Allianz Hurt by Weaker Performance at Pimco -- 2nd Update

By Ulrike Dauer 

FRANKFURT-- Allianz SE on Wednesday posted a fall in first-quarter net profit, hurt by weaker performance from its asset management business--notably U.S. fund manager Pacific Investment Management Co. LLC.

Operating profit at the German insurer's asset management unit--which includes Pimco--dropped 28% to EUR646 million from EUR900 million in the period, hurt by lower revenue, the strength of the euro, and the absence of one-off performance fees that boosted profit a year ago.

The performance of Newport Beach, Calif.-based Pimco has recently come under increased scrutiny in the wake of a management reshuffle earlier this year that resulted in the departure of the firm's co-Chief Investment Officer and Chief Executive Mohamed El-Erian amid tensions with Pimco co-founder Bill Gross, who remains at the helm. Mr. El-Erian remains on Allianz's international executive committee.

Pimco took center stage at Allianz's annual shareholder meeting last week when investors expressed strong concerns about ongoing net asset outflows and underperformance compared with peers.

For the period between Dec. 31 and March 31, Pimco reported net outflows of EUR21.7 billion, which wasn't offset by net inflows of EUR1.9 billion at Allianz Global Investors, the smaller player in the Allianz's asset management division.

However, a lack of one-off performance fees was largely behind the fall in profit at the division, which generated just EUR19 million in such fees in the first quarter of this year, compared with EUR276 million in the same period last year, when a Pimco private find was closed.

An internal reorganization that moved some assets of out Allianz's asset management arm to another division also contributed to the division's decline in profit.

Allianz's overall operating profit fell 2.6% to EUR2.72 billion ($3.74 billion) from EUR2.80 billion in the same period last year, with the asset management business largely to blame.

The company reported a 3.9% fall in net profit to EUR1.64 billion from EUR1.71 billion a year earlier, as lower claims costs and revenue gains weren't enough to offset the weaker contribution from asset management. Revenue rose 6% to EUR34 billion from EUR32 billion in the first quarter of 2013.

Chief Executive Michael Diekmann had guided last week for lower quarterly operating profit, and the company said its first-quarter earnings put it on track to meet its full-year target of operating profit of between EUR9.5 billion and EUR10.5 billion. In 2013, operating profit was EUR10.07 billion. The target is lower than last year's figure because of lower performance fees and average assets under management. Investment returns are also forecast to decline amid low interest rates and unfavorable exchange rates.

Investors will likely continue to scrutinize the performance of Allianz's Pimco unit in the coming months for signs of either improvement or further restructuring needs. Several shareholders said they expect solely good news on Pimco at the next annual meeting.

In the first quarter, while Pimco's net outflows were high, analysts noted they were lower than in the two previous quarters.

"Pimco's net asset outflows roughly halved compared with the fourth quarter, we are on track toward a stabilization," said Allianz Chief Financial Officer Dieter Wemmer.

Mr. Wemmer also noted that Pimco collected $5.5 billion in commitments for a new distressed debt fund in the first quarter. "This strong interest proves investor trust that Pimco, with its new products, will be able to build on the high performance of past years," he said.

Pimco's first-quarter outflows were most pronounced in the Americas and Asia, both from retail and institutional clients, and affecting both traditional and nontraditional products, Allianz said. In the first quarter, 88% of Pimco assets outperformed their respective benchmarks, down from 90% at the end of 2013.

Market value increases kept third-party assets under management in Allianz's overall asset management business stable.

Write to Ulrike Dauer at [e-mail]