A man walks past a Pacific Investment Management Company LLC (PIMCO) advertisment which is displayed on a building in Hong Kong, China (Photographer: Brent Lewin/Bloomberg)

What Bond Carnage? Pimco Boosts Allianz With $11 Billion Inflow

(Bloomberg) -- Pacific Investment Management Co. is shrugging off the hangover in bond markets, at least for now.

After a two-year selloff in Treasuries that saw yields more than double, the giant bond manager pulled in about 10 billion euros ($11.4 billion) in the third quarter, reversing outflows in the prior three months. Together with 5 billion euros inflows at Allianz Global Investors and market gains, assets at German parent Allianz SE rose above 2 trillion euros for the first time.

Pimco has been preparing for the bond slump by pushing into alternative assets and high-fee private funds with longer lock-up periods. It recently hired John Studzinski, the former Blackstone Group executive, to focus on the firm’s largest investors, and last month announced the purchase of Gurtin Municipal Bond Management, a manager of $12 billion in muni bonds for high-net-worth clients, the first acquisition under Chief Executive Officer Emmanuel “Manny” Roman.

“We are definitely pleased with the performance of Pimco but also of AGI,” Giulio Terzariol, Allianz’s chief financial officer, said in an interview on Bloomberg TV. Allianz will continue to make “bolt-on” acquisitions, both at Pimco and AGI, with a focus on adding asset classes outside plain-vanilla stocks and bonds, he said.

Wealthy Clients

Pimco’s inflows in the third quarter went mainly into enhanced cash strategies, high yield and investment-grade credit, Allianz said Friday in a statement. The firm is betting that longer lock-ups and wealthy clients can help insulate it from finicky flows in open-ended funds, and enable it to profit when the next economic slump comes.

Pimco’s traditional flagships, Pimco Total Return and Pimco Income Fund, have struggled to make money this year, with Total Return -- once the world’s largest bond fund -- on track for its first losing year since 2013.

AGI, which is based in Germany, attracted new money into mutual funds sold to clients in Asia-Pacific. The company recently embarked on a branding effort to emphasize the advantages of active asset management. It slashed the management fee on some funds in return for a performance fee that will only kick in if the fund beats its benchmark.

Shares of Allianz rose 0.4 percent at noon in Munich as the asset-management units and lower claims from natural disasters fueled a 24 percent increase in third-quarter profit. The insurer’s shares are little changed this year, bucking declines in the broader German market.

Here are some highlights from Allianz’s third-quarter results:
  • Property & casualty operating profit rises 45% to 1.5 billion euros
  • Asset-management profit gains 11% to 650 million euros
  • Life & health profit declines 1.6% to 1.1 billion euros

Both asset managers continued to improve margins compared with a year earlier, even though they declined slightly from the prior quarter. Pimco earned 39 basis points on its third-party assets, compared with 38.4 basis points a year ago and 39.2 basis points in the second quarter. At AGI, that measure stood at 47.3 basis points in the third quarter.

Achieving higher margins is a rare feat in an industry suffering from a flight to cheaper passive funds that’s forcing smaller firms to merge. Allianz’s asset-management unit, headed by Jackie Hunt, has largely stayed away from passive strategies, betting instead on the skills of its managers and its distribution network to win assets.

©2018 Bloomberg L.P.