Allianz move away from property is straw in the wind for Ireland

The company is one of the world’s biggest money managers with €2.6trn in assets

Allianz co-owns Dundrum Town Centre

Jon Ihle

February 15 2023 02:30 AM

German insurance giant Allianz is making a major change to its asset allocation that could have major consequences for the flow of investments into Ireland.

The company, which co-owns Dundrum Town Centre and Swords Pavilion, is planning to shun real estate and other “alternative” assets in a reversal of an investment strategy going back to 2015.

Instead, Allianz is going to rotate billions in new money back into plain vanilla, investment grade bonds in a return to a more traditional approach to risk now that interest rates are on the rise.

The implications go beyond the two Dublin shopping centres in which Allianz has large stakes, though.

German investors like Allianz were part of a flood of easy money into Irish assets of all kinds during the last decade, when low rates and quantitative easing forced capital to chase yields into new places and new kinds of investments. That tide is turning.

Allianz is Germany’s biggest financial firm by assets and market value and a bellwether for the broader investment industry.

The company ranks as one of the world’s biggest money managers with €2.6trn in assets under management via bond heavyweight Pimco and Allianz Global Investors.

If Allianz is reassessing its appetite for shopping centres and office buildings, it means there is likely to be a larger shift underway.

Allianz opted to pour money into these alternative assets just to stand still

Giulio Terzariol, Allianz’s chief financial officer, shed light on the rethink in November when he told analysts that “the value proposition of fixed income is much more compelling compared to a few years ago ... it’s a different game”.

The “game”, in this case, is how to generate returns for customers without unnecessarily risking their money.

As long as returns on fixed income were historically low, as they were for many years, asset managers were forced to chase yield up the risk curve. That meant private equity, hedge funds, venture capital and real estate all benefited

Allianz opted to pour money into these alternative assets just to stand still. This was a world in which junk bonds were sometimes yielding low single digits.

With fund managers starved for yield, cash poured into Irish property, which most years after the great financial crisis could promise double digit total returns.

While the company is not planning fire sales of assets it already owns – meaning Dundrum and the Pavilion are unlikely to come on the block – it is gradually reallocating funds elsewhere, which is bound to affect valuations, especially as other money managers follow suit.

In this new world, less-liquid and capital-intensive investments like commercial property naturally become less attractive as safer, more transparent ones like government securities and corporate bonds deliver higher returns without any increase in risk.

The hurdle rate for every kind of asset is higher now and, with European Central Bank rates set to rise, it won’t be coming down soon.