Allianz Chief Defends Handling of Pimco

By Ulrike Dauer 

MUNICH--Fending off shareholder criticism, Allianz SE Chief Executive Michael Diekmann Wednesday expressed strong support for Pacific Investment Management Co., the insurer's asset-manager, and Bill Gross, its founder.

"There is no reason to rake us over the coals," Mr. Diekmann told the annual shareholders' meeting, praising Pimco's record of substantially outperforming its peers in most of the past 26 years. The company's flagship fund, which has nearly $2 trillion of assets under management, is struggling with investor defections and a weak investment performance.

"Allianz will do anything sensible to strengthen Pimco further," Mr. Diekmann said, adding that clients have given the company "very positive feedback" on Pimco's new management structure. Mr. Diekmann asked shareholders to give the company until the next annual shareholders' meeting before passing judgment.

"If we, as Pimco owner but also as Pimco customer, aren't pleased, shareholders can rake us over the coals," he said.

Still, shareholders grilled Allianz management about Pimco's performance and a recent management shake-up that involved the departure of CEO Mohamed El-Erian and the appointment of six deputy chief investment officers. Mr. El-Erian, who served as co-chief investment officer with Mr. Gross, left amid tension over the management style of Mr. Gross, who remains at the helm.

"Mr. Diekmann, what do you want to do to get Pimco out of the negative media headlines," asked Ingo Speich, fund manager at Union Investment, one of the top investors in Allianz, Europe's biggest insurer by market value. He asked whether the parent wants to get more strongly involved in Pimco, which is based more than 9,000 kilometers away in Newport Beach, Calif.

"We will see whether the new management structure with six deputy investment officers under Bill Gross will be sustained and generate better investment returns," Mr. Speich said.

He added that Allianz's share price, which he said has underperformed both the Stoxx 600 insurance index and the German DAX by 5% since the beginning of 2014, reflects "a substantial Pimco discount."

Investors pulled a net $5.5 billion from Pimco's funds in April, including $3.1 billion from Mr. Gross's $230 billion Total Return fund, according to research firm Morningstar Inc. U.S. bond mutual funds and exchange-traded funds attracted a net $11.2 billion in new cash in April.

Pimco has always operated autonomously, with few questions from investors about its parent company's involvement. As a result, Allianz executives aren't holding Pimco to any timetable dictating when it has to turn around outflows and performance, according to investors and people familiar with the situation. But because of its management shake-up and mutual-fund outflows, the role of Allianz has taken center stage.

"We didn't need a male cat fight," said Daniela Bergdolt, referring to the conflict between Mr. Gross and Mr. El-Erian. Ms. Bergdolt represents DSW Deutsche Schutzvereinigung für Wertpapierbesitz, one of Germany's two biggest retail shareholder groups.

Eric Jacobson, a senior fund analyst at Morningstar, said before the meeting that Allianz has no choice but to defend Mr. Gross because so much of Pimco's value is tied up in him. "Doing anything at this point is probably a riskier proposition for Allianz than standing on the sidelines," Mr. Jacobson said.

A Pimco spokesman declined to comment.

Shareholders separately urged the company to provide clarity over possible contract extensions, as contracts for six out of 11 management board members expire at the end of the year, including that of CEO Diekmann. Mr. Speich, Ms. Bergdolt and other shareholders expressed their wish for Mr. Diekmann to consider an extension of his contract by one or two years.

Also Wednesday, Allianz reported that its profit fell 4% in the first quarter, but that it was on track to hit its target for its full-year operating profit.

Quarterly operating profit at the company's insurance operations--property/casualty and life/health insurance--was higher than called for by the company's guidance on its full-year operating results, while performance in asset management was in line with that target, Mr. Diekmann said.

Net profit fell to about EUR1.64 billion ($2.28 billion) from EUR1.71 billion in the same period a year ago, beating an average forecast of EUR1.61 billion.

Operating profit, the main item for which the group provides guidance, fell 2.9% to EUR2.72 billion for the quarter from about EUR2.80 billion, also better than the average analyst forecast of EUR2.60 billion. Allianz expects operating profit of between EUR9.5 billion and EUR10.5 billion for the full year.

Like other European insurers, Allianz benefited from a mild winter on the Continent that resulted in low claims for natural disasters. The low total helped support profits in the property/casualty business.

Allianz said market-value increases kept third-party assets under management in its asset-management business stable.

Total revenue rose 6.3% to EUR34 billion, the highest quarterly result so far in the company's history, Allianz said. A year ago, that figure was EUR32 billion.

Allianz usually releases a small set of first-quarter figures before the annual shareholders' meeting. The full earnings release is due May 14.

Kirsten Grind contributed to this article.

Write to Ulrike Dauer at [e-mail]

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