Mr. Gruber, how are you experiencing the sustained low interest rate environment as an investor?
The low interest rates are creating huge challenges for all investors. So you have to take a very close look at where you can still generate attractive returns without taking unacceptable risks. The low interest rate environment is, however, likely to become slightly less pronounced. In the first half of the year, interest rates climbed by around half a percent.
So you expect rates to keep rising?
Yes, we expect interest rates to keep climbing, albeit very slowly. This is supported by the statements made by the Chairman of the US Fed, Ben Bernanke, at the end of May: The pick-up in economic growth in the US means that the central bank will gradually retreat from its policy of "cheap money". But it is important not to be confused by what this means. This will be a long process stretching over a period of several years, not an abrupt change.
Will Europe follow in the footsteps of the US?
In some cases, the situation in the euro zone is a little different. The economy is not achieving sufficient growth, and additional reforms are needed. So the fact that the European Central Bank said a clear "no" to rising interest rates in June is understandable. We do not expect key rates to be lifted any time in the foreseeable future. Nevertheless, capital market rates will rise slightly. They will follow in the footsteps of the US rates, albeit not to the same extent.
How are you dealing with this?
There is no one-size-fits-all solution. It's not possible to generate high returns without taking risks. This is why you have to take a multi-pronged approach. We make long-term investments to provide our customers security. Our portfolio was not shaken by either the dotcom bubble or the US banking crisis or the euro crisis. What is more, we spread our investments very widely. This allows us to include a small number of investments that are prone to fluctuation – but offer solid returns – in our portfolio without jeopardizing the portfolio as a whole. During this process, we constantly ask ourselves: Which investments are more attractive today than yesterday, and are they the right investments for tomorrow, too?
So, is there anything that has become more attractive? For example, Allianz has been avoiding equities for quite awhile...
Equities are attractive, definitely. But they are also some of the most volatile investments. Just take a look at share price developments over the past ten or twelve years. You have to be able to weather these fluctuations – which can easily translate into a drop of value of 30 percent. Allianz's portfolios are able to weather these fluctuations, which is why we are currently slightly raising our share of equity investments.
What about infrastructure investments, which are often mentioned in connection with Allianz?
We have invested more than one billion euros in renewable energy projects, such as wind farms and solar parks. And there are investments in gas pipelines in the North Sea and the Czech Republic. Something that fewer people are aware of is that we also grant secured loans for infrastructure projects. For example, we are financing the construction of a highway in the Netherlands, the building of a concert hall in Paris and the operation of a huge gas storage facility just off the coast of Spain.
Why is that? Aren’t loans bank business....
I know that this is a question that has to be asked. But our loans are not the same as bank loans. These are long-term, secured loans. We have fixed terms of up to 25 years. You won't find a single bank that does that. What is more, we don't use the central bank for refinancing, but use our own funds instead. So we're not a bank – we are staying faithful to the principles of insurance investments.
You’re also involved in the real estate business. Don't you grant loans for these projects as well?
Allianz has always bought real estate and has always financed real estate as well. At the moment, we are becoming increasingly involved in the financing of major commercial properties, mainly office properties and shopping centers.
But this is yet another area in which you could be compared to banks...
To give you an example, we financed the Deutsche Bank skyscraper towers in Frankfurt. The bank included the property in a fund but did not want to finance it itself.
Aren't your investments in emerging regions more opportunistic than long-term?
No. Admittedly, investments in promising countries like China, Brazil, Mexico or South Africa are prone to fluctuation, as you can see at the moment. Growth is currently on the decline in these countries. This is due to the global economic slump, but also to the need for these economies to move from focusing exclusively on exports to domestic consumption. This, however, is a temporary trend, because there are a lot of indicators showing that these economies will be strong in the long term. They can benefit, for example, from relatively low debt levels, demographic growth and a young population that is becoming more and more educated.
What would you recommend private investors?
Don't be blinded by the promise of high returns. The extremely low key rates of all major central banks mean that there is no such thing as a low-risk, high-return investment. Even corporate bonds with good credit ratings aren't offering more than two percent at the moment. Equities are an attractive addition to any portfolio but will remain prone to considerable fluctuation. Stay patient. If you don't want to invest a lot of time yourself, entrust your savings to the professionals.
Portions of this interview appeared previously on Focus Money Online
