GLOBAL - Pension funds are “still woefully” short of bonds to offset their liability risks, says the European head of Allianz’s US-based fixed income arm PIMCO.

Joe McDevitt was explaining the firm’s three-to-five-year fixed income outlook at a briefing organised by Allianz Global Investors.

Acknowledging that bond yields have fallen in the last few months, he added: “I can tell you that we do not expect a bond market apocalypse over the next three–five years.”

He told IPE that some UK, US and European pension funds under-invest in bonds because their liabilities are “the mirror image” of long-dated bonds.

He conceded that under-funded schemes would need a ”significant” cash injection to use bonds to cover their liabilities. But he added that with new accounting standards companies may want to reduce volatility by investing more in bonds.

“If you are the chief financial officer for a corporation with a big pension fund with the new rules you would be forced to pass through the P&L of the pension fund onto your own P&L.”

“As a CFO you may want not to see that level of risk being taken in the pension fund,” he said. The trend was already noticeable in the Netherlands and in the UK.

AGI chief operating officer Marna Whittington told the briefing that the asset manager’s net revenues in the first quarter of the year went up 6.8% to €581m, while operating expenses dropped 3.5%. Operating results rose 27.7% over last year’s €230m.

She also said that the group as a whole now has €1.13trn in assets under management, with AGI managing €808bn.

AGI also has €1.3bn in hedge funds for both institutional and retail investors, AGI chief executive Joachim Faber added.

Chief investment officer Andreas Utermann said that trustees and advisers have lately allowed AGI to take more risks in equities and have asked for innovative products. They also seemed more comfortable with unconstrained mandates.

And pension funds were also beginning to seek actuarial and asset-liability advice from AGI on specific issues. Allianz is able to provide the service, although was not aggressively marketing it.