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 ulrike.dauer@wsj.com