Pimco's third-party investors withdraw $29bn as rising interest rates hit bond funds

A screen displays the US Federal Reserve rate announcement on the floor of the New York Stock Exchange. Rising interest rates have affected bond market investments. Reuters

External clients of Pacific Investment Management pulled money for a second straight quarter amid a global bond sell-off.

Investors withdrew €28.7 billion ($29.4bn) from Pimco in the three months through June, parent Allianz said on Friday, adding to the first outflows since the onset of the pandemic earlier this year. Allianz operating profit rose in the second quarter, driven by the German company’s property-casualty insurance business.

Allianz counts on its asset management units to diversify its business beyond insurance, while Pimco is facing headwinds as investors fled fixed-income securities after high inflation prompted interest rate increases, making existing bonds less attractive.

The outflows continued into the second quarter, Allianz chief financial officer Giulio Terzariol said in an interview on Bloomberg Television. Once the interest rate situation “is going to stabilise, all those outflows are going to become inflows”, he added.

Analysts at Citigroup said Pimco outflows were significantly higher than expected, while analysts at Jefferies wrote their enthusiasm was dampened by lower assets under management and other factors.

Pimco’s total third-party assets dropped to €1.39 trillion in the second quarter considering market and currency moves, compared to €1.45tn at the end of March.

“Pimco is in the eye of the [US Federal Reserve] hike storm and will likely be a much smaller company when all is said and done,” said Bloomberg analyst Eric Balchunas. “Although it could be worse, as some of its funds are outperforming, which could help down the road if and when investors come back.”

Allianz operating profit rose more than expected to €3.5bn in the second quarter, compared to €3.3bn a year earlier. The property-casualty insurance business profited from improved underwriting and investment results, while earnings in the life insurance and asset management segments were weighing on overall profit.

The company confirmed its 2022 operating profit target at €13.4bn, plus or minus €1bn.

Pimco is in the eye of the [US Federal Reserve] hike storm and will likely be a much smaller company when all is said and done

Eric Balchunas,
analyst at Bloomberg

Mr Terzariol said Allianz might consider another share buyback over the next six to 12 months.

“At this moment, buybacks might even be a better idea as opposed to M&A,” he said.

The bonds sell-off was not the only challenge Allianz chief executive Oliver Baete had to deal with in asset management this year. A unit of Allianz Global Investors agreed to pay $5.8bn after misrepresenting the risk posed by some of its hedge funds that collapsed amid pandemic market turmoil. In a deal with regulators, the company agreed to transfer most of the AGI US business to Voya Financial.

Allianz will eventually also take a hit of about €400 million to profit from the sale of a majority in its Russian operations, part of a retreat from the country due to the war Ukraine, it said earlier.