LGIM International.

LGIM International.

EXPANDING OUR GLOBAL FOOTPRINT

International asset management is an increasingly important component of LGIM’s business as business from our traditional UK defined benefit pension schemes matures.

Our international business continued to gain momentum in 2013 with strong demand for our index tracking, fixed income and liability driven investment strategies around the world. At the same time, we launched an exciting new initiative in Europe and moved to the next stage in our plans for Asia. These developments complemented our already well-established US business and cemented our global approach to investing. Against this backdrop, net inflows continued to grow. By the end of December, our total internationally sourced assets had advanced to almost £60 billion. That’s 300% growth in the last five years.

Passport to Europe | Callbox with info on international calls (photo)

PASSPORT TO EUROPE

As asset markets become increasingly global, clients no longer wish to limit themselves to their home market. In Europe, this trend has manifested itself in the growth of cross-border funds.

Last November, we launched three new funds contained within a new fund platform, which is easily accessible across Europe. These new funds give clients access to some of our flagship active fixed income capabilities, offering both benchmark, relative and absolute return funds.

To date, there’s been significant interest in the funds from global financial institutions in the UK, Germany and Switzerland as well as pension funds in the Nordics region. Given the demand, we plan to launch more similar funds in the year ahead.

A MAJOR US PLAYER

In the US, strong investment performance coupled with our growing reputation for providing thoughtful solutions won us many new clients in both our award-winning fixed income and liability driven investment business. In particular, we were able to stay ahead of long-term themes such as an ageing population and a low interest rate environment, providing our clients with products that seek to address the investment implications of both these topics.

Towards the end of the year, we began to develop our index tracking capability with a number of high-profile appointments to augment our in-house expertise.

This move to promote our passive business in the US builds upon our existing strong franchise in the UK and our more recent expansion into Europe and the Middle East.

The US has become a core market for our international business. Our assets under management grew by almost £4 billion in 2013. This momentum looks set to continue in 2014.

EUROPEAN PRESENCE

In Europe, we increased our offerings in the region by launching a SICAV (société d’investissement à capital variable) fund platform, which enables our clients to access our institutional investment capabilities via a universally accessible fund structure. The SICAV includes three underlying funds, and we plan to increase this number throughout the course of 2014. We already have a healthy pipeline of institutional mandates in Europe and, as we gain traction through our new fund platform, we anticipate concurrent growth in our wholesale business.

In mid 2013, we began to merge our retail and institutional arms into a new wealth management unit in order to better target retail and wholesale markets through a more cohesive approach to distribution and product development. Our progress to date has been good.

Aaron Meder, Head of Solutions Group, with colleagues (photo)

BUSINESS SNAPSHOT: LDI IN FOCUS

“Much of the success of our US investment business is founded on the expertise of our highly experienced fixed income managers working in partnership with our Liability Driven Investment team. The macro themes of increasing life expectancy and low interest rates are having a major impact on the funding of traditional pension funds and require urgent attention. That’s where we come in.”

AARON MEDER, HEAD OF SOLUTIONS GROUP

We can help companies to manage their liabilities on a customised basis. We do this by deploying sophisticated strategies that involve hedging a plan’s exposure to interest rate movements. At the same time we carefully select those corporate bonds that have the appropriate credit quality and yield to match a pension fund’s liabilities. Our increasing reputation for delivering fixed income performance and developing innovative LDI solutions has helped us win two industry-wide awards in the US for our fixed income and LDI capabilities.

IN THE GULF

In the Middle East, we continued to enjoy major inflows throughout 2013, primarily into indexed mandates from sovereign wealth funds. Our total book of business in the region has grown from less than £500 billion in 2009 to £16.8 billion today.

Encouragingly, we’re also beginning to enjoy referrals from existing clients in the Gulf. In terms of products, we’re seeing growing interest in US credit, high yield and, most recently, UK property funds.

ASIAN EXPANSION

In Asia, following the earlier opening of our Hong Kong office, we were granted a regulatory licence in July, enabling us to start marketing our investment capabilities across the region. The central banks, sovereign wealth funds and national pension funds we target all have large asset pools that are growing significantly. They’ve also demonstrated an interest in appointing overseas managers. Our initial focus will be on promoting our market leading fixed income and index tracking strategies, although we will look to broaden this strategy as our business develops.

MANAGING RISK

Our growth plans will mean that our operational risk profile will increase across our businesses. As we grow we are investing in our system capabilities and business processes to ensure that we meet the expectations of our customers, comply with regulation and mitigate the risks of loss or reputational damage from operational risk events.

Because we are operating across a broader range of jurisdictions, our regulatory risks profile will also increase. We are investing as we develop an international operational infrastructure, but aim to retain our target cost-income ratio of no higher than 50%.

EXTERNAL NET FLOWS

£9.3bn

(2012: £5.3bn)

 

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