, No. 119272.
