The biggest fund houses are best able to cope with rising costs and regulatory requirements, but they still have to respond to post-crisis market pressures, says Jay Ralph, chairman of Allianz Asset Management, the parent of Allianz Global Investors and Pimco, with €1.8 trillion ($2.5 trillion) in assets.
One challenge for active fund managers has been the growth in popularity of passive investment via exchange-traded and other index products. This has meant that active managers have focused more on conviction strategies, Ralph tells AsianInvestor.
“Consultants don’t want to pay to track an index, but will pay active managers that have a view on the world – and that’s dramatically changing the active management business," he says. “[Active management] was previously about beating an index – it is now more about an outcome."
He cites strategies such as absolute return, multi-asset and tail-risk hedging. “We’re doing more to address those areas.”
Ralph cites as examples a rise in the marketing and sale of income-, growth- and US high-yield funds through its Greater China retail business, and of “sophisticated multi-asset solutions” to institutional clients, most notably in Japan.
In another move to deal with the challenge from the index fund specialists, Allianz AM has launched actively managed ETFs and is likely to introduce them to Asia when they are permitted.
Meanwhile, Ralph says AllianzGI has been doing a lot of work in the US on behavioural finance – that is, what causes individuals to react in a certain way in terms of making investment decisions. The firm is planning to ramp up its behavioural finance efforts in Europe and Asia.
It is analysing what makes investors move in and out of markets rather than staying put. “There are different mechanisms to encourage individuals to avoid this behaviour, which destroys returns,” says Ralph. “We’re looking at how to implement that through pension providers.”
Allianz AM has also been keeping an eye on the rising trend in Asia for insurers in the region to look more at using asset-and-liability management (ALM) strategies. “We’ve had discussions with some of the big insurers and pension schemes in China,” says Ralph. “We are bringing experts here to meet with these institutional clients.”
Partly as a result, Ralph says he expects to see more bank-insurer partnerships like the one Allianz struck with HSBC last year. “Banks are trying to sell more best-of-breed products rather than simply pushing their own range. I expect to see bank-asset manager tie-ups, more multi-provider relationships.
“In the wealth management segment you already see banks distributing third-party products,” he notes. “But in the retail market, that’s harder to do because it would be very confusing for retail investors to have such a broad array. You need to offer a more limited set of products, especially multi-asset offerings.
“Does a bank’s captive manager have the best of everything? We see an increasing trend for banks to white-label others’ products to offer the best manager to their retail clients under their own brand.”
Allianz AM is also seeing more fund sales happening through private banks globally, a trend others, such as Franklin Templeton, have also pointed to. But it’s early days for that to be happening on the retail side, says Ralph. (The firm said it does not disclose data about the amount of funds sold through different channels.)
Yet the fact remains that post-crisis banks – both retail and private – have tended to reduce the overall number of investment products on their platforms. Ralph says AllianzGI has responded by “rationalising” its own fund list – that is, reducing it with the aim of offering a smaller range of the most successful products.
Asked which and how many strategies have closed, Ralph says that over the past couple of years the firm has mainly merged or closed overlapping products, funds that were insufficient in size or ones with limited expected future demand. This is part of a continuous review process, he adds.
Of Allianz AM's total AUM, €400 billion is in Allianz group products and the remaining €1.4 trillion in third-party products. The third-party side has grown faster over the years, says Ralph, but he declined to disclose figures as a matter of company policy.