Bonds Are Hot Spot at $1 Trillion Asset Manager, Grier Says

  • Prudential vice chairman says investors shift to fixed income
  • Growth is coming from lower-margin products, Grier says

Prudential Financial Inc. Vice Chairman Mark Grier said the insurer is shaping its $1 trillion asset-management arm to respond to increased customer demand for bonds.

“We have good products in fixed income, which is still the hot spot,” Grier said Thursday at a conference held by Keefe, Bruyette & Woods, adding that the insurer is working to provide a multi-strategy approach to some of its biggest customers. “We’re building that capability, which is important, because we do get clients who call and say, ‘What if I give you a billion dollars and you figure out what to do with it?’ So we’re going to be better equipped to deal with those kind of clients.”

Chief Executive Officer John Strangfeld has been bolstering the insurer’s money manager, which has units that hold equities, bonds and real estate for third-party investors. He rebranded the business as PGIM this year, and has recruited Wall Street veterans in recent years such as BlackRock Inc.’s John Vibert, former Morgan Stanley strategist Gregory Peters, and Robert Cignarella from Goldman Sachs Group Inc.

Asset-management operations generate fee income and can be less capital intensive than some insurance products or retirement offerings such as variable annuities. Assets under management at Prudential Fixed Income have increased 61 percent to $652 billion from the end of 2013. Grier said the investor shift to bonds has presented challenges, however.

‘Cuts Two Ways’

“It cuts two ways because the net flows are in lower-margin products in fixed income, as opposed to higher-margin products in active equities,” Grier said Thursday. “There’s a trend in the market away from active equities toward passive, and there’s also a trend in the market toward fixed income.”

Investment-grade bonds have rallied as central banks kept interest rates low to stoke economic growth. The Bloomberg Barclays Global Aggregate Index gained 10 percent this year through Wednesday, beating the return of less than 9 percent for the S&P 500 Index.

Grier also addressed his company’s status as a non-bank systemically important financial institution, a designation from U.S. regulators that can lead to tighter capital standards. Larger rival MetLife Inc. has won a court ruling overturning the SIFI label, but the government has appealed. Newark, New Jersey-based Prudential can see how that case proceeds before deciding whether to pursue its own legal fight, the vice chairman said.

“In the long run, we’ll be situated similarly to Met,” Grier said. “We don’t have any legal reasons that we can’t do what Met’s doing.”

Prudential slipped 21 cents to $78.30 at 10:47 a.m. in New York, extending its decline since Dec. 31 to 3.8 percent. The company tumbled 10 percent last year, after declining 1.9 percent in 2014.

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