Allianz rules out "micro-managing" Pimco despite turmoil

By Kathrin Jones

FRANKFURT (Reuters) - Allianz said on Monday it remained fully committed to its Pimco unit after the shock exit of co-founder Bill Gross and had no plans to step up oversight of the world's biggest bond investor despite months of turmoil that has hit the German insurer's shares.

Speaking on a conference call three days after the 70-year-old Gross shocked markets by bolting the firm he helped start in the 1970s to join rival Janus Capital, top Allianz and Pimco executives tried their best to play down the departure.

For the first time they also gave specifics about a long-simmering rift with the volatile Gross, saying there had been "fundamental differences" over the strategic direction of Pimco which had prompted him to leave.

But despite the upheaval, which started eight months ago with the abrupt resignation of Pimco CEO Mohamed El-Erian following a row with Gross, Allianz gave no indication that it would exert greater control over the Newport Beach, California-based firm, as some investors have demanded.

Allianz Chief Executive Michael Diekmann, pressed on the issue of control, said it was important that the German group was not "over-managing or micro-managing a very successful unit".

In a sign of Pimco's independence, Diekmann deferred to its CEO Doug Hodge when asked at another point during the call about the relationship between the two firms.

"We always look for new ways to work with them," Hodge replied, referring to Allianz as a "partner" and a "client".

STOCK STEADIES

Allianz stock slid over 6 percent on Friday after news of Gross's departure broke and it was trading unchanged at 128.2 euros at 1500 GMT.

Gross co-founded Pimco in 1971, turning it into the world's biggest bond investor with $1.9 trillion of assets under management at the end of 2013. Allianz bought Pimco for $3.3 billion in 2000 and now garners nearly a third of its profits from the firm.

But over the past year, as bonds lost their appeal amid rock-bottom interest rates, Gross appeared to lose his magic touch. And some investors began to see him as a liability amid reports of clashes with Pimco colleagues, most notably El-Erian, who remains an adviser to Allianz after leaving Pimco in January.

"It became clear over the course of this year that Pimco's leadership and Bill had fundamental differences about how to take Pimco forward," Hodge said on Monday, pointing to rifts over strategic direction, management style and media strategy.

"Those were the ones that broadly were at issue with Bill and as a result, his decision to resign."

Hodge said he had spent the weekend reaching out to big institutional clients to reassure them, adding that the "vast majority" were standing by Pimco.

He said he anticipated a rise in redemptions in the wake of Gross's departure but added: "We're ready for that".

Gross managed around $350 billion in funds, roughly two-thirds of which were in his flagship Total Return Fund. Fund research firm Morningstar has estimated that investors could pull hundreds of billions of dollars in assets and park them with Janus, the rival firm Gross has joined.

Hodge said Gross had not been subject to a non-compete agreement, which would have prevented him from joining a rival so fast, because of local labour law in California.

"(Allianz) now need to prove that it's true what they’ve always said - that Pimco is much more than just Bill Gross. Only results will show," one top-10 investor in Allianz said, requesting anonymity.

"But let's face it: He missed expectations recently and a lot of money is already gone because people were disappointed with his performance, not with Pimco's performance in general."

Gross's departure comes at a delicate time for Allianz, with the contracts of CEO Diekmann and five more of the insurer's 11 board members due to expire at the end of the year.

Allianz's supervisory board is due to meet later this week and will likely give Diekmann a new two-year term, disregarding its own age limit of 60 for top executives. Diekmann will turn 60 in December.

"If he were to leave now that would be a very bad signal to investors," said a second top-10 Allianz investor who declined to be named.

Allianz's Chief Financial Officer, Dieter Wemmer, told the call he saw no reason to change the firm's earnings outlook or dividend policy in the wake of the Gross departure.

(Additional reporting by Thomas Atkins and Arno Schuetze; Writing by Noah Barkin; Editing by Sophie Walker and Giles Elgood)