Bonds are back

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Normally Alphaville doesn’t care too much about insurance company results, but Allianz’s ownership of Pimco — the biggest bond investment group in the world — makes it a good way to understand broader fixed income market dynamics.

Pimco’s CEO Manny Roman certainly sounded optimistic when he spoke with our Unhedged colleagues in December, arguing that “there will be a tidal wave of money coming”.

And on Friday we got to see how that prediction was shaping up, in the German insurer’s fourth-quarter earnings release. Here are Pimco’s flows over the past two years.

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Despite some outflows in the last quarter, Pimco took in €24bn of net inflows last year, helping pare the €75bn of outflows it suffered in 2022, one of the worst years for bond markets in history (really!).

The decline in average assets under management weighed on operating profits, but Pimco’s portfolio managers seem to be firing, having nearly doubled the performance fees the asset manager earned from investors in 2023. As a result, overall operating profits still clocked in at €2.45bn, and contributed about 16 per cent to Allianz’s overall results.

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However, the really titillating stuff — if you’re a fixed income person at least — was on the subsequent conference call with analysts.

Allianz’s CEO Oliver Bäte noted how yields falling for 20 years to zero and then suddenly rocketing higher is “the bond managers’ nightmare”, but said that 2024 inflows were already approaching last year’s total (transcript snippets below courtesy of AlphaSense):

We had more than €20 billion flows this year already, so that’s very good. It’s almost equivalent to all flows that we had last year. So asset management really coming back, and that’s very important to understand it’s a significant driver.

Bäte was talking about its asset management business in general, so maybe Allianz Global Investors — its other asset manager arm* — accounts for some of this. But given that AGI actually suffered some modest outflows last year it seems pretty probable that it’s all about Pimco.

Claire-Marie Coste-Lepoutre, Allianz’s new CFO, later added some more colour on this (plus some classic CFO caution). Alphaville’s emphasis below.

On PIMCO side, I mean, obviously, I don’t have a crystal ball. So that’s not an easy one to estimate, I will say. But what we see is clearly and you already see that as well partially in 2023. In 2023, PIMCO had only two months where they were a little bit — they were negative inflows. All other months have been positive and we have seen a momentum, clearly beginning of the year is very positive for PIMCO. And also, more importantly, as Oliver mentioned, we don’t see a bifurcation between in terms of inflows, going more into passive as opposed to active. So that’s very supportive of the PIMCO trajectory. If you discuss with Roman he is definitely convinced that this is going to sustain itself also for 2024. But there again, and that’s why our outlook is where it is, we don’t know at this point in time yet.

This could be a Pimco-only thing, but it looks like a broader indication that the long-discussed ‘bonds-are-back’ narrative is finally coming true. EFPR Global data indicates that net fixed income fund inflows have now crossed the $100bn mark — and, luckily for all bond managers, active flows are outpacing passive ones so far in 2024.

Update: Bank of America’s note on Allianz’s earnings has landed in FTAV’s inbox, and they make the same point as us, and predict Pimco will see inflows of €155bn over the next year as “fixed income is set to come back in vogue”.

Allianz’s asset management operations have historically justified a premium valuation to its composite peers. However, these asset management operations are dominated by fixed income asset management and fixed income has been out of vogue over the past two years. We think signs are that sentiment could be turning.

We forecast €176bn of net inflows to Allianz’s asset management operations over 2024/25E (€155bn for PIMCO, €20.5bn for AGI). This implies net inflows annualising at about 4.8% of opening AUM over the two-year period, an impressive feat for an asset manager with over €1.7trn of assets.

*tweaked to reflect that AGI also manages equities and other non-bond stuff.


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