Allianz has warned that the legal battle over ‘Alpha Structured’ funds could become costly | World Weekly
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Allianz has warned that an escalating legal dispute over the actions taken by some US investment funds during the early days of the pandemic last year could take a painful financial hit.
The warning was issued after the US Department of Justice opened an investigation into the case and Allianz’s board of directors was made aware of “information” collected in an internal investigation into the matter.
Allianz has been under fire from investors since last summer, when several lawsuits were filed over so-called structured alpha funds. Funds managed by its asset management company, Allianz Global Investors, took heavy losses during the market crash in the first phase of the pandemic last year.
In a lawsuit filed last summer, the Arkansas teacher retirement system accused Allianz Global Investors of using a “reckless strategy” that led to huge losses. Other pension funds suing Allianz are Blue Cross and Blue Shield and Milwaukee City Employees.
In 2020, the US Securities and Exchange Commission launched an investigation into the matter, which is still ongoing.
Allianz revealed on Sunday that it had “immediately begun its own review of the matter”. She said her warning to shareholders was “based on the information available to Allianz to date,” as well as on the Justice Department’s investigation. An Allianz spokesman said the group’s review of the matter was continuing and declined to comment on any potential intermediate findings.
Allianz also said it had received a voluntary request for documents and information from the Department of Justice on the case and was “fully cooperating with the Securities and Exchange Commission and the Department of Justice in the investigation.”
“There is a relevant risk that matters relating to Alpha Structured Funds could materially affect the future financial results of the Allianz Group,” the company said on Sunday, adding that the potential ramifications are not quantifiable at this time. At the moment, the company has not made any judgments.
In its 2020 annual report, the group revealed that investors who sued the regulated alpha funds “incurred losses estimated at several billion dollars.” It said at the time that it “intends to vigorously defend these allegations”. At their peak before the pandemic, regulated alpha funds had €13 billion in assets under management.
Allianz said Sunday that “it is not currently possible to predict how the SEC and Justice Department investigations and pending court proceedings will be resolved, nor the timing of any such resolution.”
The Arkansas Teachers’ Retirement System claimed last summer that the money bet against escalating market volatility because it wanted to offset earlier losses, arguing that risk controls had been abandoned.
According to the lawsuit, the funds were presented to investors as a market-neutral portfolio that balances bets on higher versus lower in prices.
Last summer, AllianzGI said: “The basis for the lawsuit is simply incorrect and unfounded, as the funds in the Alpha Composite Portfolio did not deviate from its investment strategy.”
With €598 billion in assets under management for institutional and retail investors globally, Allianz Global Investors is the second largest asset manager in Germany after Deutsche Bank’s DWS and has grown strongly in recent years. Allianz Global Investors was created a decade ago when the German insurance company separated it from its bond investment fund, Pimco.
The Securities and Exchange Commission and the Department of Justice did not immediately respond to requests for comment.
Additional reporting by Patrick Temple West in New York