Allianz warns that legal battles over “structured alpha” funds may become costly

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Fund Management Update

Allianz warned that the escalating legal disputes over actions taken by some of its investment funds in the United States at the beginning of the pandemic last year could lead to painful financial blows.

The warning was issued after the U.S. Department of Justice launched an investigation into this issue, and Allianz’s management committee heard a briefing on the “information” collected during an internal investigation of the matter.

Allianz is under fire From investors Since last summer, several lawsuits have been filed against the so-called structural Alpha Fund. A fund operated by its asset management subsidiary Allianz Global Investors, lost heavily During the market crash during the first phase of the pandemic last year.

In a lawsuit filed last summer, the Arkansas Teacher Retirement System accused Allianz Global Investments of adopting a “reckless strategy” that resulted in significant losses. Other pension funds suing Allianz are Blue Cross & Blue Shield and Milwaukee employees.

In 2020, the US Securities and Exchange Commission launched an investigation into this matter, and the investigation continues.

Allianz revealed on Sunday that it “has immediately begun its own review of the matter.” It stated that its warning to shareholders was “based on information available to Allianz today” and an investigation by the U.S. Department of Justice. An Allianz spokesperson said that the group’s review of the matter is still ongoing and declined to comment on any potential intermediate investigation results.

Allianz also stated that it received a voluntary request from the Department of Justice for documents and information on the case, and “fully cooperated with the US Securities and Exchange Commission and the Department of Justice in the investigation.”

“There is a risk that matters related to Structured Alpha Funds may have a significant impact on the future financial performance of Allianz Group,” the company said on Sunday, adding that the potential impact cannot be quantified at this time. Currently, the company has not adopted any regulations.

The group disclosed in its 2020 annual report that investors who filed a lawsuit against the structured Alpha Fund “reportedly lost billions of dollars”. At the time, it stated that it “intended to vigorously defend these allegations.” At the peak before the pandemic, the structured Alpha Fund managed 13 billion euros in assets.

Allianz said on Sunday that “currently predicting the resolution of the US Securities and Exchange Commission and the Justice Department’s investigations and pending court litigation and the timing of any such resolution is not feasible”.

Last summer, the Arkansas Teacher Retirement System claimed that these funds were betting on the escalation of market volatility because it wanted to make up for earlier losses and believed that risk control had been abandoned.

According to the lawsuit, these funds are offered to investors as so-called market-neutral portfolios to balance bets on price increases and price drops.

Last summer, AllianzGI stated: “The premise of the lawsuit is completely wrong and unfounded, because the funds in the Structured Alpha portfolio have not deviated from their investment strategy.”

Allianz Global Investors manages 598 billion euros of assets for global institutional and retail investors. It is the second largest asset management company in Germany after Deutsche Bank DWS and has grown strongly in recent years. Allianz Global Investors was founded ten years ago when the German insurance company separated it from its bond investment fund Pimco.

The US Securities and Exchange Commission and the Department of Justice did not immediately respond to requests for comment.

Additional report by Patrick Temple-West in New York

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