Allianz GI sees lower income but eyes consolidation
EUROPE - Allianz Global Investors saw its net income fall by over 21.5% in 2008 on the back of lower investment returns and subsequently reduced performance fees, but officials are still looking for buying opportunities within the asset management sector.
Speaking at a briefing in London today, Joachim Faber, chief executive of Allianz Global Investors, acknowledged the firm had seen its assets under management fall 5.2% from €970bn in 2007 to €920bn in 2008, but said the company was expecting consolidation within the banking and finance industries over the coming 18 months so was prepared to consider fresh purchases if they were found to enhance the existing business operations.
"The profitability of the asset management industry is under severe threat and if you look at the levels of the equity market - down 45% last year, down 25% this year - this will lead to a major consolidation in the asset management industry in 2009 and 2010. It is not clear how far this will go, but banks and asset managers are out there and looking for buyers," said Faber.
"We will participate in consolidation of the industry wherever it is appropriate. We are not out there seeking large acquisitions, but we are not against consolidations, as seen with Cominvest."
He continued: "There is not much we would need to add without detracting from the capabilities we already have within our company. However we are not averse to situations where we can create additional value to the customers of our asset pool."
Looking specifically at the firm's business model, Faber said Allianz GI would continue to focus on active management within its Allianz GI, Pimco, RCM and Nicholas Applegate operations, and continue to focus on the pensions market but may make alliances which might assist services some clients are need of.
"We will stay very focused on the retirement opportunity. All around the world the retirement situation is completely unsolved given the demographics. We may review some non-core activities but will continue to focus on our core capabilities and maintain a steady investment function. It is very important our investment performance is not suffering and our clients' focus does not divide.
"Our core competency is active management, we do not offer ETFs or passive management. However, we see some clients are asking for ETFs for quick allocations. They are not a great product so for that purpose we will work together with Commrzbank to use their ETF capacity for our clients' needs," he added.
Marna Whittington, chief operating officer at AGI, revealed operating profit fell 31.6% in 2008 from €1.322bn to €904m and the firm - which is a subsidiary of Allianz Group - saw its net income drop 2.1% from €470m to €369m.
A large proportion of the reduction in operating profit came from a reduction in revenue, said Whittington, where third-party assets under management (AuM) fell in value from €725bn in 2007 to €673bn in 2008.
More specifically, AuM in Europe fell from €233bn to €206bn and from €454bn to €415bn in US, while third-party funds reduced from €67bn to €52bn in Asia in 2008.
At least 60% of the decline in net income came from performance fees, which reduced as assets fell, and mark-to-market pricing of assets, as the firm lost €81m in revenue from market adjustments.
In a further breakdown of assets, Whittington said fixed income assets fell from €616bn to €603bn and had seen net outflows of €35bn in the fourth quarter alone, to end the year with total outflows of €10.3bn.
Equities also suffered losses too and experienced net outflows worth €10.6bn by the end of the year, as assets reduced from €175bn in 2007 to €104bn by the end of last year.
That said, there have been positive flows at AGI this year, stressed Whittington in both fixed income and equities, which leads the firm to believe it can still achieve a 10% average earnings growth as its asset breakdown is generally 70-80% fixed income and 20-30% equities.
Looking specifically at the market today, Faber predicted while the firm feels well-prepared to cope with the continued turbulence and uncertainty of the market, he also cautioned much of the profitability seen in last year's government bonds rally is "creating the suspicion there will be another bubble".
Tomorrow on IPE.com: Pimco's Mohamed El Arian predicts a new equilibrium for the global economic outlook.
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