German Allianz avoids risky assets after series of bankruptcies
2023.02.14 03:27
German Allianz avoids risky assets after series of bankruptcies
By Kristina Sobol
Budrigannews.com – Allianz (ETR:), for many years, one of the largest investors in the world has invested billions of dollars in property, wind farms, and even London’s sewage system. However, people who are familiar with the situation claim that the company is moving to substitute plain vanilla bonds for such “alternative” investments.
According to the individuals, who spoke on condition of anonymity, the new strategy adopted by the German company takes place in the midst of a radical shift in the environment for investing. This is because central banks are raising interest rates in an effort to contain runaway inflation, resulting in higher yields on mainstream assets.
They emphasized that the new money would primarily be invested in fixed income rather than alternative investments and that the reallocation would not result in sudden sales.
The move by Germany’s largest financial institution in terms of assets and market value demonstrates a significant shift away from alternatives that boosted returns in an era of extremely low and even negative interest rates and toward the multi-trillion dollar market for investment-grade bonds, which keep governments afloat and pensioners fed.
After paying approximately $6 billion in fines and settlements for fraud in the United States, Allianz’s repositioning also coincides with efforts to restore its reputation. As a result, a portion of its U.S. asset management business agreed to a “death penalty”-like guilty plea for the offense, according to its own lawyers.
One person made the observation that the new investment strategy might be able to help restore Allianz’s solvency ratio, which is a measure of the company’s financial strength.
In November, Allianz’s chief financial officer, Giulio Terzariol, revealed the company’s rethink by telling analysts on a conference call: Compared to a few years ago, the value proposition of fixed income is much more compelling; “it’s a different game.”
The investment mix of Allianz will be reviewed annually in Friday’s results.
With 2.79 trillion euros in assets under management through bond heavyweight Pimco and Allianz Global Investors, whose U.S. unit managed the funds at the center of its recent scandal, Allianz, a global insurer, ranks as one of the biggest money managers in the world.
When Allianz’s CEO was Michael Diekmann, the current group chairman, the company began exploring alternatives. In a speech he gave on his last day at that job in 2015, he criticized the potholes on the roads between Salzburg and Munich and called for investments in infrastructure. He promised that Allianz would increase the value of so-called “real asset classes,” which included infrastructure, to 110 billion euros.
Based on calculations made by Reuters using Allianz financial statements, Allianz’s alternative investments have grown by 350 percent to over 200 billion euros, while its investments in fixed income have grown by 40 percent and its investments in equities have grown by 30 percent.
The stake in London’s brand-new sewage tunnel and wind farms from the United States to Finland were among the most significant purchases.
The majority of Allianz’s alternative investments are in real estate, and around 700 million euros were invested in stakes in New York’s Hudson (NYSE:). Yards complex, as well as a tower in Frankfurt that is part of a 1.4 billion euro property development.
However, according to the individuals, Allianz is looking for opportunities to shift new funds into other investments like fixed income in light of the altered investment climate.
Allianz Real Estate CEO Annette Kroeger stated that her division takes a “wait and see” approach to property. “We look ahead with caution, like the rest of the market,” she told Reuters.
Even bond yields in Japan have been edging higher in anticipation of the end of the era of ultra-easy monetary policy, a sign of the changing times.
Alternatives are being rethought not just by Allianz. NYSE: Goldman Sachs The asset management company intends to substantially reduce the $59 billion it invests in alternative investments.
Rating agencies for credit, Moody’s (NYSE:) and S&P, both of which give Allianz high marks, have highlighted the greater risk posed by the portfolio’s relatively illiquid alternative investments.
Because they are less liquid than bonds, alternative investments have a price, and Allianz and other insurers must set aside more capital to own them.
Some people said that Allianz hopes the change will help it improve its solvency and capitalisation ratios, which measure how the company would do in a crisis.
Based on Allianz’s financial statements, the so-called Solvency II capitalisation ratio, which is a key indicator of a company’s financial health, decreased from 229 percent in 2018 to 199% at the end of the third quarter of last year, in part due to the fines and settlements for the U.S. fund fraud.
The case was discovered after a collapse of $11 billion in funds at the beginning of 2020, when markets were tumultuous due to the coronavirus outbreak.
The fraud, according to the US prosecutors, included altered spreadsheets, forged risk reports, and fake documents.
According to a presentation that Allianz lawyers made to the United States Department of Justice last year and that was made public in a court filing last month, Allianz paid $1.49 billion to Blue Cross Blue Shield, one of its major investors, as part of the $6 billion in settlements and fines. This was done in an effort to “generously” compensate.
“A death penalty for a registered investment adviser” was the argument made by Allianz lawyers in the same presentation regarding the guilty plea that Allianz ultimately agreed to for the U.S. business.
As a result, Allianz had to shut down Allianz Global Investors in the United States, a significant setback for the business.
