“But we now have come up with an idea. Projects in infrastructure are limited anyway and there is a hunt for yield – everyone jumps on new projects. But we realised that we can fish in a lower quality pond but with the same investment process and philosophy.”
“We thought ‘let’s allow 10% of the portfolio to have a lower quality and see how it behaves within the risk budget’. That’s our big change there and we feel super confident about it.”
Of course, new products are great if you can find the right one. In this case, Allianz is going to do a big launch of a fund of hedge funds at the end of Q2.
“Who will manage it? Well, that’s a well-kept secret,” says Pross. “But it won’t be a super-aggressive fund of funds where you by 10% of one fund and 20% of another. We’ll start slowly. In the world of alternatives, you can lose the faith of your clients if you make a mistake early and we are interested in the long-term.”
Pross tries not to think about creating products to sell. Instead he tries to produce long-term solutions that can be used in different parts of the investment cycle.
“We think about client alpha, not just selling whatever the flavour of the month is.”
On the issue of adding client value, one of the big problems for the entire fund management industry is the downward pressure on fees. Because the base return of all investments has come down, asset management companies are under particular strain. However, Pross thinks that there is still room for performance fees.
“In the institutional space we already had developments based in lower base fees and a performance fee,” he says. “Some regulators are against performance fees but I think it’s a perfect aligning of interests. You earn money if you create money for your clients.”
The challenges that Pross has to address is keeping both his and his clients’ interests aligned while maintaining a decent income and, of course, sustaining the pace of innovation. It’s not an easy task, but clearly one he is eager to meet.
