Hard Brexit Shaping Up as Main Worry for Allianz GI’s CEO

(Bloomberg) -- Andreas Utermann has long brushed off the risk of a hard Brexit, arguing even a managed separation would be a nightmare for the U.K. Now that scenario is shaping up as the biggest worry for the money managers at Allianz Global Investors, the $600 billion firm he heads.

An unmanaged Brexit would have a “significant impact” on the economies in the U.K. and Europe, Utermann said Tuesday in an interview with Bloomberg News Editor-in-Chief John Micklethwait. He joined Societe Generale SA Chairman Lorenzo Bini Smaghi, who warned earlier at the event that a hard Brexit was a “systemic event” that could trigger a global recession and a disaster for the financial system.

A hard Brexit is possible “because the players involved in the discussion seem to be -- at least in terms of how they are talking about the process -- seem to be contemplating very irrational moves,” Utermann said in the interview at the Bloomberg Invest conference in London. “It’s very difficult to predict now.”

With the current Brexit deadline just over three weeks away, prospects for a last-minute deal are looking dim. Prime Minister Boris Johnson told German Chancellor Angela Merkel on Tuesday that an accord is impossible if the EU demands Northern Ireland should stay in the bloc’s customs union. French President Emmanuel Macron and Irish Prime Minister Leo Varadkar have signaled they want progress by Friday, adding to a sense that time is running out for the two sides to come together.

“This uncertainty, I think, would create quite an impact on the emotion, on the sentiment, on entrepreneurs all over the world,” Bini Smaghi said on Monday. “Consumption would stop, investment would stop and we could have also a recession.”

Utermann, who joined AGI in 2002 and became CEO in March 2016, said his investing team is already much more cautious than it was six months ago because of Brexit, trade stress and a slowdown in the global economy. Many portfolio managers “are probably very cautious on sterling and probably cautious on U.K. equities,” he said.

AGI, which oversees 543 billion euros ($597 billion) in assets as of June, is the smaller of the two money managers owned by German insurer Allianz SE. The other, bond specialist Pacific Investment Management Co. or Pimco, invests more than $1.84 trillion.

To contact the reporter on this story: Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Christian Baumgaertel, Dale Crofts

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