Net inflows “were strong last year and continue to be strong to-date,” Jay Ralph, the Munich-based insurer’s management board member responsible for asset management, said in an interview in London. “The current market environment is better than we forecasted last year.”
Allianz reported third-party net inflows of 23.5 billion euros ($30.4 billion) in the first quarter and 18.6 billion euros in the second. That brought total assets under management to 1.75 trillion euros, with more than 80 percent of that accounted for by Pimco, led by Mohamed El-Erian and Bill Gross.
Asset management’s contribution to Allianz’s operating profit almost tripled to 27 percent over the past five years and was 635 million euros in the second quarter. The insurer has said it plans to grow the asset management unit’s operating profit, excluding currency movements, by 5 percent to 10 percent a year “over a full cycle.”
“In terms of profitability, the Allianz asset management and life insurance segments are roughly the same size,” Ralph, 53, said. The units are “complementary to one another” as life insurance suffers in a declining interest rate environment, while Pimco benefits, he said.
While Ralph doesn’t expect rising interest rates “in the near future,” he said Pimco, which runs the world’s biggest bond fund, should still attract net inflows should that happen.
“Structural reasons will prevent a significant shift away from fixed income into equities,” Ralph said. Solvency II, new risk-based regulations for insurers in Europe, “penalizes holding equities within insurance balance sheets,” he said.
An aging population will also move from riskier equity oriented asset allocations to portfolios containing a larger share of fixed income securities, he said.
Bill Gross’s Total Return Fund (PTTRX) attracted $2.8 billion in September, the ninth straight month of net deposits into the mutual fund. Pimco’s flagship fund has gathered $12.1 billion in new cash for the year through Sept. 30, bringing assets to $278 billion, according to Morningstar Inc.
“The main driver for operating profit in asset management is scale,” Ralph said. “The amount of assets under management is very much related to your investment performance -- the better your performance, the better your profitability. We’ve seen this with Pimco.”
Pimco, which had 1.43 trillion euros in assets under management at the end of June, was separated from the insurer’s other managers last September to give the Newport Beach, California-based unit more independence.
In the current markets, boutique asset managers “can be successful if they have a strong focus,” Ralph said. “Mid-size firms are likely to lose share to boutiques and large firms.”
Investors require better visibility to judge the implications of Europe’s debt crisis, according to Ralph, who joined Allianz in Zurich in 1997.
“We’d like more certainty around how investments in private securities will be treated in the case of a debt restructuring,” he said. “Will private investors be treated in the same way as public creditors and emergency funds? Clarity on this issue is important for fixed income investors.”
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