Germany's Allianz Drops "Alternative Investments" For Safer Bonds

For years, Allianz, one of the world's biggest investors, piled billions into property, wind farms and even London's sewage system, but now it is moving to shun such "alternative" investments for plain vanilla bonds, people with knowledge of the matter said, Tom Sims and John O’Donnell reported for Reuters.

Photo Insert: For Allianz, the repositioning also coincides with efforts to restore its reputation after paying some $6 billion in fines and settlements announced last year for fraud in the US.

The German company's new approach comes amid a sea-change in the investment environment, with central banks raising interest rates to clamp down on runaway inflation, prompting higher yields on mainstream assets, the people said on condition of anonymity.

They stressed that the reallocation would be gradual and not result in fire sales, with new money going largely into fixed income rather than alternative investments.

The move by Germany's biggest financial company by assets and market value provides evidence of a significant shift towards the multi-trillion-dollar market for investment-grade bonds, which keep governments afloat and pensioners fed, and away from alternatives that juiced returns in an era of ultra-low and even negative interest rates.

For Allianz, the repositioning also coincides with efforts to restore its reputation after paying some $6 billion in fines and settlements announced last year for fraud in the US.

This resulted in part of its US asset management business agreeing to a guilty plea for the conduct, something its own lawyers said was the equivalent of a "death penalty," Alexander Huebner and Dhara Ranasinghe also reported for Reuters.

One of the people noted that Allianz's solvency ratio - a measure of financial strength - had suffered in the wake of the funds debacle and that the new investment approach could help restore it.

Giulio Terzariol, Allianz's chief financial officer, shed light on the company's rethink in November when he told analysts on a conference call: "The value proposition of fixed income is much more compelling compared to a few years ago ... it's a different game."

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