VIEW- Investors must expect lower returns

FRANKFURT (Reuters) - Investors must adjust down their expectations for return on equity now that the financial crisis has shown past targets of 25 percent or more to be unrealistic, says the head of Allianz's asset management arm.

"We've been living through 'yield-madness' in recent years," Joachim Faber, chief executive of Allianz Global Investors, one of the world's top five asset managers, told Welt am Sonntag newspaper.

When markets were booming, analysts had applauded companies for promising return on equity of 25 percent while simultaneously asking if more was possible, Faber said.

Germany's biggest bank, Deutsche Bank (DBKGn.DE) has long targeted a medium-term ROE of 25 percent before tax.

Allianz itself was for years compared unfavourably with U.S. rival AIG (AIG.N), whose quarterly earnings were a couple of percentage points higher each time, Faber said.

"It has to have become clear that those sorts of returns are

not possible on a sustainable basis."

"If an investor makes inflation plus 2-4 percent with his portfolio, then he's absolutely doing a good job," Faber said, adding that "everything else is fully unrealistic and completely overdone."

The U.S. government bailed out AIG in September after bad mortgage bets left it on the verge of collapse. Its rescue was sweetened in November when the Federal Reserve and U.S. Treasury stepped in with more cash to buy mortgage assets that had left the insurer deeply in the red, and to ease the terms of its loan repayment.