Pimco Part II

After the Storm

Source: Bloomberg
Pimco’s new chief executive, Douglas Hodge, said that while many investors had followed Mr. Gross, the restructuring efforts of the teams and a new leadership convinced many to stay.
  • Why it matters

    Why it matters

    Allianz quarterly numbers will show how much the German insurer has suffered from its U.S.-based subsidiary’s problems.

  • Facts

    Facts

    • Two of Pimco’s top managers left earlier this year, and its funds have had massive outflows.
    • Pimco’s competitor Blackrock has lowered fees to enter their Total Return Fund to attract existing Pimco clients.
    • Pimco wants to move away from struggling fixed income products and open new revenue streams in equity and real estate.
    •  
  • Audio

    Audio

  • Pdf

Investors are bracing themselves for bad news as German insurer Allianz releases the first set of results since the loss of its star fund manager Bill Gross.

Mr. Gross, founder of Allianz’s California-based funds business Pimco quit in September after a year of heavy outflows, conflicts with his former chief executive and possible successor, Mohamed El-Erian. Mr. El-Erian left Pimco in March and remained with Allianz as chief economic adviser.

The loss of both managers at Pimco has affected business, and analysts said it is likely to hit Allianz third-quarter results released Friday.

“I would be surprised if we would see better results at Allianz than the year before,” said Stefan Bongart, analyst at Independent Research in Frankfurt. “Compared to the Q3 operative results in asset management last year, it will probably fall by €100 million,” he said.

Last year’s third-quarter operating results were at €754 million, and Mr. Bongart is expecting it to be at €680 to €650 million this year, he said.

“I believe that Pimco will recover in the long run, there will always be a demand for pension products.”

Analyst, Stefan Bongart

After Mr. El-Erian and Mr. Gross quit Pimco, investors pulled out more than €38 billion ($48 billion) from Pimco as a whole, and €22 billion from the Total Return bond fund which Mr. Gross was managing. The outflow was one of the largest ever seen in the sector.

“The fixed income market overall is performing poorly for a number of reasons,” said Mr. Bongart, “but with Mr. Gross departure, who focused only on this area, Pimco did lose one of its major drivers.”

The Total Fund had once been regarded as a must-go for any pension funds and its success had led to Mr. Gross being referred to in the industry as the Bond King.

The Total Return fund, which is now managed by Daniel J. Ivascyn, has been losing money for 18 months. But while the outflows predate the departure of both Mr. Gross and Mr. El Erian, they intensified in the dates after Mr. Gross departure on September 26. In the first few trading days after his surprise announcement, the fund lost more than €2.3 billion per day.

Jeff Tjornehoj, a senior research analyst at Lipper, said the losses would continue.

“Outflows are likely to continue for the next several months,” he said.

Pension funds and institutional investors traditionally react slower to changes, but are likely to reach a decision in the coming weeks, Mr. Tjornehoj said. A series of pensions funds with around €11 billion under management have already announced an intention to revise their investment portfolio again.

Diekmann reuters
Allianz chief executive, Michael Diekmann, will present third quarterly results on Friday. Source: Reuters

 

But Douglas Hodge, Pimco’s new chief executive, said that while many investors had followed Mr. Gross out of the door, the restructuring efforts of the teams and a new leadership convinced many to stay.

He said he has replaced the two-leadership culture at Pimco, which was dominated by Mr. Gross and Mr. El-Erian and replaced it with a team of six experienced managers that are mostly known among experts only.

“95 percent of our clients kept their investments with us and have assured us that they still trust us,” Mr. Hodge said.

Pimco said in a press release that several top managers who had left Pimco have in fact returned since Mr. Gross’s departure. Marc Sneider, who left Pimco earlier this year over the leadership struggle, returned in November as managing director and chief investment officer of non-traditional strategies. Nobel Laureate economist Michael Spence, who had also worked for Pimco also returned in October as consultant on macroeconomic and global policy issues. Jeremie Banet, the new Executive Vice President and Portfolio Manager for real return strategies is also a Pimco returnee.

Mr. Hodge said he is also trying to open other revenue streams, including equity and real estate, but those markets are highly competitive and it is difficult to establish a presence in them.

Experts also say that despite challenging times, Allianz is likely to keep Pimco and hopes that fixed income is going to experience a renaissance going forward.

“There will always be a demand for pension products,” Mr. Bongart said. “This is what institutional investors have to invest in mostly and so I believe that Pimco will recover in the long run.”

Allianz said it expects its asset management  division to deliver operating profits of €2.5 billion to €2.9 billion.

In the meantime, competitors are circling Pimco. Blackrock lowered their fees for their own Total Return Fund, hoping to lure away investors spooked by Allianz’s troubles.

 

Kerstin Leitel contributed reporting to this story from Munich, where she is covering banks and insurance companies for Handelsblatt. Astrid Dörner is covering the finance sector from New York for Handelsblatt, and Franziska Scheven is writing for Handelsblatt Global Edition, based in Berlin, covering mostly companies and markets. To contact the authors: adoerner@handelsblatt.com and scheven@handelsblatt.com

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