Allianz Says No More Cost Cuts at Pimco as Outflows Seen Ebbing

Allianz CFO: Central Banks Competing in Main Asset Class
  • Target of 60% cost-income ratio within reach, CFO Wemmer says
  • Pimco Total Return Fund has shrunk 70 percent to $86 billion

Pacific Investment Management Co.’s struggles to contain outflows since the departure of money manager Bill Gross in 2014 are coming to an end and the company won’t need additional cost cuts as assets stabilize by the end of the year, according to its owner Allianz SE.

Since Gross went out of the door, Newport Beach, California-based Pimco’s assets under management have shrunk by about a quarter to $1.5 trillion. The flagship Pimco Total Return Fund -- once the world’s largest mutual fund -- has dwindled by 70 percent to $86 billion in the past three years. Lower revenue from fewer assets, along with a bonus program introduced to retain talent, pushed costs up as a share of revenue.

“We are well on track towards our cost-income ratio target and no further measures are planned for now,” Allianz Chief Financial Officer Dieter Wemmer said in a conference call with journalists on Friday. “We have made a lot of progress on getting non-personnel expenses down and the cuts announced in June will also help, in addition to a lower impact from the retention program.”

Operating profit at Pimco declined to 384 million euros ($428 million) in the second quarter from 396 million euros a year ago, according to a statement Friday.

Profitability Measure

Pimco’s cost-income ratio, a measure of profitability, improved to 62 percent in the second quarter from 64.3 percent a year earlier, helped by lower personnel costs, Allianz said in a presentation on its website. In 2013, the ratio stood at 51.3 percent and the target is now a figure below 60 percent. Investor withdrawals at Pimco declined to 18 billion euros in the second quarter from 29 billion euros a year ago.

Outflows jumped from 10 billion euros in the first quarter because “one customer decided to withdraw 17 billion euros early April as he needed the money for something else,” Wemmer said. He declined to be more specific.

Pimco last month appointed Emmanuel “Manny” Roman, 52, as chief executive officer starting in November. The hedge-fund veteran, who revived the fortunes of Man Group Plc, is tasked with delivering higher profits at a time when historically low interest rates have narrowed bond returns.

“When Manny arrives there, he can really start to lead Pimco in the next development phase,” Wemmer said in a Bloomberg Television interview with Anna Edwards and Caroline Hyde. “Pimco is already now a very strong hedge fund manager. We need to further broaden our asset classes.”

Allianz’s optimism for Pimco comes even as it sees a “challenging environment for the asset-management industry for the rest of the year,” according to the half-year report on its website. “In addition to market volatility, profitability in the industry remains under pressure from both continuous flows into passive products and rising distribution costs.”

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