Consolidation of boutiques paying off for Allianz GI

Merging Allianz Global Investors' stable of boutique managers into a single unit that can more readily offer multiasset and other investment strategies has moved asset flows that were flat or negative into positive territory.

Even so, Allianz GI, as it is known, contributes to parent Allianz SE only a fraction of the operating profit that sibling Pacific Investment Management Co. does — 3.9% vs. 21.5%.

After years of flat asset growth or even net outflows, Allianz GI garnered $11.1 billion in net third-party inflows in 2014. Total third-party assets under management reached $316 billion as of Dec. 31, company statistics show. (Allianz GI also manages about $183 billion for its parent.)

PIMCO, by contrast, suffered net outflows of $268 billion last year, following the late September departure of co-founder and Chief Investment Officer William H. Gross. Plus, operating profit was down 18% from the previous year.

Allianz GI's fortunes began to improve in 2013, following a major reorganization in January 2012. The reorganization merged Allianz GI's collection of boutiques that had been acquired over a decade; names like RCM Capital Management LLC in San Francisco, Nicholas-Applegate Capital Management LLC in San Diego and NFJ Investment Group LLC in Dallas. The boutiques all became part of one firm with centralized research and distribution.

The firm's assets under management increased 48% in the two years ended Dec. 31, 2014, a combination of net inflows, market gains and a $34 billion allocation it is managing for its parent.

The firm, which has multiple key offices (London, Frankfurt, Germany and San Francisco), had about $499 billion in total assets as of Dec. 31, an all-time record.

Operating profit during the same time period was up almost 30%, reaching $432 million, company data show.

Allianz GI Global CEO Elizabeth Corley said in an interview from her London office that investment and distribution teams in the United States, Asia-Pacific and Europe were merged as part of the organizational changes that combined 35 legal entities into one company.

“We removed the barriers; the barriers were not practical,” Ms. Corley said.

Those barriers, she said, prevented investment teams from talking to each other and distribution personnel from selling outside their regions.

“From a compliance standpoint, you can't share the information beyond the legal entity,” she said. “So if you were American, you wouldn't necessarily know about how to go about marketing in Asia.”

As an example of the changes, she said an income growth fund managed by the San Diego team (formerly Nicholas-Applegate) has garnered more than $9 billion in assets from investors in Asia since the reorganization. That team had managed no Asian assets before.

The reorganization was done for several reasons, Andreas Utermann, Allianz GI's global chief investment officer, said in an interview at the San Francisco office.

“We had too many products and the (distribution) pipeline was too thin, “he said. “There was not enough shelf space.”

Mr. Utermann said the reorganization consolidated some investment teams so investors would be offered the top-performing strategies. Some investment staffers lost their jobs. But company officials also created new investment teams such as infrastructure, emerging markets debt and Asian fixed income.

A former senior official of Allianz GI, who asked not to be identified, said RCM and Nicholas-Applegate offered similar domestic equity strategies and competed against each other for business.

But the biggest reason for the reorganization was institutional investors were no longer demanding stand-alone equity and fixed-income investment strategies, Mr. Utermann said; they wanted to hire multiasset-class firms, not narrowly focused boutiques.

He said competitors like BlackRock Inc. would have one representative with one business card at a meeting, offering a comprehensive multiasset solution while “we would sit around the table with these five business cards and say here is the team that works together to form this multiasset solution. Within three minutes we would lose the pitch because you can't explain it.”

Apparently, the explaining has gotten a lot simpler. Assets in the firm's dynamic multiasset-plus strategy grew more than threefold to around $25 billion at the end of 2014 from $7.09 billion two years earlier, Allianz GI statistics show. Of that, $5.32 billion was net inflows and more than twice that was investment gains, Allianz GI statistics show. Three-quarters of the money is in institutional separate accounts.

Performance has been good for the company's various multiasset strategies, said Natalia Wolfstetter, Munich-based director of European funds research for Morningstar Inc. “They could distinguish themselves from PIMCO with continued strong results,” Ms. Wolfstetter said.

According to Allianz, the dynamic multiasset-plus strategy — the firm's largest — produced composite returns of 13.75% for the year ended Jan. 31. Its custom benchmark returned 13.06%.

For three years, the strategy returned an annualized 10.48%, vs. 9.42% for the benchmark. For five years, Allianz's strategy returned an annualized 8.17%, vs. 7.45% for the benchmark.

Before the reorganization, infighting between investment teams at competing boutiques was a problem, the first ex-official said. He noted some employees tried to protect their turf and resisted plans to merge, helping to delay the reorganization.

Even with the reorganization, some of the boutiques' names are not entirely gone.

RCM shares the nameplate with Allianz Global Investors at the San Francisco skyscraper that houses the firm.

The NFJ name is still in use for Allianz GI's value equity team in Dallas.

“RCM and NFJ — they are the two strongest Allianz investment brands,” said Mr. Utermann.“There are some clients who relate to those brands and we are going to use them.”

Allianz GI's latest push is to increase its alternatives strategies, which company officials say are the fourth pillar of the investment platform, along with equities, fixed income and multiasset solutions. Company statistics show alternatives account for only 1% of the firm's assets. n