Legal & General threw down the gauntlet to underperforming UK company executives yesterday as it claimed control of about 5 per cent of the UK stock market through a landmark £20 billion fund management deal with Hermes.
The deal, thought to be the biggest ever transfer of UK managed funds, involves L&G taking over the management of about 1 per cent of the stock market from Hermes.
That makes the savings and investment provider the UK’s biggest fund manager, with total managed assets worth about £260 billion. The agreement involves the transfer of index funds, which track the performance of benchmark indices such as the FTSE 100 and FTSE 250, and takes L&G’s total index funds to about £190 billion.
Sources close to L&G said the deal, involving the transfer of large swathes of the Royal Mail and BT pension funds, would dramatically improve its ability to affect change in UK company boardrooms. They said that agreement on corporate governance issues was a major driver of the deal.
“This is part of the excitement. We are both interested in corporate governance. We want the right action for the UK stock market,” one executive source said.
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Both Hermes, which operates the activist Focus fund, and L&G have reputations for pursuing a corporate governance agenda.
L&G and Hermes, run by new chief executive Mark Anson, are expected to have a closer relationship in the wake of yesterday’s deal. Hermes will continue to provide its corporate governance services through Hermes Equity Ownership Services.
Tim Breedon, L&G’s chief executive, said: “We look forward to cooperating with Hermes and their clients on a range of issues going forward.”
Hermes’ decision to sell the funds to L&G comes as corporate governance issues rise again to the top of the agenda for top insurers and pension funds. It also comes as the market to manage index trackers gets more competitive.
L&G is thought to have fought off competition from Barclays Global Investors and State Street.
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Mr Breedon is keen to bump up the contribution to profits that LGIM makes, from the current level of about 20 per cent to at least a third.