Pimco Is Managing to Do More With Less

(Bloomberg Opinion) -- The year started well for Pacific Investment Management Co., the fixed-income asset manager owned by German insurer Allianz SE. After pulling in 83 billion euros ($90 billion) of fresh cash from investors in 2019, the firm continued to attract new money in January and February. Then the global pandemic struck. Investor withdrawals equaled almost half of last year’s inflows, leaving Pimco with net outflows of 43 billion euros in the first quarter.

Exhibiting masterly understatement, Chief Financial Officer Giulio Terzariol told Bloomberg Television, “March was a tough month.” Retail investors abandoned the market as the novel coronavirus threatened to trash the global economy.

Beneath the headline decline in assets under management — Pimco’s worst drop in the five years since the surprise departure of bond maestro Bill Gross, as noted by my Bloomberg News colleagues — the firm’s recovery continues apace. That means Allianz will be dealing from a position of strength if it finally takes the plunge and decides to expand its asset-management business by buying a rival player.

In the current beleaguered environment, the one variable that asset managers are able to control is their costs. As Pimco’s overall revenue grew by 18.4% in the year, to more than 1.3 billion euros, the firm was able to shave almost a percentage point from its cost-to-income ratio, extending a trend of parsimony that’s been in place for at least the past five years.

Moreover, the margin Pimco is able to charge for managing other people’s money has been remarkably stable, particularly given the fee compression that the rest of the active management industry has endured amid increased competition from low-cost index-tracking products. While its first-quarter margin of 37.3 basis points was down a tad from December, it actually improved from 36.1 basis points in the year-earlier period.

A year ago, Pimco’s parent toyed with the idea of buying DWS Group GmbH, when Deutsche Bank AG was mulling offloading its remaining 80% stake in the fund manager as part of its ultimately doomed attempt to merge with Commerzbank AG.

In the end, neither transaction happened. But Allianz has given notice that it intends to be part of any industry consolidation. At some point, the German insurer might want to bolster its fund-management defenses against the rise of the index trackers by buying a specialist in passive strategies. With a market share of more than a quarter of Europe’s exchange-traded products, DWS may still prove attractive — if it ever comes up for sale.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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