Allianz SE (ALV), defending its Pacific Investment Management Co. unit against shareholder criticism over declining returns and management infighting, said the bond manager has been a very profitable investment since the German insurer took it over in 1999.
“We have more than earned back all the expenses spent on the purchase of Pimco over the past few years,” Michael Diekmann, the 59-year-old chief executive officer of Europe’s biggest insurer, said today at the company’s annual shareholder meeting in Munich. Last year, “Pimco again made a significant contribution” to Allianz’s earnings.
As Pimco struggles to navigate rising interest rates and client withdrawals in the past year, the unexpected resignation of CEO Mohamed El-Erian amid reports of clashes with founder Bill Gross spurred an overhaul of top management. Shareholders including Union Investment Group used the meeting to highlight deteriorating fund performance and ask whether Allianz, which has so far taken a hands-off approach toward Pimco as assets have surged to almost $2 trillion under its ownership, plans to change that practice.
“Whether Pimco’s new management structure is working and leads to better investment results remains to be seen,” said Ingo Speich, a fund manager at Frankfurt-based Union Investment, which is Allianz’s eighth-biggest shareholder, according to data compiled by Bloomberg. “Maximum autonomy has been the recipe for success of Pimco so far. Do you now want to get involved more in Newport Beach?”
The public spat between Gross and El-Erian resembled a “male cat fight” that should better have been avoided, said Daniela Bergdolt, a representative for the DSW, Germany’s largest association for private investors. “I would have wished you would have interfered earlier.”
Diekmann responded that there would be no reason to “read the riot act” to management or “conjure up a doomsday scenario,” adding that the measures taken by the company should rather be evaluated in a year’s time. Customer feedback on the new management at Newport Beach, California-based Pimco has been positive, Diekmann said.
Allianz acquired a stake of about 70 percent in Pimco in 1999 for $3.3 billion. Pimco managed about $256 billion at the time, bringing Allianz’s assets under management to $650 billion. It gave the fund manager, which Gross co-founded in 1971, greater independence in 2011 by separating it from the insurer’s other asset managers, which are combined in the Allianz Global Investors unit.
El-Erian, who had shared the role of co-chief investment officer with Gross, has continued to work for Allianz as chief economic adviser, and has said Gross is still one of the world’s great investors. Since El-Erian’s resignation and the management reorganization, which named six new deputies, Gross has said his firm is now in better shape than before.
Gross’s Pimco Total Return Fund, the world’s largest bond fund, suffered its 12th straight month of withdrawals in April as it trailed peers. Investors pulled a record $41.1 billion from Pimco Total Return in 2013, according to Morningstar Inc. They’ve removed $11.3 billion from the fund this year, the data show.
“All this becomes so much of a distraction it prevents people from performing at their highest abilities,” Michael Rosen, chief investment officer at Angeles Investment Advisors LLC in Santa Monica, California, said in a telephone interview. “At some point you’ll see that in their performance numbers.”
First-quarter operating profit at Allianz was 2.72 billion euros ($3.8 billion) after 2.8 billion euros reported a year earlier, according to preliminary figures released by the Munich-based insurer, beating the 2.6 billion-euro average estimate of six analysts surveyed by Bloomberg. Net income fell 4 percent to 1.64 billion euros. Allianz, which reports detailed results May 14, did not provide the contribution to earnings from Pimco.
To contact the editors responsible for this story: Christian Baumgaertel at email@example.com Sree Vidya Bhaktavatsalam, Josh Friedman