FOR PROFESSIONAL INVESTORS ONLY Legal & General Index Solutions More than just market returns Our proven philosophy, scale, expertise and product breadth help to provide the high-value efficient indexing solutions you would expect from a market-leading index manager. But we offer you more, with a singular focus on meeting your investment needs with a range of return enhancing and value-adding services.
2 Scale and expertise Legal & General Investment Management (LGIM) has the scale and expertise required to offer indexing benefits beyond the index return, including cost efficiencies, expert implementation and value-added services. LGIM began managing index funds in the 1980s, and we launched our first index solution for clients in 1986. Since then, we ve expanded our range to include diverse markets such as emerging markets, as well as fixed income index funds to meet investors evolving needs. We manage 714.6 billion* of total assets across a range of asset classes, with 295** billion of passively managed assets (as at 30 June 2015). A leading index manager 350 Passively Managed - Assets Under Management 300 281 294 295 250 200 150 137 162 214 176 208 230 230 245 111 100 67 75 78 77 92 50 12 13 16 22 31 44 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Billions 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 Source: LGIM internal data as at 30 June 2015. AUM reflects Legal & General Investment Management (Holdings) and excludes derivative positions. Awards for excellence WINNER Investment Award for Excellence WINNER PENSIONSAge WARDS 2014 WINNER PASSIVE MANAGER OF THE YEAR *Data reflects the total value of assets under management across the group including derivative assets. **Data reflects the total value of passive assets under management across the group.
3 More than the market return Our proven philosophy, scale, expertise and product breadth help to provide the efficient indexing solutions you expect from a market-leading index manager. With a singular focus on meeting your investment needs and a world-class corporate governance team helping to represent your interests, we aim to deliver value that goes beyond generating the market return. Aligned interests No affiliates involved in brokerage, custody or banking means managing your investments is our sole focus. Profits generated through our value-added activities go to our clients. Transparent fee model. Proven philosophy An approach we describe as pragmatic replication. We aim to deliver market returns by intelligent implementation of index changes to get the best outcome for investors. Scale Large daily flows provide internal crossing opportunities, saving clients money. We also get better access to markets, meaning lower trading costs and better liquidity. Giving you more than just the market return Expertise A large experienced team and proprietary systems ensure efficient portfolio management and low tracking errors. Product breadth A leader in traditional and alternative indexing, across global and regional equity and fixed income indices. Constantly working with clients to provide the market exposure they want. Active owners Our corporate governance team engages at a company and market level to help companies deliver long term performance.
4 Indexing: A cost-effective straightforward solution An index fund offers a cost-effective, diversified and straightforward way for clients to access market returns. Index funds are an integral tool for many of the world s largest and most sophisticated institutional investors. Costs matter The lower fees for index funds can make a significant difference to investment returns net of all costs over the long term Reliable beta Index funds aim to deliver the market return (beta), so investors should never experience a performance shock of severely underperforming the market Straightforward solution Index funds have a simple and clear objective to deliver the market return, making it easy to understand Highly diversified Most indices have dozens, if not hundreds, of securities. By using index funds, investors reduce the risk that one company can undermine portfolio returns Easily monitored With a more straightforward investment process than active funds, index funds usually need less monitoring and require a lower governance budget
5 The LGIM Indexing Advantage Our indexing solutions have all the attributes you need from an index provider, with value-added activities that go beyond simply delivering the market return. Proven philosophy Scale Aligned Interests Giving you more than just market return Active owners Expertise Product breadth Proven philosophy a pragmatic cost-effective approach Close tracking, reducing costs and enhancing returns requires judgement and a rigorous analytical approach that goes beyond simply replicating the index day in and day out. We employ pragmatic replication to achieve these ends on your behalf. We aim to stay within our target risk parameters, while reducing costs and enhancing returns. This includes allowing the size of holdings to fluctuate within a narrow band and careful planning of index changes to avoid trading in unfavourable market conditions. Scale efficiencies and market access reduce cost Over the last 25 years, LGIM has grown into one of the largest global providers of index funds, managing 295 billion* of passively managed assets (as at 30 June 2015). This scale generates significant efficiencies and cost savings which we can then pass on to you. For example, large daily cashflows provide internal crossing opportunities without always having to resort to the cost of trading in the market. Our scale also facilitates access to markets, meaning lower trading costs and better liquidity when buying and selling on behalf of investors. Expertise experienced teams and advanced systems Implementing pragmatic replication strategies and exploiting our scale relies on a large experienced team using proprietary IT infrastructure. Together, our people and systems seek to ensure effective portfolio management, low tracking error, and comprehensive risk oversight. Product breadth a wide variety of solutions We offer pooled and segregated solutions covering both traditional market-cap weighted and various alternative beta strategies. We work closely with index providers and clients to bring new investment opportunities across asset classes, currencies and strategies. Aligned interests focused on your investment needs LGIM has no brokerage, custody or banking affiliates, leaving us to focus on your investment needs. When we engage in stock lending or dividend enhancement, all the profits go to investors, never back to us. Active ownership driving shareholder returns Our scale also gives us real influence on, and access to, senior company management. Our corporate governance team can effectively engage at company and market levels to promote long-term shareholder interests. * Data reflects the total value of passive assets under management across the group. 1 Defined Contribution Market Intelligence, Spence Johnson Ltd, 2013
6 Pragmatic approach to index management We aim to fully replicate an index by buying all the index securities in the same proportions as the index. But full replication isn t always in the best interests of investors. So we take a pragmatic approach driven by a keen focus on achieving the best outcome for investors in a given market. Our approach aims to balance the key client outcomes: reducing costs and tracking error while enhancing returns. Tracking the market closely while... Enhancing returns, and... Achieving a balance By pragmatic index replication, we mean balancing the key client outcomes of close market tracking, enhancing returns and reducing costs. A client-centric approach Our approach seeks always to deliver the best possible outcome for clients. While full replication may represent the ideal, in some market segments it can erode performance due to high transaction costs as a result of the number of index securities or lack of liquidity. Expertise matters Achieving this balance goes beyond an automated process as advanced indexing techniques require expertise, experience and scale, all of which LGIM has in abundance. Reducing costs
7 Efficiency and expertise, driven by scale Index fund management is a process that benefits from adding human expertise to efficiencies of scale. Scale drives efficiency Efficiency is at the heart of any successful index investing team. At LGIM, we have the latest market-leading technology which enables us to devise trading strategies that can save our clients significant trading costs and help to enhance returns. Expertise drives excellence Our Index funds team was established in 1986, and now includes over 60 investment professionals. The team offers an experienced and well-resourced capability across fixed income and equities, strategy implementation and allocation strategy management. Enhancing returns Our index management approach goes beyond beta to seek opportunities to enhance returns through the following strategies. Our policy of enhancing returns whenever practical has resulted in a modest, yet financially significant, improvement in long-term tracking performance across the funds we manage.* Enhanced index change process Securities lending income Value from corporate actions Dividend enhancement Index changes entail both risk and a potential opportunity. We carefully analyse each event and formulate a trading strategy to spread the implementation of index changes around the change date to avoid price distortions that might affect investor returns. We also participate in new issues and placings where possible, to further reduce the impact of a change in the index on our funds, as well as enhance returns were possible. Index funds are a natural source of securities lending, although not appropriate for every mandate. Combined with LGIM s strict risk framework and guidelines, securities lending can produce additional incremental returns. All profits generated by securities lending go back to the client, not LGIM. Corporate activity, such as placings, IPOs, new bond issues and M&A, create opportunities to add value. Cross-border corporate activities also tend to increase potential to generate added value as the index treatment of these types of events is not always optimal. Where feasible, we aim to increase the net dividend entitlement for equity investors. We use listed derivatives to implement such strategies. Scrip dividends can also generate opportunities to enhance returns. *LGIM s flagship equity fund composites demonstrated consistent positive performance bias over 3, 5 and 10 years as at 30 June 2015, gross of fees. More details available on request. Past performance is not a guide to future returns.
8 Positive impacts of active ownership We believe in active engagement to increase the value of the companies we invest in in order to help enhance investor returns. To that end, we have built one of the largest and most experienced corporate governance teams in the UK. Influence enabled by scale LGIM provides investment management services and is one of the UK s largest investors. On behalf of its clients, LGIM has responsibility for approximately 3%* of the UK stock market, as represented by the FTSE All Share Index. This level of influence allows us to be active and persistent in encouraging companies to act in the long-term interests of shareholders. Supporting the best company managers and ensuring their remuneration packages align with long-term shareholders interests Company Management Long-term Financial Performance Takeovers and Mergers Industry Best Practice During mergers and acquisitions, LGIM seeks to enhance share holder value for all our clients Promoting industry best practices on a variety of environmental, social and governance issues *Source: LGIM internal data and Bloomberg L.P., as at 30 June 2015.
9 Adding value for institutional investors We also offer a range of complementary value-added services to help you achieve your wider investment objectives, based on our skills and infrastructure as a large-scale, market-leading index manager. Transition management When moving your assets from A to B, efficiency, risk management and cost control are paramount. We have the experience, project management skills and infrastructure to deliver a cost-effective solution. Trigger monitoring Market moves can be swift. We can help implement your de-risking strategy faster and more efficiently using derivatives or physical securities. Value-added Service Currency hedging We have developed a sophisticated in-house currency overlay system to help you mitigate the currency risk of your overseas investments. Benchmark and asset allocation management Because your asset allocation decisions need to be reflected continuously in your portfolio, we provide an extensive monitoring and implementation service.
10 Solutions to meet your indexing needs We offer a full range of market cap weighted and alternatively weighted index solutions across a wide variety of geographies and asset classes. Market-cap weighted index solutions Equities We offer a comprehensive range of equity index solutions covering global, regional, country and sector indices, as well as market cap segments. Fixed income Our fixed income capability covers government, corporate and aggregate indices in various currencies, maturities, credit types and rating levels. Custom index solutions We also regularly work with our clients to provide custom indexing solutions; for example, to restrict exposure to unwanted securities, sectors or markets. Alternative index solutions Likewise, we leverage our indexing expertise to offer bespoke or off-the-shelf solutions in the following categories for investors looking for exposure to alternative market indices while maintaining the diversification, transparency and low cost of traditional indexing. Index type Index Construction Example Capped Index Fundamentally weighted indices Equally weighted indices Volatility indices Stability Environmental, social, governance (ESG) indices A maximum limit or cap on the weight of an individual constituent within an index, with the aim of reducing excessive concentration Specific financial accounting data such as profitability, book values and cash flows are used to weight constituents. The aim is to weight stocks on the credibility of the business For an index with 100 constituents, each security would be weighted at 1% The weightings of index constituents are designed to achieve the lowest volatility of returns. These indices try to lower the chances of outlier returns, generally using either means variance and heuristic or rules-based approaches Include securities which have a higher (or lower) sensitivity to economic or credit cycles or market volatility Investors can exclude certain investments based upon certain ethical screens or focus on companies which fulfil a set of socially responsible criteria. Those concerned about the potential effects of climate change policy use such funds as an investment solution MSCI 20/35 Indices FTSE RAFI All World 3000 Index Russell Global Large Cap Equally Weighted MSCI World Minimum Volatility Index Russell Stability Indices MSCI World Low Carbon Target Index
Our value-adding proposition Giving you much more than the index return Proven methodology Intelligent index tracking through pragmatic replication Scale Large daily flows provide internal crossing opportunities, saving clients money Expertise Substantial investment in people and infrastructure Efficient portfolio management and low tracking errors Active ownership Actively engaging with companies Promoting shareholder interests Creating long term value for our clients investments Aligned interests Your investment needs are our sole focus Transparent fee model Profits generated through our value-added activities go to our clients
CONTACT US www.lgim.com +44 (0)20 3124 2000 Legal & General Investment Management One Coleman Street London EC2R 5AA. IMPORTANT INFORMATION The information contained in this brochure is not intended to be, nor should be construed as investment advice nor deemed suitable to meet the needs of the investor. Authorised and regulated by the Financial Conduct Authority. 2015 Legal & General Investment Management. All rights reserved. No part of this document may be reproduced in whole or in part without the prior written consent of Legal & General Investment Management. M0419