This multi-center, randomized, double-blind, active controlled, parallel-group study in type 2 diabetes patients with moderate renal impairment will evaluate the effect on renal function and the safety and tolerability of aleglitazar compared with pioglitazone. Patients will be randomized to receive either 150 mcg aleglitazar or 45 mg pioglitazone as daily oral doses. In addition, a diet and exercise plan will also be implemented during the anticipated time on study treatment of 52 weeks. The target sample size is 200-400 patients.

Inclusion Criteria:

• Adult patients >/= 18 years of age
• Diabetes mellitus, Type 2
• Moderately impaired kidney function
• Drug naive or up to 2 antihyperglycemic medications at stable dose for over 1 month at screening
• BMI 25-35

Exclusion Criteria:

• Current or previous treatment with a thiazolidinedione
• Current or previous treatment with insulin
• Treatment with fibrates <3 months prior to screening
• History of renal disease other than diabetic nephropathy