UPDATE 1-Allianz defends twin-track asset management approach

Wed Jan 30, 2013 5:50am EST

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By Kathrin Jones and Jonathan Gould

FRANKFURT, Jan 30 (Reuters) - A year after launching its twin-brand asset management strategy, Europe's biggest insurer is pleased with the performance of PIMCO and Allianz Global Investors and expects further growth, an Allianz SE board member said.

"The new model has turned out to be a success not just from a business standpoint but most importantly from the clients' perspective," said Jay Ralph, who oversees the insurer's investment arm.

The division had 1.8 trillion euros ($2.4 trillion) in assets under management at the end of the third quarter and delivered around one third of group operating profit.

When the new structure was launched in January 2012, Allianz said it would allow each brand to tailor its products to best meet clients' needs.

However, some analysts and competitors have wondered how long Allianz will permit both asset management engines to operate separately in a tough trading environment where large scale and low costs are of prime importance.

Deutsche Bank AG, for example, is taking the opposite tack, bundling all its services for retail and institutional clients onto a common platform to save costs.

"We have no intention of divesting either one of our two investment managers," Ralph said in written answers to questions from Reuters, adding that customer reaction to Allianz's strategy had been positive.

"We did not lose one single client in Germany due to the transition to the new set-up," added the executive. "The low interest-rate environment, which tends to make life more difficult for life insurance, has provided a nice tailwind for our asset management segment."

BEYOND BONDS

The revamp gave PIMCO, which manages the world's largest bond fund, sole responsibility for the distribution of its products around the world, as it expanded beyond bonds into equities and other asset classes.

California-based PIMCO had 1.5 trillion euros in assets under management at end-September and contributed 1.8 billion euros to group operating profit in the third quarter.

Allianz Global Investors, by contrast, managed around 300 billion euros in assets and added 250 million to earnings in the same period.

The smaller unit has some work to do to reach Allianz's mandated target cost-to-income ratio of 65 percent or better. That ratio stood at nearly 74 percent in the third quarter, compared with PIMCO's more profitable 51 percent.

"Cost containment and focus on efficiency will remain important," Ralph said.

Allianz Global Investors is already cutting costs by streamlining its organisation and merging various European units into its umbrella brand by the end of this year.

Ralph declined to say how much time Allianz Global Investors would need to meet its parent's cost-income goal, nor would he give specific earnings targets for his asset managers beyond the already stated ambition to achieve annual operating profit growth of between 5 and 10 percent over the business cycle.

More broadly, Ralph summarised PIMCO's branding goal as moving from the "Global Authority on Bonds" to "Your Global Investment Authority".

"AllianzGI will focus on becoming 'one' global firm and hence is the second strong operational pillar of Allianz Asset Management," he added.

Allianz has said it expects to earn more than 9 billion euros in operating profit in 2012. It is due to release preliminary year-end results on Feb. 21. ($1 = 0.7420 euros) (Reporting by Jonathan Gould and Kathrin Jones; Editing by Victoria Bryan)

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