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Bill’s long shadow

7 August 2015 By Olaf Storbeck

Pimco may not have emerged from the shadow of larger-than-life founder Bill Gross, who left the world’s biggest bond fund abruptly in September 2014. But its German owner Allianz can take Pimco’s fall from grace in its stride. The group’s half-year results suggest its insurance division and a growing in-house asset manager are taking up the slack.

In itself, Pimco’s performance is worrying. At 29 billion euros, net outflows in the second quarter were 45 percent higher than a year earlier. Third-party assets are down 9 percent year-on-year and second-quarter operating profit fell 34 percent. Costs surged: a year ago, Pimco spent 52 cents for each euro of income. This is now up to 64 cents.

Yet the fallout of Pimco’s calamities on Allianz is more muted than investors had feared. When Bill Gross quit on Sept. 26, the insurance giant’s shares dropped more than 6 percent in a day. Now the stock is trading a fifth above that level. Its forward price-earnings ratio of 10.7 is in line with European peers like AXA and Zurich Insurance, Thomson Reuters Eikon data shows.

Two factors are outweighing the Gross shock. First, the group’s second, smaller asset manager Allianz Global Investors is going strong. Third-party assets in the second quarter were up 23 percent year-on-year while operating profit surged 56 percent.

Second, Allianz’s insurance businesses are more than offsetting the drag, leading to a tectonic shift in earnings drivers. In the second quarter of 2013, Pimco generated 30 percent of the group’s overall operating profit. Today, the group’s overall operating profit is a fifth higher, while Pimco’s contribution has fallen to 14 percent.

That suggests some upward potential for Allianz if Pimco can fix its woes. The rate of outflows has slowed in recent months as Pimco upped its marketing, and the flipside of rising costs is that senior staff have stayed on board alongside notable new hires like former Fed Chairman Ben Bernanke. For now, the stabilisation is barely visible in Pimco’s financial results. But Allianz can afford to be patient.



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