L&G move puts 18bn pounds funds under management

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The Independent Online
LEGAL & General's main policyholders' fund has bought the insurer's investment management businesses for pounds 42m, a move intended to put the investment arm on a more commercial footing, writes Paul Durman. The move also gives Legal & General a pounds 32m exceptional profit.

David Rough, L&G's director for investments, said that contractual agreements with external fund clients provided strong disciplines and motivations to achieve high standards. 'The new arrangement seeks to put our relationship with the life fund on a similar contractual footing.'

Mr Rough said the change would enable the group to pay its fund managers according to their management of the group's entire pounds 18bn portfolio, and not just the pounds 6bn that lay outside the with- profits life fund.

L&G's investment managers, he said, had been unable to charge the life fund a fee for its management, because of a legal agreement that stipulated that it should be managed on a 'cost recovery' basis.

The sale of the investment management companies would allow L&G to circumvent this problem.

Mr Rough said that with-profits policyholders would not suffer because the life fund would receive a rebate of the difference between the fee charged and the cost recovery basis.

The Department of Trade and Industry, which regulates insurance companies, had been consulted about the transfer and had no objections, L&G said.

The pounds 42m price was agreed as a fair market value on the advice of JP Morgan, acting for the life fund, and SG Warburg, acting for L&G.

The consolidated pre-tax profit of the investment management businesses was pounds 4.2m last year.

Legal & General Investment Management (Holdings) will be attributed to shareholders' retained capital within the life fund.