Legal & General Group Plc (LGEN) Earnings Call Transcript & Summary

Good afternoon, and a warm welcome both to those of you in the room and to those joining online. My name is Michelle Moore, Group Strategy and Investor Relations Director. Just a few housekeeping points before I hand over to Antonio. [Operator Instructions] And the normal forward-looking statements applies. Our agenda for today is summarized here. Antonio will kick off setting the scene of the importance of asset management for the group before handing to Eric, who will take you through his vision for the business and the actions he has been taking. Jeff will then cover our asset management financials before opening to Q&A. Over to you, Antonio.

Thank you, Michelle. Welcome, everyone, and thank you for joining us this afternoon or this morning if you're connected from the U.S. 12 months ago, I set out my vision for L&G to become a growing, simpler, better connected business that becomes more capital light over time. A year on, the geopolitical context is more volatile, but the fundamental trends that are driving our strategy are even more relevant today. Those trends are a growing global retirement opportunity, more demand for productive finance, particularly here in the U.K., and rapid technology advances that are impacting how we interact with each other and how we conduct our business. These trends are driving the growth of each of our 3 core businesses, which you can see here. Last December, if you remember, we did a deep dive into our institutional retirement business where Andrew Kail explained why we are the world leader in PRT and how we make money in that business. Today, you will hear from Eric in a moment on how we are transforming our Asset Management business and turning around its financial performance. And later this year, Laura Mason is going to outline our growth plans for our Retail business. So over the last year, we've been busy. We've been busy delivering our strategy and our 3 strategic priorities: sharper focus, sustainable growth and enhanced returns. On sharper focus, we have more strategic clarity and we have discipline in capital allocation. We disposed of CALA and other nonstrategic assets within our corporate investment unit that reports to Jeff, and we announced our largest deal in our corporate history, the disposal of our U.S. protection business to Meiji Yasuda and the partnership with them to grow our U.S. PRT business and our Asset Management business globally. Sustainable growth is the key focus of the strategy for our 3 businesses. We have a strong pipeline in PRT. And in the U.K., we continue to have low capital strain deploying gilts-heavy investment strategies. We have also taken advantage of the market volatility to do more back book optimization. We have positive momentum in asset management, which we are discussing, obviously, this afternoon. And in retail, we are growing in workplace, retail annuities and protection, and we are investing in our digital propositions to better serve our 12.3 million customers. And finally, I said that we would return more to shareholders, and that is exactly what we are doing. We are on track to deliver our 3-year group targets and return more than GBP 5 billion to shareholders as a combination of dividends and share buybacks. By the way, the GBP 500 million share buyback that we announced back in March is now 60% complete. Now specifically for Asset Management, let me go briefly through the 3 key strategic priorities, starting with sharper focus. So what have we done? We have simplified the business with the combination of Legal & General Investment Management, LGIM; and Legal & General Capital, LGC, to create a single global asset manager across public and private markets. We are clear on our Asset Management direction and priorities. And in a moment, Eric will describe the granular prioritization that we've done of our investment strategies and client channels. We have been disciplined in capital allocation, exiting ventures that had limited strategic fit and investing to grow the business, including the investment that we've made in Taurus, I just saw them in Boston last week, and the recent acquisition of Proprium Capital Partners. Eric has increased the pace of execution, both on revenues but also on cost control. He was quick to put in place his leadership team with key hires and internal promotions. I presented the version of this slide, if you remember, at the Capital Markets event last June. And the key message remains exactly the same. Asset Management is a core growth engine for L&G, and we are well positioned in an attractive market that will continue to grow, as you can see here on the left-hand side of the chart. One, we have scale as the U.K.'s largest asset manager with global distribution. Second, we have strong investment and asset origination capabilities with the right barbell of investment strategies, right? So everything from passive index to private markets, that sort of barbell structure, aligned to the growth areas in the market. And then this is supported by the catalytic power of our own balance sheet. And finally, all of this enables us to create solutions for sophisticated clients and importantly, with a strong investment track record. As we grow Asset Management, L&G will become more capital-light over time with a shift in the mix of group earnings towards fee income. We see the continuing trend of asset managers and insurers coming together, evolves in this in the market. We have that highly credible synergistic model that others want to replicate. Looking on this slide, almost GBP 100 billion of permanent capital, this is a major differentiator versus any of our Asset Management peers. This permanent capital will continue to grow as we write more PRT and individual annuities, generating fees in Asset Management, but also seed and co-investment capital that catalyzes further growth. Over 80% of our U.K. PRT deals come from the Asset Management business. And once they're insured with us, we invested at higher margin strategies, earning 3x more in fees in Asset Management. Then our leading position as a U.K. defined contribution pension provider is also a clear differentiator. We are the leading DC asset manager with 26% of the market, over 1/4 of the U.K. DC market. And we have a strong DC workplace platform in our Retail business, which provides administration to GBP 94 billion AUM, which is roughly half of the overall DC AUM that we have and which will grow materially with GBP 40 billion to GBP 50 billion of net flows over 5 years. This is also a key strategic area of growth for us. And as you can see there, we have appointed Paula Llewellyn as the CEO of DC and Workplace. And importantly, she reports both to Laura as the CEO of Retail and to Eric as the CEO of Asset Management. Those flows are then invested in our own asset manager, which is also a differentiator versus competitors. Last July, we launched our Private Markets Access Fund, the first in the market to widen access to DC savers, allocating 15% of our default lifetime advantage fund to private markets. We have seen strong take-up since the launch of that fund, which is now already GBP 1 billion, already has GBP 1 billion in AUM. This is an exciting opportunity aligned to the Mansion House accord, which I signed for L&G in May. Finally, enhanced returns. Asset Management fees are highly attractive to L&G. They are recurring, capital light, high return on equity and with strong conversion to cash. Today, Asset Management earnings represent only 25% of our overall core operating profits. And we expect this share to increase as the business grows and as we turn around its financial performance. Eric will take us through how we are also improving the quality of those earnings, increasing the proportion that comes from actual fee-related earnings within Asset Management. So how are we doing all of this? By delivering and ideally, beating the targets we outlined last June. We will grow Asset Management earnings to GBP 500 million to GBP 600 million, operating profit by 2028, with cumulative annualized net new revenue, ANNR, of GBP 100 million to GBP 150 million, and we will grow our private markets AUM to more than GBP 85 billion. These targets are the same we announced a year ago. What we now have is real momentum and traction in the business, and we have visibility on how we will deliver those targets. For instance, for the ANNR target, the GBP 100 million to GBP 150 million, the flows from PRT, retail annuities and DC, those 3 account for over half of the target. So they basically underpin our ambition, making it more achievable. We have already improved our revenue margin from 7 to 8 basis points, and we anticipate this to continue to grow to double digits, basically to more than 10 basis points by 2028. And at the same time, we will be disciplined on costs and we aim to have a cost-to-income ratio lower than 70% by 2028. So Eric will now outline 3 things. First, we have great strengths, but there is significant untapped potential. Second, we have a clear direction and are much more confident in achieving the targets under Eric's leadership. And third, we have put more flesh on the bones on the disciplined execution plans that are already showing positive results. So Eric, over to you.

Thank you, Antonio, and hello, everyone. Really excited to be here today to speak to you for the first time since joining at the end of last year, been a busy but energizing 6 months as I've worked to understand the business and its different components, which has reinforced many of my reasons for joining. We're a leader in our core markets. We have high-quality capabilities, great people, and they do the right thing culture, particularly when it comes to our clients. But what really sets this business apart for me, the true differentiator is the power of L&G and our mutually reinforcing business model. However, there's more to do. We need to tighten up our business, better articulating who we are to our clients and shareholders and more effectively prioritizing, sequencing and executing to deliver better results. So today, I'm going to walk you through our business and our plans across these 3 themes. First, I'll talk about the untapped potential of L&G Asset Management, the great capabilities we already have today and where we can do more. Next, the clear direction I have for the business, our vision and the path to realizing this. And finally, the steps we're taking to realize this through disciplined execution, and we've made some great progress on this already since I joined in December. So we'll begin with what has me so excited about the business and why I think L&G is well positioned to benefit from the long-term macro trends we're seeing. First, the growing demand for retirement solutions. As we know, demography is changing, and there is an imperative for sophisticated investment solutions to meet the needs of retirees. We have a great opportunity to capture this growth as the leading U.K. pensions provider. Business models are evolving as well with more asset manager and insurance partnerships coming to market. With the power of combining Asset Management skill with Insurance balance sheet, that's really not so new for us. We've had Insurance and Asset Management expertise in-house for a very long time. The business models of our largest clients are also changing, and this is leading to growing demand for holistic investment solutions from a single asset manager. While all asset managers talk about solutions, few can execute consistently. We're one of these view with a solutions-oriented culture and our DNA and a natural inclination to collaborate to respond to client needs. And finally, financials. While we're, of course, not immune to the fee compression that is impacting all asset managers, we are well structured for a lower fee environment with strength in cost-efficient businesses that underpin solutions. We want to keep this strength while further tilting up the value chain. Before moving on to our untapped potential, a reminder, and Antonio mentioned it, where we are today, what our business looks like. We are the U.K.'s largest asset manager with over GBP 1 trillion of assets under management, and we're also a leader in U.K. client channels. We've got a range of scaled, high-quality building blocks underpinned by our stewardship activities. We're already well along the path towards internationalization and have the beginnings of a strong private market business. And we have access to an internal balance sheet that provides patient capital for investment. Now let's dive deeper into our investment capabilities and client channels. We're fortunate to have what Antonio mentioned, the market refers to as well these barbell capabilities, indexing on the one end and private markets on the other. And we also have the essential active fixed income and multi-asset capabilities in between. Our capabilities are all relevant, well-performing and scaled and connected by our deep-rooted culture of solutions-oriented collaboration across the firm. Few competitors have the same scale, breadth and quality from liquid exposures all the way through to privates. And this provides us with an opportunity to become a leader in producing hybrid products in-house. It's also important to note where we don't play. You'll not see us growing core active equities, for example. We're launching leverage buyout funds. From a client perspective, we're present in many of the key channels already, but need to accelerate growth in those where our footprint is smaller. Within these channels, we operate a single face to client model focused on solving client needs. We don't product push. So where can we take these strengths and make ourselves even more effective? In client channels, we can do more to maximize the skill set we've developed for the U.K. internationally. We've made a good start, but we need to drive scale and diversify beyond our traditional institutional heritage, particularly in wealth, wholesale and DC. Our synergistic model already works well, but we can achieve greater internal alignment with our PRT, Workplace DC businesses to work even more seamlessly. Efficient use of internal capital will play a key role in filling our capability gaps, particularly in private markets. By capitalizing on the above, we will improve our financial performance, driving growth in the higher-margin products, which will improve overall fee margin and profitability. Now let's walk through each of these 4 themes in turn, starting with our clients. We have a strong market share in the U.K., but we also have sizable footprints in the U.S., APAC and Europe, and there is more to do internationally. The U.S., of course, which is of particular interest to me personally, as you can probably tell by the accent. I don't think we have been overt enough about our achievements in this market. To have grown a GBP 200 billion plus business organically as a nondomestic player in the U.S. is nothing short of exceptional. But from here, we need to expand our efforts. This is why I brought in Jed Plafker, the newly appointed CEO of our U.S. Asset Management business, and I'm really excited to work with Jeff on the next phase of U.S. growth. Similarly, in Europe and APAC, we have sizable businesses with room to diversify and grow. Now the need for diversification is illustrated when you look at our AUM by client channel. We are evidently, from the chart you see, a real expert when it comes to pensions, particularly in the U.K., but there's more to do elsewhere, particularly in wholesale. Second, the synergistic power of our mutually reinforcing business model is a real game changer as evidenced by the sheer quantum of assets that we can access through our internal relationships. We can continue to grow the amount that we manage for our internal clients through filling key gaps in our investment capabilities. This will enable, for example, institutional retirement to allocate more assets in-house rather than outsourcing to third-party managers. Additionally, we can take the experience of serving our internal insurance client to grow our third-party insurance business. And a great example of this is our new strategic relationship with Meiji Yasuda, which I'll talk more about later. Now turning to one of our key differentiators, our ability to deliver world-class investment solutions. I'll start by talking about the scaled investment desks we have across the asset classes. This is particularly true when it comes to our bread and butter, liability-driven investment or LDI, and index franchises. These are the backbone of our business today and will form a core part of our investment solutions proposition going forward. Crucially, the desks don't operate in silos. They operate as one team across both public and private markets with a relentless focus on the client. Our single face the client distribution model can then take the entire capabilities of the firm to deliver a true partnership experience oriented around clients' long-term needs. However, to truly serve the breadth of their needs, we need greater scale in some areas of our business, such as private markets but also select parts of active fixed income and systematic and specialist index. Now none of this is possible without investment performance. And I was pleased to see that when I due diligence the firm before joining. Performance was strong across all key capabilities, public and private. While this is often referred to as a hygiene factor, it is an essential underpin to maintaining the long-standing relationships we've built. And where performance is outstanding, we will be more proactive in converting this into profit. Now all that said, given the potential I've just described and Antonio led in with, our financial performance has been underwhelming. We are punching below our weight, and I would like to see our Asset Management business driving a greater proportion of overall group earnings. To do this, we will manage our costs regularly rigorously, but I firmly believe that we're not going to shrink our way to greatness. We have to grow our way into success. And we will do this by deepening our capabilities in higher-margin asset classes and channels to grow fee-related earnings. We're already seeing the results of our efforts here. 2024 average fee margin was at 8 basis points, up from 7 basis points in the prior year. But there's still more to do to grow our revenues and bring our cost income ratio down. So that's the potential. Now let's talk about how we're going to get there. And let's begin with a reminder of the targets Antonio laid out earlier. These are operating profit of GBP 500 million to GBP 600 million, annualized net new revenue of GBP 100 million to GBP 150 million and private markets AUM of GBP 85 billion or more. Now there's no doubt that these targets are ambitious, particularly given ongoing market volatility, and every day brings new events in this environment. But the conviction I have in our ability to deliver these is only growing. There are many ways to get there, and the right-hand side of the slide lays this out. But before going into more detail, I'd like to give you the 10,000-foot view of my vision for the business because getting to our destination requires the entire organization coalescing behind the clear North Star. And my vision for L&G is to be recognized as a leading global investor innovating to solve client challenges using the power of L&G. This articulates who we are and where we're going. Our vision is underpinned by 4 key elements: our balance sheet and group-wide capabilities, our investment building blocks, our solutions platform capabilities, and our global distribution network. I'm now going to take a few moments to walk you through each of these. First, let's look at leveraging the power of L&G to drive our growth. Our access to reliable, long-term capital from our various balance sheets is our starting point and a key differentiator for us. Following the creation of our single asset manager, we now have a dedicated balance sheet of GBP 1.2 billion, which is fully aligned to Asset Management's strategic priorities. This can be truly catalytic in launching and scaling new strategies and has a multiplier effect on deployment that can be recycled once strategies have reached scale. The combined power of L&G is showcased through our partnership with Meiji Yasuda. Our decade or so long relationship with them as an Asset Management client laid the groundwork for a group-wide strategic alliance to support our shared ambitions. We're extremely excited about the potential for this partnership, including in private markets where they have agreed to co-invest up to JPY 150 billion, that's about USD 1 billion, in long-term opportunities to support our respective ambitions. This example shows how far a properly integrated, synergistic L&G can go, and it's something that the majority of our peers practically cannot replicate. Moving on to investments. I mentioned earlier, we have a strong set of capabilities but there are gaps, and we're focused on closing them. There are a number of pathways to closing these gaps. We can build, we can buy or we can partner. In our more mature capabilities, index, LDI and multi-asset, the DNA is already there, and so we're building organically to optimize and expand the strategies we can offer. However, let's not understate their importance. Our LDI pedigree gives us the right to play in solutions, index is our calling card for internationalization and essential for hybrids, and multi-asset is the critical building block for the DC channel. In active fixed income and private markets, we are focused on growth across the board. In current areas of strength, we will build and where we need to buy or partner, we will be disciplined. We won't follow the crowd in terms of momentum pricing. And we're not waiting around to execute. We've closed gaps in our international active fixed income range with the build of our U.S. securitized funds last year and expanded our U.K. real estate capabilities with the launch of our affordable housing fund already at over GBP 500 million in committed AUM. Where we haven't had the capability in-house, we've partnered like with NTR in European renewable infrastructure and Taurus in U.S. real estate or acquired as we've done with Proprium to expand into European and Asian real estate. So now zeroing in on private markets. This is a key component of future revenue growth, and we have multiple routes to hitting our GBP 85 billion AUM target by 2028. Now having run a private markets business for a very long time, I know that optionality is critical to ensuring continued growth in these high barrier to entry and less liquid investment segments. Starting with the capabilities we're incubating. Here, we are looking to build our track record in newer capabilities such as public private credit hybrids and venture capital. Next, the propositions that we consider growth ready, where we will launch our first or, in some cases, second funds and evidence our credibility to the market. Here, we have international real estate following the Taurus and Proprium deals, renewable infrastructure where we have recently completed the final close of our first European Clean Power Fund in collaboration with NTR. And digital infrastructure, where we are externalizing some high-quality balance sheet assets for co-invest and a potential fund. And finally, our most mature capabilities, our U.K. real estate equity and investment-grade credit businesses, Pemberton sub-investment-grade European credit capabilities and our private markets access fund. The name of the game here is now to scale. On that note, let's zoom into our Private Markets Access fund. Now this is a prime example of what we call productive finance, where we can use our scale and know-how to deliver investment returns in a way that is useful to society. The launch of this fund marked a significant milestone for U.K. pensions, providing DC policyholders with exposure to the illiquidity premium and growth potential of private markets. It will also support our growth in unlisted U.K. securities in line with the Mansion House Accord. Now this is generally a best-in-class vehicle with tremendous diversification by asset class and manager to bring the best of private markets to DC policyholders. We were one of the first firms to do this in a liquid structure for the U.K. DC market and have seen phenomenal growth with the fund at around GBP 1 billion of AUM since launching just under a year ago. Now moving on to platform. This element of the proposition is often the differentiator in an increasingly competitive industry. How you combine and deliver assets in an overall servicing package is often the clincher in client pitches. We already have the raw ingredients for a great platform, and I'm focused on targeting investment to optimize and scale this. And a great example of what a world-class platform capability looks like is our stewardship. So we've worked with companies and policymakers to raise overall market standards for over 40 years. As we all know, our market is ever evolving and complex, so effective stewardship is core to creating and protecting value for our clients. Given its criticality, we took the decision to integrate our investment and stewardship teams. This has enabled greater alignment in how we consider risks and opportunities across our investment and stewardship activities and means we're focused on the issues with the most material financial impacts. Finally, moving on to the fourth element, growing our distribution network and expanding our client base. Getting our product and servicing proposition right will be the catalyst for growth in the international wealth, global financial institution and insurance channels that have to date been more challenging for us to penetrate. By 2028, we will be a truly global player with international AUM forming more than 50% of our total book while, of course, continuing to grow in the U.K. in absolute terms. We've invested across some of these newer channels this year with the addition of high-quality appointments and strategies and we're already seeing the fruits of our labor. In GFIs, we've just been appointed to manage a large European financial institution's U.K. sterling money market fund. This is a multibillion pound AUM opportunity for us over the medium term and a great example of us making more of our high-quality cash and trading capabilities. We're seeing traction in wealth as well. where we've recently been appointed by Omnis on a fixed income mandate and have similar success stories already this year in Asia. In insurance, let's go into some more detail on Admiral as this really exemplifies what we mean by solutions. Here, we are seeing the benefits of bringing LGC and LGIM together by bringing the best of L&G to a key client. Specifically, we have met Admiral's complex investment needs by combining L&G's investment-grade private credit and responsible investing capabilities with Pemberton's European subinvestment-grade credit capabilities in a single strategy. We see this as a blueprint for how we can work with clients to offer investment solutions drawn from across our whole platform. So hopefully, this has given you a clear idea of what we plan to do. Now let's talk about how we're going to get this done. Now all of this is only possible with a unified leadership team. And I'm really pleased with the combination we now have of new people with fresh ideas and those with deep experience and knowledge of our organization and legacy. We've got a clear mandate to act at pace and drive the business forward with renewed energy, disciplined prioritization and relentless focus, and this leadership team is getting on with it. Now on to the what and how. The key is not reinventing the wheel. We generally have what we need. It's all about prioritization, sequencing and decisively executing. To drive this process, my leadership team and I have segmented our capabilities into those we want to maximize, incubate, run and review. Starting with maximize. These are areas with significant near-term growth potential where we will align the entire efforts of the firm behind them for growth. Moving to run. This is our bread and butter. Our mature businesses that drive meaningful profit for L&G, but with less potential upside versus maximize. At least in the near term, these things will change from year to year. Here, we need to focus on optimization to enable us to push the envelope on maximize. Review, the areas where there may be less strategic alignment or specific acute challenges to address. Here, we have made decisions about how best to reorient these strategies for growth or where we should exit. And finally, incubate. These are the capabilities where we're building for the future, but with a longer J-curve. So let's talk through what we're doing in each of these areas in some more detail. An example of one of our maximized capabilities is active fixed income. Here, we have an impressive long-term track record across many of our strategies, but we haven't always successfully converted that investment excellence into AUM growth. Our global unconstrained bond plus fund is a prime example of this with stellar performance over the long term, but a flat AUM profile. However, we're starting to change this. In late 2024, we launched an integrated campaign to raise the profile of this fund in the international wealth market, and we are already seeing results with a meaningful uptick in AUM and high-profile client wins. We're confident that we will continue on this trajectory. Moving to run. Core index LDI and U.K. real estate are good examples of capabilities that have scale and drive material profit for L&G. They also form a critical part of our proposition as solutions building blocks. We want to get as much as we can from these businesses, and we'll do so in 3 ways. Firstly, we'll optimize what we already do today to improve client service and reduce our running cost. Second, we'll use these capabilities as a springboard to broaden relationships with existing clients. And third, we'll innovate to expand our product suite. A great example of this is what we are doing in index, where we are leveraging our existing capabilities to grow in systematic strategies. To free up sufficient resource to grow, we must also be thoughtful with our costs. The discipline we take to that and the discipline around the capabilities is key to this review bucket. I'll say it again, we are not going to shrink our way to greatness, but we will free up as much capital for investment as we can. Therefore, we've taken considered action to reduce our costs in order to support growth through ruthless management and prioritization of nondiscretionary and discretionary spend. We also are looking at limited strategic alignment, and we're streamlining our operating model. This is enabling a pivot to strategic investment to incubate new strategies, and a key example of this is our Climate Action Fund. Here, we're employing our leading stewardship capabilities and influence to work with high emitters on their client transition journeys. This is a great example of where one of our platform capabilities aligns with investment acumen and client interest. The strategy was designed in partnership with AP7, a leading European pension fund that has invested in the fund since 2023. And we plan to maximize this capability once the pooled fund that we are incubating has a 3-year performance track record. So there you have it. To summarize, I'm extremely optimistic about the future of asset management at L&G and have a strong conviction in our plans to deliver our vision and meet ambitious targets. I genuinely believe that we are starting from a position of strength with a clear vision and direction and the ability to act decisively to get this done. I'm excited to see what we can achieve together as a firm to deliver even more for our clients and our shareholders. And with that, I'm going to hand it over to Jeff to walk us through the financials.

Thank you, Eric, and good afternoon, everyone. Eric has set out clearly how we will grow from where we are today, and I will set out some of the key financial implications of that. Growing Asset Management earnings are attractive within the context of the broader group. Financial performance will improve through fee-related revenue growth and cost discipline. And finally, our balance sheet plays a catalytic role in accelerating our shift towards more capital-light earnings. So I will now cover each in turn. The earnings within Asset Management are highly attractive. Our fee-based earnings are capital light, reliable and recurring and deliver high return on equity. They are cash earnings, which we can reinvest for growth or return to shareholders, and we will continue to be disciplined in these decisions in line with our capital management framework. We have a highly synergistic model as both of our annuities and workplace DC businesses grow, they will drive Asset Management inflows and earnings. And we also recognize additional investment returns from our strategically deployed balance sheet. As we invest to catalyze future Asset Management growth, we can also generate valuable incremental earnings. So where are we today? In 2024, our Asset Management business delivered operating profit of GBP 401 million. We generated GBP 256 million of fee-related earnings at an average revenue margin of 8 basis points. Following the creation of a single asset manager, the balance sheet assets of GBP 1.2 billion deliver a return in 3 ways: from valuation uplifts and minority stake asset managers like Pemberton; returns on seed capital, which is already in funds; and incubation assets that will be used to launch new strategies over time. However, it is the growth of the fee-related earnings that will drive improvement in our financial performance over the coming years. We have a clear path to delivering our target of growing operating profit to GBP 500 million to GBP 600 million. This slide sets out the 3 key components of that growth. Market movements impact our GBP 1.1 trillion of assets with revenue upside as markets grow and of course, the opposite. We forecast only modest market returns as this component of our profit is not within our control. Cost discipline will be critical, and we will be relentless in how we manage headline cost growth. And our cumulative ANNR target over the next 4 years is a key component of our growth. So revenue growth from PRT, retail annuities and workplace DC will be a valuable component of our ANNR target. We believe this could deliver greater than 50% of the growth, providing a strong underpin. The remainder of our inflows will be met by external client wins. And as Eric set out, we are already seeing good traction in wholesale, wealth and internationally. As a net figure, we do need to compensate for the expected outflows as annuities are paid out, and in our DB portfolio as the market runs off. The revenue impact of these DB outflows is far less significant despite the volume of assets given the lower average revenue margins on LDI and index. It is more than compensated for by the inflows. This shift to higher-margin strategies will drive up the average fees of our book. We've already seen an increase from 7 to 8 basis points in 2024, and anticipate it will grow to double digits by 2028. So on the cost side, we are managing the need to invest in growth with improvements in cost efficiency. We will be disciplined on underlying expense growth to manage our cost base to reflect market returns and revenue growth. We've already been taking action with low underlying growth of just 1% in 2024. And in 2025, we've taken further steps to drive cost and operational efficiencies, including through streamlining our real estate operating platform, rationalizing our organizational structure and driving down spend on external suppliers. This cost discipline creates capacity for growth. We've previously communicated we will invest GBP 50 million to GBP 100 million per annum in initiatives. But we will manage this based on the opportunities in front of us. We won't overspend where it is not needed, and we'll only continue to invest where we see revenue growth. These factors combined to deliver a cost income ratio of below 70% by 2028. Now let me turn to how we deploy the GBP 1.2 billion asset management balance sheet to drive the business' strategic objectives. We invest in minority stakes in asset managers like Pemberton and NTR to access new capabilities in new geographies. We co-create products with these managers and recognize valuation growth on our minority stake as we help the managers to grow. Our stake in Pemberton and the collaboration on Admiral that Eric set out is a great example of this in practice. We also invest in seed capital to launch new funds and earn returns alongside our clients on the investments we make. On average, this seed has a 7x capital multiplier on the funds it attracts from third parties. We also have other pools of seed and co-investment capital across the group, granting us extra flexibility to make new funds to market and attract client capital. And finally, we're in development returns on assets we're incubating for future fund launches. Visibility of these asset pipelines can be a valuable differentiator in private markets to support fundraising. We are flexible with this capital and how we apportion it across these 3 categories, recycling the capital to reinvest in future growth consistent with our capital allocation framework. So from '24 to '28, our target is for Asset Management profits to grow at 6% to 10%. We expect our fee-related earnings, however, to grow at a faster rate of 9% to 15%, and we will, therefore, see a greater proportion of our operating profit come from these fee-related earnings by 2028. Balance sheet profits will remain broadly flat. We have strong conviction in our ability to meet the targets we set out last year. Focus and disciplined execution will improve financial performance with strong ANNR and disciplined spend. We will grow revenues with a shift to higher-margin strategies and flows from annuities and workplace DC will be a critical underpin for this growth. And private markets will be a major driver of our shift to higher margins, both through organic growth of our existing strategies and through acquisition. We have multiple pathways to grow and deliver our GBP 85 billion private markets AUM. So let me close with a comment on our latest view of the overall group results. 2025 is the first year of our 3-year targets. We have made a good start to the year and on track to deliver results in line with these. Therefore, for 2025, we expect the growth in core operating EPS to land in the 6% to 9% range. We have confidence in our growth trajectory and in delivering our 2028 targets. I'll now pass back to Antonio for closing remarks.

Thank you, Jeff. So to close, as you can see, we are excited about the potential for this business. We are the U.K.'s largest asset manager by AUM, but with significant untapped potential. We have many of the building blocks, as you've just heard from Eric, in place already. But what we now need to do is to grow, and to grow particularly internationally, which will be over half of our AUM by 2028. We are growing revenues by shifting to higher margin strategies. You've heard us say that our average revenue margin has already increased from 7 to 8 basis points, and we anticipate it will improve to double digits by 2028. There is strong positive momentum in the business with better prioritization and increased pace of execution. There's discipline in our underlying cost, which is creating capacity to invest to grow and we will reduce our cost-to-income ratio below 70% by 2028. I am more confident today that we will meet and ideally beat our targets that we have set out for this business. As Asset Management profits grow, we will deliver on the vision that I've outlined for L&G to become more capital light over time. Thank you. I would like now to invite Eric back on stage to answer your questions.

Maybe we'll start there on the right, do the usual thing of telling us your name and then if you can limit your questions to 3.

The -- and truly -- just to remind me, I'm sure you put it in your presentation, how much is the new investment that you're putting in to work in terms of money to cut costs and grow and stuff?

Yes. Thank you for the question. So I'll just give you the number and then Eric should comment. So last year, when I set out the Capital Markets, we're here a year ago actually in a different place, 12th of June of last year, I talked about GBP 50 million to GBP 100 million per year of investment. We actually invested last year, GBP 48 million, so just below that range. Eric, you should talk about -- you looked at this, kind of how are you looking at the investment.

Yes. I mean I feel extremely privileged. It's one of the reasons why I joined that we actually have a growth model that we are thinking about setting aside, this kind of capital for continuing to invest in the business. My sense is that we probably can stay at the lower end of that. And I say that for a few reasons. I think a lot of these investments will be initially important to start catalyzing new strategies. And the work we've done in terms of prioritizing and really sequencing because the challenge in a business like ours, we have such a breadth of things we could do when we have this international platform, we could try to do everything at the same time, spend a lot of money and get distracted. So the discipline actually means that we probably can manage to the lower end of this because if we take too much more on, we just won't be as quick as we will be if we do this in the sequential order we should. So I feel really good about the buffer we have, but I think we can manage to the lower end of that.

Abid, actually. So I'm coming to the front row, sorry, and then come back to you.

Abid Hussain from Panmure Liberum. I've got 3 questions. The first one is on workplace savings. What proportion of the assets are managed internally? I think I read 50% goes into the in-house manager. And if that's correct, is that sustainable? Or what do you think is a long-term trend as you grow workplace savings? Does it sort of stay at 50% or can it go higher or would you expect that to trend lower? And then the second question is on the review businesses. Can you share which businesses or which products are sitting in that review bucket at the moment? And how much AUM versus cost spend is entangled in that bucket, please? And then the final question is on the private markets. Can you just help us to build a bridge between the current AUM, I think sort of GBP 57 billion, GBP 60 billion in there versus the greater than GBP 85 billion that you're targeting in terms of where is that going to be sourced from? It feels like quite a large chunk of that can be sourced from the growth in PRT and DC assets alone. Can you just sort of build a bridge of where you're going to get the remaining growth from?

Yes. So Eric should actually take the second and the third. But just on the first because I think it was something I quoted so a bit. Actually, the 50% is not that number. So we have GBP 183 billion. So we're the largest DC asset manager in the U.K. So over a quarter, 26%. So that's GBP 183 billion. The 50% I quoted is that 50% of that GBP 94 billion is our own workplace, okay? So think about it, we're the top 3 players in workplace DC and retail. Laura is sitting to your right. She will talk a lot about this in the second half of the year when we do the deep dive. And then in the other half, it's basically us, as an asset manager, working with other people that do workplace. That's the 50%. Now of the GBP 94 billion that we have in workplace, the vast, vast, vast majority of it is within our own asset manager, close to 100% of it. And this is a key differentiator. I put that on a slide. If you're just a retail workplace player and you don't have an asset manager or we have a smaller asset manager than us, you'll have a much smaller percentage of that coming into us. So think about it close to 100%. It's true that when we do our Private Markets Access Fund, for instance, we then use, in some cases, because Eric also said, we don't do all of the private markets. We sometimes do sub-managers for that. But the key differentiator for L&G is that of all that workplace, GBP 94 billion, it all comes into our own asset manager. Eric, do you want to talk about the review buckets and the private markets, how do we get from GBP 57 billion to GBP 85 billion?

Yes. So review, I think the key things to take from the presentation and they're important for the explanation are, number one, the word granular. So we went into a lot of detail. You can imagine a GBP 1.1 trillion manager, we have a lot of strategies. And we have a lot of family strategies. So we've gone through them in incredible detail. And so we've decided some that we've been able to reorient. Frankly, some of the review ended up in maximized because we looked at them, realized we were good at it. we probably hadn't focused enough on it. We see a market opportunity. And with minimal additional cost, some of it is sometimes just marketing costs, just people knowing what we can do. We found our way clear in moving those to maximize. Others, clearly, we're going to de-prioritize. So the easy answer is because we've got clients in all of them, that's something we have to manage delicately. And it's also why we did this exercise solely. It was within a month of me joining because to do this right, when you have clients in these businesses, something I've learned over a lot of decades in this industry, we -- even the ones we want to deprioritize, we're going to have to manage that over time. We have important clients in some of those strategies. So knowing what we're going to do early is the way this is going to happen organically over time. The other key thing because you mentioned AUM, you saw the building blocks that we believe in, we need them. So what you're not going to see is some kind of wholesale cutting off of one of those building blocks we just went through. So what that means is, even internally, when we look at the granular result of this review, it's less of an AUM topic. Sure, there's AUM, right? It's more of an allocation of resources, where we're going to focus our energy. So that's been the work. But I believe in the breadth of our business. So we're not going to make some kind of big call and try to be something we're not. I think our way to win is because we've shown good investment performance, frankly, across a lot of different things. That's the opportunity. But the discipline is what we needed to add to it. Third, on private markets. Of course, when I say, the name of the game is scale. The scale businesses, I'd expect those to grow. The Private Market Access Fund is growing every month. right? And it's so linked to the strength of our DC business. As long as we can continue to generate performance, I think that's a key area of growth. But so is everything we're doing across multiple U.K. housing strategies. Some of the acquisitions, if you think about what we've done in 6 months, we've gone from a very strong U.K.-centric real estate investor, but a leader in the U.K. With not a lot to talk about internationally, we now have a capability across the U.S., Europe and Asia. And that's at a time when we're at a low point in the real estate cycles. So we are now prepared from a capability standpoint to catch the inevitable wave that always comes in real estate. It's a cyclical business. I can't predict when it is. Frankly, we've all been predicting it's in 6 months, and we've been doing that for 3 years. But it will come. So I think that capability we have alone, when that market pops, that's going to be a huge area. But the most important thing to take away is the amount of irons we have in the fire, and that's why I don't feel the need to be spot on, on any one of these. I think with everything we've got going and the internal balance sheet to catalyze this, that's where we feel pretty good about the GBP 85 billion. Even in a market today that's challenging, right? Again, last -- for 3 years, that's a different story. But these markets, they ebb and flow, and we feel very good. We have a path to the GBP 85 billion in many different circumstances.

Thank you, Abid. Mandeep, we'll give you back the microphone. Sorry, we took it away from you earlier.

Mandeep Jagpal, RBC Capital Markets. Three for me as well, please. First one on flows. Could you provide more color on the current flow picture year-to-date or maybe given your targets, the ANNR picture year-to-date for L&G? Second, on M&A. Eric mentioned you want to maintain flexibility in meeting the AUM target. So given your surplus capital, could this also include further M&A? And which gaps in your proposition do you think it's better to fill inorganically rather than build yourself? And then finally, on retail clients. Clearly, potentially higher revenue margin AUM available here. I think Eric mentioned L&G has more to do in wholesale channels, particularly internationally. Are you able to provide any more detail on which products and regions you had in mind in the first instance? And how will you go about gaining traction in these markets?

Thank you, Mandeep. So this should be mostly for you, the 3 of them, Eric. But maybe just a comment on M&A because as we think about M&A. -- so 2 things to say about M&A. First, we've been very clear that the entire L&G strategy is an organic strategy, right? So we have all the building blocks in all of our 3 businesses to grow organically, and that's primarily what we're doing. In Asset Management, we're looking at bolt-on acquisitions, which read small bolt-on in areas where we are bringing in capabilities. And it's not exactly what you're asking, but there's sort of that GBP 85 billion of -- particularly in private markets, which is why we're making acquisitions. The M&A that we're doing is to bring in capabilities. So effectively, we're not bringing in a lot of AUM. What we're bringing in is teams that together with Eric and the expertise we have across the business are raising other third-party funds that contribute to our GBP 85 billion-plus target. That's how I'm thinking about M&A. We talked about this last year that real estate was one of the key areas we want to look at it. That's what we've done. Look at Taurus, look at Proprium Partners. And then Eric, you made a very nice comment earlier when you were presenting saying, we've avoided these areas that are very overheated in terms of valuation. So several of you asked me this kind of private credit. Yes, we already have investment-grade private credit capabilities ourselves, plus 40% of Pemberton. As you know, the valuations for private credit players has been very high. So we've been very thoughtful. That's the other area where we could do more acquisitions. But we're not about to, from a shareholder value perspective, to do acquisitions that are extremely expensive. So that's how we're thinking about the rest of M&A. Eric, flows, any other comments on M&A and then retail clients, which I read to say wholesale, right? Because when we think about retail for L&G, I'm thinking about private banks primarily. So it's not retail in the sense of broader retail, but okay.

Yes. So flows, I think we'll wait until official results to talk about those numbers. We know we've been in a volatile first half. This is just a macro statement. And in many ways, we've done a round trip. So some of the capital markets are back where they were. But as you can imagine, the trip down has an impact on things. What I'd say is when I compare flows to ANNR, what you've heard, I feel we're on a very good trend in terms of this track towards higher revenue flows. And you will see that over time in this differential between whatever the flow number is and the ANNR. So I feel pretty good about it, given the volatility we've had. We have to see what comes next. And we have -- every day, you can read the press and decide what that might be. But I think we're on the right trend on that. And we know that we still remain with some of our LDI strategies. In an interest rate environment that hasn't settled yet, that's going to be a continued headwind. But again, this focus on ANNR, I think, is extremely positive. And a lot of our confidence comes from the fact that in spite of the challenging markets, the momentum feels good in the first half on this point. So more to come on details, but sentiment is strong. On M&A, I think, Antonio, you said it. The key for me is exactly that. We're looking for capabilities. We're not trying to buy our way to GBP 85 billion. We hope that these capabilities catalyze our way to GBP 85 billion. By then putting some capital behind them because we have that balance sheet and then their capability hopefully allows them to do more than they could have by themselves. That is the synergistic kind of acquisitions we're looking for. We look for value. We talked about it. Antonio said it. We're not going to chase the crowd, Oftentimes, what everyone's looking for, the first deals might be the best in terms of capability, what's left is probably struggling to raise money sometimes in these overheated markets. And I think specifically of U.S. private credit, which is clearly a structural area of continued growth for us, we're going to be focused on. But we want to make sure we find the right company, the right DNA, it has to fit within L&G's approach. We are a long-term client-focused investment manager. So we're going to be very picky about the quality and the mindset of teams, and we don't want to pay top of the market prices. So you will see us find moments of maybe temporary edging off of certain markets because I think softness in private, we believe the story is a one-way story. It's still going to go up. But we will look for places where we think we can have good value. That's why we did 2 real estate deals, that was very clear, that's what we wanted to do. Our 3 big areas: real estate, private credit, infrastructure. So we are always on the lookout, build, buy or partner on all 3 of those, but we will be very disciplined.

Do you want to say something more on retail customers?

Oh, sorry. Yes, of course. So we've already started making inroads. I think when you look at how very successful growth, and I'm looking over at Sarah Aitken, so she'll wrap me on the knuckles after this if I say this wrong, She's our Chief Client Officer. But I think we've done an outstanding job of planning our flag globally in a relatively short period of time. The bulk of that was through institutional relationships. That's going to continue to be an area of strategic growth. That's our DNA. We've been doing that for a long time. And we have started cracking some more of these retail, a little bit of foreign DC, the wealth distribution channels, working with private banks and global financial institutions to tap those clients. But I think the next step is a high level of focus on specific regions and channels so that we can make specific investments. Number two, it's channels that are compatible with our capabilities, and it's also channels that will be compatible with what we're trying to do in terms of filling in gaps. And I know where will that be more important than the U.S. where we've got this fully self-servicing organically growing GBP 200 billion business. We've had tremendous success in the institutional space. And it is the most -- it's the biggest market in the world. You've got every channel imaginable, but it's highly competitive. So the focus now with Jed, who's got experience in some of these channels, is which one is for us. There's some obvious ones and we're showing wins already. Insurance for third parties, it's obvious, right? But there are other channels in wholesale, wealth, mass affluent. Again, through the right distribution networks, we don't want to be a distribution network, but that's what we do. We just have to pick our spots and prioritize, put the investments there. I do think that will give us better results than we've had today. Today, we've got good results across the board. I think this focus will really move us forward internationally.

Yes. And it's been -- it's already working. And Mandeep, thank you for the question. I was in Asia a few weeks back. We have one of "all of the clients" because we need their permission. But we had a private bank in Asia working with them. I was, last week, in Continental Europe, talking to a bank, all my trips to the U.S. That's where we have counterparties that are big clients of L&G, and we can go to those banks and say, "Well, we would like to distribute these products to your private bank." So that's working already. Farooq?

It's Farooq Hanif from JPMorgan. Three questions as well, please. The first one, looking at Slide 52, where you show this map of the flows in the next 5 years. If I exclude -- so that's one way you show the captive flows from workplace, from PRT coming in, the outflows from DB and other. And you've got this box called external where you've obviously given a number for how -- where you're going to grow. But the gap in the numbers that you've given is roughly GBP 30 billion. I think you've got GBP 130 billion of outflows in that table and GBP 100 billion of inflows. So do you think you can fill that gap with external flows? So when you show all these elements on the left in blue and a greater than sign compared to your outflows, are you talking there about margins or are you talking about flows? I just want to understand kind of essentially before market returns where you see AUM, I guess, in the plan? Second question is on costs. Again, you had a similar waterfall chart where you show kind of inflation, your cost discipline on the core business and then the investment, the GBP 50 million to GBP 100 million, where you've been very clear about where that's projected. I mean given that you've already put in -- you've already got a cost of roughly GBP 50 billion -- GBP 50 million, sorry, in the numbers, are we just going to see really, really low cost inflation in the plan? Is that what you're kind of trying to indicate with that chart? So roughly 1%, 2% net of everything. Just if you could give some sort of guide around that, that would be helpful. And then my last question, really for Antonio and everybody. I mean we've got the impression from various times that we've met you that you felt that this GBP 500 million to GBP 600 million, you really like to be at the upper end or it would be great if you could beat it. I mean, wouldn't it be great if you could beat all your targets. But just kind of where -- I know that the world is a different place now, but how do you feel about that now?

Yes. Okay. So why don't I start there? And actually, I'll give Jeff first, because your Page is 52 and 53 on ANNR and cost. And then, Eric, you may want to comment. Yes. So just how am I feeling about the targets. Look, I set the targets a year ago, right? So in front of most of you. And the world has continued to be complex. Unfortunately, the news flow is dramatic and not particularly positive at times. But overall, I set those targets before knowing that Eric would be sitting here to my right before he changed half of the leadership of Asset Management that's sitting in this room. And so I feel much more confident today that we can achieve and beat those targets. That's what I've said in my -- ideally beat is the words I've used earlier. Having said that, what I'm trying to also achieve is targets that are really ambitious but at the same time, credible. Let me give you 2 numbers because we've given them to you, but it's important to reinforce. On the ambitious side, we are saying that the fee-related earnings are growing annually at 9% to 15%, as the chart that Jeff showed earlier. That is an ambitious target, right? Yes, of course, as the CEO, with some of my Board here. I would love to beat that, right? And I'm conscious in many of our discussions that, that will be a catalyst for our shares to continue to perform better. That's the ambitious part. The credible part is another number that I quoted earlier and Jeff also mentioned, which is of the ANNR, which is the most difficult of the targets, right? So the ANNR is really the real number of the business growing beyond market movements. I'm telling you that between PRT and everything we're writing in PRT, individual annuities, we wrote more than 2 billion individual annuities last year plus the DC flows that those 3 in that little chart that, Farooq, you were just looking at, multiplied by a range that we have, over half of our ANNR comes from that. That's what we were telling you. So that's what that old math that, in a moment, Jeff will go through. That is telling you and that we're using very carefully the word underpin. That's an underpin to that ANNR targets. I would love in kind of 2 reporting seasons, half year, full year, we're kind of blowing the flows and the ANNR. Yes, I'll come back and say, like, we're on track to beat our targets. It's too early to say that. What we're telling you today is here are the proof points. We're already delivering. These targets are ambitious, but credible. They're certainly more credible today. And I think you said, I'm extremely optimistic. So I love that my CEO of Asset Management is extremely optimistic that we are going to meet them. But Farooq, it's too early for me to be changing those. Jeff, do you want to talk about ANNR and cost?

Sure. Yes. So yes, I think the slide you're talking about, clearly, have a lot of inflows. We hit all our targets and ambitions for each division, continue to grow individual annuities, then we see significant contribution to ANNR from that. I think what you were saying is there's 2 things you were saying. One is, can you fill the gap? Absolutely. We believe we can fill the gap in terms of ANNR. That's everything Eric is talking about and where we find that externally. We won't necessarily, on the flow picture, fill the gap on AUM. I mean if the DB is in structural decline of 2, 3, 4 basis points and you lose GBP 100 billion of that, that is a matter if we're getting GBP 20 billion at 50 basis points. So we're not so focused on where that will be. Where the total AUM lands will really be driven by market movements, as you said. So we're not focused on coming to fill that, what we're focused on, we could fill the gap to the GBP 100 million to GBP 150 million of ANNR because that is ultimately what delivers the growth in the actual operating profit. And so -- and that then brings me to the second one on costs. I mean Eric has already said -- he actually said to me, he's not sure he can spend the GBP 50 million to GBP 100 million, but certainly, he'd be at the lower end of that sort of GBP 50 million range. And yes, we were signaling that we expect underlying BAU costs to be very low. And because we are saying that we will manage the total cost inflation to be broadly in line with the market returns because that then allows for the new ANNR to drive all the profit growth and allows us to get an improving cost income ratio. And so that's very much the way we look at the business. We will continue to take action on underlying cost and then we will look to invest where it makes sense. If we're not seeing the revenue coming through, then we will dial that back. If things aren't succeeding, we will stop, and we'll look elsewhere. And so we'll be prudent on that.

Yes. And we've certainly been more deliberate on avoiding -- not avoiding, eliminating cost duplication across all of L&G. Certainly, you've seen some of the actions, early actions that Eric has taken. I said that the main rationale was a client rationale to merge LGIM and LGC. But having merged them, we did have overlap between LGIM Real Assets and LGC. And so we've taken some of those some of those duplications. More generally, I'm doing that for L&G overall. We have Katie Worgan sitting here who joined us as the group COO. We have Brenda, who is the COO for Asset Management. We're looking at efficiencies across all of L&G. So that's more part of our story going forward. Larissa, and then I'll go to one of -- I have a question online. So remind me. It's Andy Sinclair, so before I forget him. So Larissa.

Larissa Van Deventer from Barclays. Two questions. The first one, thank you very much for the information you gave us on the 3x margin you get on bulks versus the pension fund flows that go out. With bulk volumes being elevated at the moment, can you give us a sense of how much of the outflows in the recent past have been pension fund outflows and how much of that has come back as bulk? So we know it's about GBP 10 billion coming back, but how much flows out? And how you see that changing over the next 3.5 years? The second one is on the cost-to-income ratio. Thank you for the target. You're going for below 70% within the next 3.5 years, but your 10-year historic average is actually 58%. Beyond 2028, what would it take to gradually get back to that? And is that a realistic expectation? Or has the world shifted so much that we should think in the 60s rather than in the 50s?

Thank you, Larissa. Maybe let me first go at it, and then I'll hand over to you, Eric. So on the -- and Jeff may have these numbers in his mind, but just doing the mathematics. So if you think about the outflows of old, I call it, good cholesterol and bad cholesterol, right? So some of these outflows are good cholesterol, which is they come to us. We have roughly 20% to 25% market share. So those are the numbers, Larissa, if you think about it. So the market in the U.K. is between GBP 45 million and GBP 50 billion of PRT every year. You think of us as one of the largest -- the largest LDI provider in the U.K. and the largest market share of U.K. DB pension schemes. So when that comes to us in, let's say, a quarter of the cases, that's the good cholesterol. And obviously, when one of our competitors wins that PRT deal, that actually goes out. And in some cases, the AUM goes out, it's even higher because of the -- you should tell me, the derivatives and how we look at that.

But [indiscernible] will be a very low, very, very low [indiscernible] was coming in, which is why it's 3x on a deal.

Yes. And then the only other thing on -- so that's on that. On cost to income, bear in mind that when the business was at that cost to income, it was a very different business. So a lot of what Eric is doing, and indeed that we've been doing even before Eric's arrival, has been expanding into parts of the market that have higher cost to income. So it's the flip side of what we've just described as the very, very low revenue margin business also has a really, really low cost to income. So I don't see us getting into -- actually, we're even lower than 58% at some point. So that is not where the industry is now. And so a lot of the investments that we're doing, for instance, in private markets, they're much more profitable, but they have higher cost to income. So I promised that by summer of 2027, I'll give you new targets for the following 3 years. But for these 3 years, we're saying that we're below 70%. And of course, we'll update at every results. Do you want to say something about cost to income? You know the industry very well. You've been working for decades. You've been working in a part of the industry that has a higher cost to income, but much higher profitability.

Yes. And maybe quickly, just because you asked the question, you talked about the outflows on the one hand. We're very focused on that business, and it's very driven by interest rates. So we've been doing extremely well in a pretty negative interest rate environment. We'll see where that goes from now. But what's most important for us is we are working very closely with all of our clients on whatever journey they're going to take. So if they do think they want to go to buy out, we're in there very early, working with them to help. And that's just reinforcing that ability to create some of that into very good cholesterol, and that's why we have 80% retention.

80% PRT, more than 80% comes from our Asset Management business.

It's from that. So I feel that dynamic is a winning dynamic for us in what is otherwise clearly a tailwind market that we're the leaders in and we're committed to, right? On [ CIR, ] I agree. I think the world's changed a lot. When I think even about the ongoing investments, we will continue to invest in things like technology, automation, everything that can make us more efficient and reactive to serving our clients. That's what's winning mandates today. I think that wasn't as critical as it was several years ago. And so that is cost intensive. And ultimately, we're going to get under 70%. We feel really good about that. The way to get to the bigger numbers is only through growth, right? If you really want to get to cost income ratios that are going to matter, you can't pull it off from cost. The industry is now too complex. The most sophisticated investors, whether they're distribution channels or direct institutions, they want to do more and more with less GPs. So they're going to put -- we're in a period of fee compression, costs are already being looked at. We're being very disciplined. There's only so much you can do on that and it's all about scale. So that's why I think it is harder to get into those 50s, much harder, and the only way to get there is to really be a leader. So we're putting in place a business plan. We'll see where it goes in the long term. But the only way to get there is through the income.

Thank you, Larissa. And compared to all of the other meetings that you have with other asset managers, we're in stronger position because of where we start. And we are the one asset manager that is increasing average revenue margin rather than seeing a decrease. I'll come to you, Dom and Andrew, if there's questions here. But I'll go to the online because there was a question from Andy Sinclair before I forget, which is what's your long-term goal for Asset Management? Do you want to rival someone like BlackRock in the Asset Management space? Or Blackstone, Brookfield in the private markets -- in the private assets infrastructure space? Or is this just about sticking to what you're already good at and doing it better -- and bigger and better? Eric?

Yes. So I think that's a really interesting question. And what we've tried to lay out is it's very hard to see. I don't really compare us to anyone because of the various untapped potential we have. We have an insurance balance sheet. We have the synergistic model we have between our retail and our institutional retirement businesses. We have the breadth of capabilities. We have the barbell. On any one of these statements I've made, you've already eliminated a lot of competition. So when you start adding that up, I think we're pretty unique in many ways. So in an interesting way, yes, we're already good potentially on a lot of things. And the trick is how do we put in place the discipline and the focus to maximize that. So I really don't compare us to anybody. I think we have the potential to do a lot of things. And importantly, I mentioned it earlier, because this is also a rarefied atmosphere, across all of these capabilities, I can't think of a real weak investment performance link because a lot of players, when they do a lot of different things, there's always something that didn't really work out in a way that probably puts you in a bad spot. For at least a long period of time with clients, we don't have any of that. So you add all that up. And I think the trick for us is how do we prioritize and sequence because we can do a lot of things. We can do all of the above, and we have to do it in the way that makes most sense for us with our U.K. base, the capabilities we have, our DNA, our long-term client approach, our international footprint. So I feel great about it. And the real challenge, again, we're not reinventing the wheel. We just have to put some discipline and prioritization into it because we can do a lot of things.

But it's a really good question because, without quoting competitors, but I read a question. Some of those have the barbell, some of those have the balance sheet. But we have the barbell, the scale, the balance sheet and more than 1/4 of the DC market, and that's, I would say, pretty unique. So I'll stop here. Well, Dom, and then I'll come to Andrew. Dom, over there. Yes.

Dominic O'Mahony, BNP Paribas Exane. Three questions, as you'd expect. First is strategy.

We'll take two next time.

Two and a half, it is actually two and a half. So a strategy question. So your growth is going to be driven by the international side. And of course, it's institutional, international or mainly institutional, I assume. How is the conversation with clients changing? I'm thinking in particular about insurance clients where you're having a major regulatory change in some markets like in Asia, Japan, some of the changes around the way that private asset CLOs are treated in the U.S. and Bermuda, clearly Solvency II reform in Europe. Is that conversation changing? And how are you thinking about how you're orienting, what you do to win in that changing game? And the second question is more of a numbers question. So the balance sheet investments side, you're not looking for earnings growth. I might have guessed that it would grow -- the balance sheet as a whole is growing a lot because of the retained earnings. You're reinvesting some of the disposals. Presumably, some of that will be captured within this segment. You've got the Pemberton business as well. What is offsetting that? Is it as simple as that actually more of the balance sheet earnings are coming in the other segments or something else? And then just a super detailed question. This is my half question. Could you remind us what portion of the GBP 145 million of profit of the balance sheet earnings is the valuation uplift in Asset Management stakes?

Great. So why don't you, Jeff, take the second and the third. And then absolutely, Eric, you should take the -- what are you seeing from clients. And do you want to start there?

Yes, sure. So I think the trick is -- and we did put a lot of emphasis on international. We clearly want to grow that pie, but it's very important. That is what growing our U.K. position in absolute terms. Our biggest right to win is here. We are the leader in DB , DC. We have all of these capabilities that many of them started here in the U.K. context on a distribution level. When we think about some of the areas that we spoke about earlier that I'm trying -- that we're going to try to grow into more outside of the institutional space, we're already there in the U.K. So I really don't want the international to kind of hide the importance of us maintaining and ideally growing our leadership position in the U.K. market that we think and a lot of our competitors are very focused on. I think there's a lot of potential here going forward because, frankly, it's been a rough period of time for the U.K., that investors -- the structural potential here is huge. So I just really want to make that clear. Otherwise, internationally, we talked about some of the different channels. You mentioned insurance. The more it's complex for insurers in terms of the environment, the more we have a competitive advantage. We are an insurer, and we're an insurer in multiple parts of the world. You mentioned Bermuda, U.S., we now have this partnership with Meiji Yasuda. So some of those strengths are already playing out, I think. And when they play out the most, it's when they like what we can do from an Asset Management standpoint, but also what we can bring from other parts of the business. So that's the template of what we want to do. In many ways, any kind of regulatory complexity will give us an edge. So that's how we're looking at it.

And there is -- Meiji Yasuda, you mentioned it in your presentation, in the part of your presentation, Eric, which is you think of Meiji, and interestingly, Dom, there is -- we're not talking about this now necessarily. But if you think about Japan as a market, Meiji Yasuda, we've had as a client for more over a decade now. You think about insurance companies like them, they're investing $1 billion with us. And all of the discussions, and Jeff led a lot of discussions with Meiji Yasuda, they like us because we're an insurance company, right? They like us because their actuaries talk to our actuaries and everybody. But it's really that sort of -- there is an element of -- serious point. But there is some -- and there is a cultural affinity. You saw the deal with Admiral, us serving other insurance companies. It's a massive channel that we haven't actually tapped into. And we can do that, as Eric says, in the U.S. We can certainly use Bermuda much more than we have used in the past. And markets like Japan, there are a huge opportunity for us, particularly with a partner like Meiji Yasuda, which gives us lots of local credibility. Jeff, do you want to?

Yes. The balance sheet is earnings. I mean the overriding is that we've really just been conservative in what we've assumed there. So we've taken a lower return, which means though the balance sheet -- total balance sheet is still growing by [ 28. ] The quantum and the GBP 1.2 billion is bigger, but we've assumed a lower return on that and therefore, a lower profit coming through. It is just hopefully, upside when Eric and team work their magic and all the seed that we provide. And that then relates to the amount of -- we've never given really the split of those. The vast, vast, vast majority of the assets are done on a sort of through the cycle, our assumption in the same way as we do for active equities in the shareholder fund. Clearly, Pemberton has been performing well. That contributes most of the actual uplift on anything. That's the main asset that we would do on that basis. But yes, I mean -- and before anyone asks, you can understand the valuation of Pemberton and what we're doing on that is sensitive, especially to the other 60% shareholders around that. So we do have to be a bit careful.

And there's one thing on the GBP 1.2 billion, which is actually, Jeff made that point. The key point -- and this is very different from before we merge the 2 bits of the business. The key deployment of that GBP 1.2 billion is the 7x catalytic power that, that has on the fee side. As when we had it within LGC, that wasn't the purpose, right? We were investing our own capital for the sake of our own capital, if you think about it that way. And now those capabilities that we're investing have a 7x return when it comes to third-party capital. And that's where the real -- and that is growing at 9% to 15%, and that's an important part of it. And a lot of what is the rest of our balance sheet, that's outside the sector, Jeff leads a lot of that. Those -- so you mentioned corporate investment units, et cetera. None of that is happening within the Asset Management. That is separate. So that is a separate part of our balance sheet. Thank you. Andrew?

It's Andrew Crean from Autonomous. Can I stick on this balance sheet investment issue? Could you tell us what proportion of the GBP 1.2 billion is those valuation investments like Pemberton? And what are the profits? Because what you put in the P&L is essentially a capitalized value, the growth in capitalized value. What is the actual profits of those investments? I think Pemberton profits went down from GBP 21 million to GBP 12 million last year. Quite not sure how that works? And then secondly, around that, you own 40% of Pemberton. Do you have an option or has it expired to buy the rest of the business in? One's a little bit worried when you're valuing these things on the growth and valuation, and you actually say that you think private credit assets are overvalued?

Just again I'll start answering that part and then definitely, Jeff should answer the valuation. And you're right. We account for it as the valuation of Pemberton. We're very conservative. Jeff will say that in a moment. In terms of the option, no, we don't have an option to go beyond the 40%. What we do have -- we do not. We had it a long time ago. Yes. So that is a strategic optionality that we don't have. But we are in a very different position with Pemberton. Think about when I was standing here a year ago. By the way, we don't have that option a year ago either. But the -- we were effectively a 40% owner, and we were basically an LP to Pemberton. If you look at the Admiral example that we put up, that's a very different type of strategic partnership with Pemberton. So we are now, together with Pemberton, serving a client like Admiral. That's the first time we're doing that. Could I have asked why we haven't done that before, but sub-investment grade credit, together with L&G investment grade credit going to a client and doing that together, that's a much more sort of strategic value of the 40%. Do you want to?

Yes, just very quickly because I realized earlier in another example I mentioned about a toppy market in privates, that is in my -- again, these are all judgments. In my judgment, that is a U.S. phenomenon. It's not a European phenomenon. That's -- Europe feels that it's toppy until they spent time in the U.S. I can tell you right now, all of the U.S. big private credit players are all over Europe because it feels like there's more right now value potential here. That's a relative statement. We can all have our own opinions on what the absolutes are, but I want to make that clear. I think Pemberton is in a very advantageous on a relative basis part of the private space. And it's also why we're so focused on more and more collaboration with them. We think there's a lot we can do where Admiral came from, frankly.

We really like Pemberton and without stealing your thunder, Jeff, all of those valuations are transactional valuations. They are -- when we're talking about when many of our competitors went out and bought private credit, that is the premium that they're paying on an acquisition. The way we value it.

It's not like that.

Yes. Good. Thank you. See, we finish each other's sentences.

We don't have 20x or 30x multiples that we apply to these on forward earnings. And that's partly why it's quite sensitive because we don't give credit to management for any new initiatives, nothing that has been launched, even if they've started raising some funds but haven't started to deploy. We don't give credit to that. We take a haircut on the more mature strategies that are already out in the market. And only when they show delivery do we then increase our valuation on that. So it is very conservative. And so we do it that way, we do a discounted cash flow. We look at a multiple, it's always far less than that. It is really only Pemberton because we're not going to own the majority in NTR. So the accounting treatment is not relevant. So it's really only Pemberton and a couple of small pieces of development land, which -- some of which could actually be very valuable post planning, deciding what we do with that. Therefore, I can't tell you what proportion of GBP 1.2 billion, because you'll know the answer for Pemberton, plus a few bits and pieces. But it is much -- the vast majority are on an IRR, 90%. But obviously, in the years the Pemberton does well, you'll see that coming through, where it isn't, then you get less of a valuation uplift.

Nasib. Sorry, yes, go ahead.

An equation to figure out, I mean, Pemberton's earnings went down from GBP 21 million to GBP 12 million. So how did the valuation go on?

Which year did they go down? Did the valuation go up? We did because we already had a haircut on what they've done, they actually launched some new funds. They actually moved it. So they've moved forward dramatically. I mean what happens in any individual year is obviously dependent on cost and what deployed in that period of time. But I won't comment on the Pemberton earnings. I don't follow in.

But to reassure you, we are extremely conservative in the way we do the valuations of Pemberton. Nasib, and then I'll go to the other, Andrew, and then Andy Sinclair had anotherr question. But I'll probably come first here. Nasib?

Nasib Ahmed from UBS. So 3 quick questions. Firstly, on the double-digit revenue margin. Do you have any expansion in the private markets margin within that from the 41 basis points to something higher? Or is it just a mix shift from lower margin into private markets to get to the 10 basis points? Secondly, on -- everyone is talking about private markets. Consultants put out these projections on growth in private markets. Everyone's seen those. What makes you think that the margin from 41 basis points doesn't come down given that yes, everyone is chasing private markets. And then finally, 25% of earnings are coming from asset management. I don't think you get to 50-50 by 2028. When do you get to 50-50 if you've done the projection?

So 10 basis points, kind of how do we get there private markets, the compression. Why don't I take the last one, so you should take the first two, Eric. Look, we have signaled -- we haven't told you what the number is, right? So if you take this deep dive together with the institutional retirement deep dive, we have a lot of growth coming from PRT, and so it actually takes a while for the earnings to improve. We believe there's a lot of upside from an Asset Management earnings perspective. But the mix, it takes a while for that mix to change for a good reason, which is our PRT business continues to grow. I talked last time when I was here with Andrew about the golden era of PRT over the next 10 years. So it's not in that sort of intermediate future that -- it increases, but it doesn't increases, too, in a material way. And I also don't want the objectives that I'm setting internally to be -- that division needs to be X and this division needs to be Y because I want them all to grow. But over time -- that's why I'm saying, over time, the L&G becomes more capital light and the fee-earning increases. 10 basis points and the compression on private markets.

Yes. So the simple answer is we don't have to bake in fee expansion in the private side. We don't have to do that. And we -- as you see, when you look at the -- I think we gave 10 examples of strategies that were already -- and there's other -- behind the surface, there are other things we could do going forward. I think that's, in many ways, our position and why we do feel we're very well positioned for this fee compression environment is that any one of those strategies, no matter where they find themselves on the 41% average spectrum are accretive to us. And we've built a very cost-efficient model product by product. I think what we're doing is creating a lot of discipline in how to pull everything together in an efficient way. But because of the nature of our business, we are used to cost-efficient models. So the private space is particularly attractive for us because this is moving us up the revenue chain. We are obviously very attracted to markets as they stand. But as they do and answering your other part of the question is, yes, I do think as this sector becomes more democratized, you will little by little continue to see some fee compression around it. But for us, we're coming from a place that's just on another level from that. So we're very well equipped to deal with that. And we don't have to bake in fee expansion on the privates to get to these 10 basis point numbers.

And Nasib, I would see that as a competitive advantage, right? If you're an alternative asset manager who, by doing this, needs to keep on reducing their fees and compress their fees, versus I'm at 8 basis points, everything is upside, simplistically putting. The CEO of Asset Management can put us in a much better way. But actually, of course, we want to be very competitive and very profitable, but we have much more room to absorb from a fee compression perspective because of where we come from and scale that we have. Andrew?

Andrew Baker, Goldman Sachs. First one, just a clarification, please. The cumulative ANNR target, should we expect us to develop fairly linearly? Or should we expect to be more back-end loaded? And then secondly, on your Slide 52 again. Curious that you didn't call out U.S. PRT. Are you able to give us a sense of the flow expectations there? And maybe also any indication on margin as well?

Thank you, Andrew. On 52, we did this on U.K. PRT alone, so just to be clear. So we don't have the U.S. PRT assumptions with that.

Yes, no, that's right. We haven't set targets. I mean it was, what, $2 billion, last year was a record year. We obviously would like to keep continuing that. And as what Meiji Yasuda, they very much have been pushing already for -- we work together continue to grow the volumes around that. So we'd be looking to grow that over sort of a 5-year period, especially as they grow the balance sheet as well as they expand the business, maybe do more acquisitions, who knows. And so that would be a positive for us. We do manage the vast majority of the assets for that business. We do use external where they have other U.S. skills. But as Eric and team grow capabilities in the U.S., we would look to take more on there, but we use some specialists. So the vast majority is both treasuries, corporate credit and investment-grade private credit that we do.

Should I do the ANNR? So I'd say it a little differently. The targets aren't back-end loaded, but the potential has some -- there's some back-end upside. And what I mean by that is all you have to do is look at 1 page, and it's that private markets page. So that is clearly -- and we just talked about it with the previous question. The highest fees, therefore, the highest ANNR generation potential for us per pound -- I still got to get used to saying pound instead of dollar, is very high on that page. And there's a lot that we're just getting started on. That kicks in, that's naturally going to fall to the bottom line, the ANNR line. So we've built -- we're looking at it as a -- I wouldn't say it's linear, but we don't feel it's back ended. But if you really want to think about potential, as these things kick in, there is quite a bit of ANNR potential that by the nature of private markets, there is a bit of a lag. There is a J-curve in that space. And as we kind of move along that J-curve, there could be quite a bit of ANNR potential. That's how I look at it versus saying back-ended target, it's -- I think that's how I think about it.

And if you think of linking the 2 points, for instance, with Meiji Yasuda, we have, not only in PRT, we work with our own Asset Management and others. But we have in the -- what is our U.S. protection business. We then have an investment management agreement with Meiji Yasuda that they will continue. So the entity that they've bought, they will continue to use us as the asset manager. And they've committed to JPY 150 billion, which are not yet deployed. So back to the point about the -- we have all these strategic partnerships, all these things that we put on those slides earlier, they will continue to grow, right, from an ANNR perspective. So completely agree with Eric that it is -- it has more upside as we continue to grow. Thank you, Andrew. I'll come to Tom, and there's another question from Andy Sinclair online, but I'll go first to Tom.

Thomas Bateman from Mediobanca. On the 15% DC allocation to private markets, could you just talk us through the mechanics of how that works? Can you automatically just shift 15% into that default into the private markets allocation? Or is that something that happens over time and the fees kind of gradually pick up from there? And then the second question is just on the deployment of capital. I think you talked about the affordable housing. I remember I think it was 500 million, you said, I might have got that number wrong. But how easy are you finding to deploy that capital? And similarly, on the private market space, how does the demand reflect your ability to go and put that capital into the market?

Yes. Why don't you answer the second. Let me just take the first one on the allocation. So this is what's aligned with all the sort of Mansion House Accord and before that, the Mansion House Compact. So we were the first player to have, not an [ LTIF ], many other players have an [ LTIF ], but to have one where the default allocation has the 15% to Private Market Access Fund. Now to go into the technicalities of that. In some contracts, we actually have moved the default already, and that's why we have the GBP 1 billion. And so those are where we have the contractual arrangements where we've moved them to the default. We have the largest master trust in the U.K. In the case of the master trust and many of our very large clients, they are in -- where the trustees themselves, they need to take decisions scheme by scheme. So you can see, again, back to the previous question, there's a further upside and the GBP 1 billion in that case doesn't grow linearly, it grows exponentially because more and more of the trustees. And this is why making a comment on the politics or the -- how we've done this externally, we and 90-plus percent of the industry have signed to the Mansion House Accord, but it's the clients themselves that need to decide, obviously, that they want to be in those strategies. Now the good news is that many of our clients have already decided that they want the Private Market Access Fund. Because to be honest, if you are a cashier in a large supermarket or a partner in a professional services firm, what we are providing is incredible value because 85% of it is sort of large scale, mostly sort of index passive, and 15% is at very low fees, you have access to that illiquidity premium. So this is a great solution for the savers, and it's better for us, but it needs to be done scheme by scheme with the trustees themselves. And that's why the Mansion House Accord is a positive thing because we're encouraging the employees themselves, the employers themselves to move and the trustees to move in that direction. So you can expect the GBP 1 billion of the first, not even a year, we announced that in July, so GBP 1 billion in less than a year to then grow as this starts to be adopted by more employers. Do you want to answer the other question? Yes, affordable housing, how is it, private market?

Yes, absolutely. And so in many ways, one of the things that's really important is to be able to do multiple things. These are -- I said it earlier, these are high barrier to entry markets when there's volatility, often price discovery takes longer in private markets than public. So they're lumpy, right? That's the way they are. And that's why it's important to have geographic spread and different strategies that you're capable of doing up and down the risk spectrum. And so that's the key to our business because we will have moments where certain strategies are tougher. Affordable housing is a classic one where it is hard, and this is a global, I spent a lot of time on it in the U.S. It's chunky because it's very linked to supply, right? And there's a lot being done in the U.K. to unlock some of that supply, but we will have lumpiness to it. The good news is the affordable housing fund happens in place where we are best in class. And so even in a period where it has been hard to source residential assets generally, and I don't have the split between each, we have a lot -- we have different strategies, but we did GBP 1 billion of transactions in the last 12 months. This is kind of a low point in the U.K. real estate market. So I feel like things like affordable housing, as deals unlock, we're going to be right there and get our fair share of those deals as they come out. So I feel really good about the overall growth. And what we're building is a platform where I don't have to be worried about the pipeline for the next 3 months or 6 months, that is the key to privates. And that's why this diversification and ability to do multiple things is so important to hitting our GBP 85 billion target with a bit of a lower risk on the outcome. We're feeling -- I'm feeling confident because of this diversity. But that said, this is a notoriously hard market at times to get volume in. It happens to be a place where we're a leader. So I feel really good about it.

And also, come to it, this is a great example, actually, a great question to finish. And if anybody has a second question, I'll come also to the question from Andy online. This wouldn't have happened without the merger of LGIM and LGC, right? Come back to we're a leader in affordable housing. We've been a leader in real estate since the 1970s. We've been investing for more than 50 years in the U.K. But affordable housing historically, we've made it -- we've led affordable housing mostly for our own balance sheets. That leadership position has been mostly for our own annuity book. What we've now done since last year is actually distribute affordable housing to third parties to have co-investment into our affordable housing platform. That is this strategy in action, right? That's the big change that we did is more third-party money coming into key asset classes where we've historically done it for ourselves. Jeff, I think the one online is for you. So from Andy, Sinclair, what have you assumed for market returns? Nobody asked this question. So what have you assume for market returns over the target period? So that's that chart where we have market returns, investment and ANNR.

Yes. Eric tells me, it will be 15% plus. I'll lean to that. Well, that's what we've assumed. We -- no, we've been very conservative in it. And actually, what we've done is we looked at a range of scenarios at the low end. So whether it's 3%, 4%, 5%, 6%, we're confident we can hit our targets around that. What really matters around this is that we manage the cost inflation in line with what the market is allowing you to do. And so that's the discipline that we brought in. That's very much the way we were looking to run the business. And so however that plays out in a low range like that, we are confident we can manage the cost, we can deliver and still invest in the business because we're keeping that BAU underlying cost low to give us the flexibility. Obviously, anything in excess of that will give us much more flexibility. Eric still doesn't think you'll need to invest the money, but clearly, it will certainly help either flow through to the bottom line or we'll invest for future growth that is justified.

Thank you. Any other questions? If not, thank you. Thank you for coming today. It's -- thank you for your questions as well. As you've heard, we have an exciting vision for the future of asset management. You can feel it in what I'm saying, what Eric is saying, how Jeff is describing it. We have good momentum on delivering that strategy. We talked a bit about flows in the beginning of 2025 and how we're feeling about the business right now. I look forward to seeing you again in August for our half year results and then later in the year for our deep dive in our retail business with Laura. Thank you.