Summary

  • Legal & General Group has agreed the sale of its personal investing business arm to Fidelity International.
  • The deal worth £6 billion could bring in a change in the account administration.
  • The deal between L&G and Fidelity is one of those deals where a company, having both fund administration and fund management verticals, has exited either of the two segments to focus on the other.

In a major sign of consolidation in the British investment management industry, Legal & General has decided to exit its personal investing business and sell it to Fidelity International for a whopping £6 billion. There are around 280,000 customers and £20.3 billion in assets under management for Fund manager Fidelity. The deal would add nearly 300,000 customers to Fidelity’s existing client base.

The deal would see the L&G group completely exit the fund administration business. However, L&G would continue to remain the fund managers and earn investment management fees. 

The deal is significant as it could be the beginning of some major realignments that are expected to take place in the British investment management industry. 

Since the beginning of 2020, the London Stock Exchange has lost a lot of value because domestic and international investors shied away from investing due to the falling performances of listed companies. Consequently, a few fund houses and investment management firms are also reeling under the effects of the pandemic and are looking out ways to control the situation.    

The finer details 

The deal involves 300,000 customers' accounts mostly consisting of individual savings accounts (ISAC), junior saving accounts and general investment products that are invested in Legal & General Investment Management (LGIM) funds. 

According to Fidelity, the transaction would benefit the customers by lowering their total costs of accounts. Additionally, now a much wider range of investment products would be available to them. At the same time, they will be given a choice to select their own investment manager. 

Fidelity Investments Inc is an American privately owned multinational financial services company. It is one of the largest asset managers in the world with total assets of about $3.3 trillion (data till June 2020). 

With the new deal, the total assets under administration with Fidelity would swell by about 30 per cent, from £20.3 billion to £26 billion. The transaction, which is expected to be completed within the next one year, will not have much material impact on the earnings of LGIM but will certainly help it in streamlining its operations.

L&G plc has been one of the very few large companies in the UK which has paid a dividend despite the overwhelmingly difficult economic conditions.

Investment management industry 

The Investment management industry in the United Kingdom has been very badly affected by the pandemic. The falling revenues of many of the sectoral companies listed on the London Stock exchange has meant that fund houses (catering to both value and income investors investors) are facing a difficult time.

Thus, most fund houses are looking for ways and means to streamline their operations and cut costs. One way to do that is to exit from multiple business verticals and concentrate on a few where the company’s performance is strong. The action taken by L&G seemed to be a step in this direction, according to market experts. 

This situation is the same across all markets. Venture capital investments and private equity investments have also slowed down as people started to get more concerned about the prevailing global economic conditions and save as much as their cash as possible.

Latest financials

The company came out with its H1 results on 5 August. The operating profit generated by the company for the period amounted to £946 million which was six per cent lower than the operating profit earned by the company in H1 2019 worth £1.05 billion.

The profit after tax attributable to equity shareholders of the company for the period amounted to £290 million which was a drastic 67 per cent drop from the profit after tax attributable to equity shareholders of £874 million reported in H1 2019.

The earnings per share of the company at 4.89 pence, compared to an earnings per share of 14.74 pence reported for H1 2019, registering a drop of 66 per cent.

Stock performance

As on 26 October at 1.19 PM, the shares of Legal & General Group plc (LON: LGEN) were trading at a value of GBX 199.70 per share, gaining 1.17 per cent over the previous day’s close (23 October 2020: GBX 197.40).

The total market capitalisation was reported to be £11,778.66 million. The company stock had reached the peak for the year 2020 on 18 February 2020 at a value of GBX 318.30 after which it fell to a low of GBX 138.60 on 23 March.

The share price performance of Legal & General group plc during April to October 2020

Source- Thomson Reuters

During the past six months, the two main peaks were on 8 June (GBX 252.20) and 11 August (GBX 238.40). On the other hand, the two main troughs were on 15 May (GBX 184.15) and 25 September (178.00).

 

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