By Aidan Gregory

March 26 - (The Insurer) - Allianz has said it remains "interested in options" that will drive the growth and earnings of its asset management business amid an ongoing wave of consolidation in the European asset management industry driven by the need for greater scale and specialisation.

Allianz Global Investors is widely seen as the next likely M&A target in the European asset management industry after Axa sold its asset management division to BNP Paribas in July last year, and Generali agreed to combine its asset manager with Natixis Investment Managers in a 50:50 joint venture in January this year. The latter deal will create the second-largest European asset manager after Amundi.

A spokesperson for Allianz said that the German insurer remains strongly committed to asset management, which is a "core element" of its diversified business model.

"Allianz highly values its asset management businesses and capabilities as a strong asset management segment adds high quality earnings to our mix and is an important diversification factor," said the spokesperson. "Across our segments we are always interested in options to further strengthen our business. As the asset management industry further consolidates, there may be opportunities that help us to grow, expand our client offering, and enhance further the value of asset management within Allianz."

In December, Reuters reported that talks between Allianz and Amundi about a deal for AllianzGI broke down over the issue of control. Pimco, the US fixed income specialist that is also owned by Allianz, was not part of these merger discussions.

Amundi declined to comment. Valérie Baudson, Amundi’s CEO, told the Financial Times in February that the French asset manager was “in the market” for more deals.

AllianzGI makes a significant financial contribution to the earnings of the wider Allianz group, to an event greater extent than Generali Investments does for the Italian insurer. The right combination could unlock even greater earnings and capital benefits for Allianz.

“There is a trend towards consolidation in asset management because scale is very important in this business,” said Benjamin Serra, an insurance analyst at Moody’s in Paris, in an interview with The Insurer on Friday. “A lot of asset managers today are looking at whether they could increase their size one way or another by making acquisitions or by partnering with other asset managers.”

Asset management, which includes Pimco, accounted for 3.24 billion euros ($3.49 billion) of Allianz’s 16 billion euros of operating profit in 2024. Generali’s asset management business generated just 8.4% of its 7.3 billion euro operating result last year, although the division is one of the group's fastest-growing segments.

“It's also different from Allianz,” added Serra. “The contribution of asset management to Generali is not at the same level as for Allianz. For Allianz, it's a really big part of their earnings compared to Generali.”

As a result, Allianz is unlikely to ever want to give up overall control, but AllianzGI’s integration into a much larger venture would have significant financial benefits, although such deals come with meaningful execution and governance risks, particularly around the issue of control, according to Moody’s.

“It could make sense if we end up with a similar situation as for Generali because they will get more earnings from asset management,” said Serra. “If Allianz ends up having more earnings from asset management, that could be positive. Now, the only question mark is about the governance of the combined asset management, because there's also some advantages of owning 100% of a business because you control it very, very well. And sometimes if you control only 50% or a part of the business, it may be more difficult.”

A deal for AllianzGI would add around 560 billion euros to Amundi’s 2.24 trillion euros of assets under management as of the end of last year. It would also significantly expand Amundi’s footprint in Germany, where it has historically been less dominant compared to its home market of France.

“In the industry as a whole, we are seeing that scale matters,” said James Shuck, head of European insurance equity research at Citi in London, in an interview with The Insurer last week. “We’re seeing people team up to try and extract capital or grow in partnership.

“These things will continue to happen, because ultimately the asset management system is now about getting scale or going home,” said Shuck.

Even a 2.8 trillion euro European asset manager is still small compared to the U.S. giants such as BlackRock, which manages $11.6 trillion, and Vanguard, which has $10.4 trillion of AUM as of the end of December.

“The key point is scale and expertise,” said an FIG advisory banker in London. “There is a long journey of debate about whether asset managers are well owned by insurers.

“There is barbell in asset management,” added the FIG banker. “You are either incredibly large, where $1 trillion is no longer enough. $2 trillion is getting to fighting weight. You take that AUM on and put 4 (basis points) of fees on it. It’s incremental revenue, so it’s pure scale.”

Neither Amundi nor Allianz are invested heavily in alternative investments such as private credit, which have seen rapid growth over the last decade, particularly among the giant U.S. firms. Private markets account for just 17% of AllianzGI’s AUM, while for Amundi real, alternative and structured assets made up just 5.1% of its AUM at the end of 2024.

“The other is capabilities around private assets and alternatives where insurers should be much better placed because they have a liability process that supports holding those assets,” added the FIG banker. “If you can’t get scale, then you need differentiated abilities, but then you’re competing with the likes of Apollo and Brookfield (which) have spent the last 20 years building those capabilities.”

The banker said that AllianzGI has always been an “odd bedfellow” for its German parent compared to Pimco, its trophy asset.

“AllianzGI was a creation of a small number of acquisitions that became something broader, but it is neither fish nor fowl,” the banker added. “You will continue to see a bunch of insurers that own asset managers to try really hard to explain why.

“We will continue to see an evolution of insurers buying alts platforms,” added the banker. “We will also see a continual reappraising of whether owning them makes sense.”