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Following are excerpts from a CNBC interview with Oliver Bäte, Allianz CEO and CNBC's Karen Tso from the World Economic Forum 2018.
KT: Good morning, Sri, this is one of the top spots here in Davos, and I want to take you to a conversation around risk. It's been pretty risky just getting around here at Davos, it's been very icy, it's been slushy, but a man who knows about weather, and about risk, and let me bring him in now, joining me here live from the Belvedere Hotel is Oliver Bäte, who is the CEO of Allianz. Welcome, nice to see you.
OB: Good morning.
KT: How's Davos playing out for you so far? Is it easy getting around, for you?
OB: I think it's actually fine, and I am very happy about the sunshine today. It's much better than the snowfall we had on Monday.
KT: I want to bring up the idea of risk, we've been talking about it from many different aspects, the disruption to globalization, but also on markets, as we continue to track to records, as we start out 2018. How concerned are you about risk for investors?
OB: So, underlying growth, economic growth, has been much better than people predicted, so, that's the good news, despite all the political turmoil. But, as you say, markets are very, very dangerous, and you don't see that, because valuations are at ever-higher levels, and credit risk looks like it's disappeared. Well, it hasn't disappeared, we know that, so we have to make sure we are prepared for the next market correction. We just don't know when it's going to happen, but it's absolutely clear it is going to happen.
KT: I want to talk about the focus for active managers, because you're one of the largest in the room, about € 1.9 trillion in assets under management, about the last check. Now, active managers have had a lot of pressures. Performance, battling passives. I wonder if there's another layer coming, because Larry Fink, of Blackrock, was talking about applying pressure on CEOs, to think about the impact on society, not just to think about profits for shareholders. So, if he's putting pressure on some of these CEOs, is there a role for Allianz to put pressure on CEOs to do the right thing, as well?
OB: Well, I think it's our normal job, as active investors, that we look at overall performance of companies, not just profits, and their contribution to society, so that's, to be honest, not something really new. The problem is, that there is a big difference between theory and reality. People are saying one thing, and then when it gets to when they sell and buy shares, they do something else. So, let's see whether people are actually putting their money where their mouth is, let me say it this way.
KT: It's just not evident, though, corporate profits are at record highs versus GDP, in the States, and margins are pretty high across Europe, as well, but the share of wages is much, much lower, by historical standards. So, surely there's some sort of giveback to the labor force, which could be inflationary.
OB: Yes, and it's positive. For example, for Europe, we've seen stronger growth in wages than I had anticipated, because there's a lot of influx from the east. The key thing is as follows. Companies need to be managed around what clients really need, so client satisfaction matters, and the motivation of our employees. By the way, that is something that Allianz measures and publishes. So, it's not so difficult to do, and we know we need our people, and we need to pay them well.
KT: The debate on the haves and have nots is really being pushed to the forefront of German politics, as well. Angela Merkel is looking at a slightly less cozy grand coalition this time, now in formal negotiations with the SPD, already promising to put society justice to the forefront. Is that the right direction for German politics?
OB: Well, it's always been that, you know, when we talk about market economy, we call it the social market economy, and we have to put facts, not fads, in the forefront. Germany actually hasn't seen an increased divide between well-earners and others. It's just not true. It's very different to the United States, where a very small part of the population controls almost all of the financial assets. So, Germany already has a balance. If I had to make a suggestion, we should focus less on redistributing wealth than creating wealth, because my worry is for my children, that we are investing far too little in Germany in to infrastructure, in to education, in to innovation. This is where we should put our focus, not putting money from one corner of the society to another.
KT: Are you worried that the influence of the SPD in a grand coalition would mean more redistribution type of policies, than creation, that you're talking about?
OB: I would not blame it on any sort of political party, I think that would be unfair. I think the overall trend has to be different from what we had the last few years, and I think almost all Germans think that, that's why they voted the way they voted. They did not want a grand coalition, so they need to think about what we need for our future, not what we need for today. And, by the way, strengthening Europe will be a big part of the journey.
KT: I want to talk about the ECB. We are on the eve of another monetary policy decision, already the hawks, some of them from Germany, want the ECB to do more to move towards the exit, fearing that Mario Draghi and co. are behind the curve. Do you share any of those concerns? Would you put yourself in the hawk camp?
OB: Yes, we have been, I have to be transparent, we have been criticizing the policy. We believe there has been too much cheap money, to support unsustainable policies, particularly in the south of Europe. But, to be fair, we've done much better than anticipated. We have also been wrong on some of these things, so, what is, I think , now important, that we start to exit these policies, and get back to proper pricing of risk, particularly around sovereign debt.
KT: Oliver Bäte, the CEO of Allianz, thank you so much for joining me here this morning.
OB: Thank you very much.