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Allianz warns legal battle over ‘Structured Alpha’ funds might turn costly

Fund management updates

Allianz is warning that an escalating legal dispute over actions taken by some of its investment funds in the US during the early days of the pandemic last year may result in a painful financial hit.

The warning was issued after the US Department of Justice launched an investigation into the issue and Allianz’s management board was briefed on “information” gathered in an internal probe into the matter.

Allianz has been under fire from investors since last summer, when several lawsuits over so-called Structured Alpha Funds were filed. The funds run by its asset management subsidiary, Allianz Global Investors, suffered heavy losses during the market crash in the first stage of the pandemic last year.

In a lawsuit filed last summer, the Arkansas Teacher Retirement System accused Allianz Global Investors of employing a “reckless strategy” that led to heavy losses. Other pension funds that are suing Allianz are Blue Cross & Blue Shield and Milwaukee city employees.

In 2020, the US Securities and Exchange Commission launched a probe into the matter, which is continuing.

Allianz disclosed on Sunday that it “has immediately started its own review of this matter”. It said its warning to shareholders was “based on information available to Allianz as of today”, as well as on the DoJ probe. An Allianz spokesman said that the group’s review into the matter was continuing and declined to comment on any of its potential intermediate findings.

Allianz also said that it received a voluntary request for documents and information from the justice department on the case and “is fully co-operating with the SEC and the DoJ in the investigations”.

“There is a relevant risk that the matters relating to the Structured Alpha Funds could materially impact future financial results of Allianz Group,” the company said on Sunday, adding that the potential fallout could not be quantified at the moment. For now, the company has not taken any provisions.

In its annual report for 2020, the group disclosed that the investors suing over the Structured Alpha Funds “have alleged losses of several billion dollars”. At the time, it said that it “intends to defend vigorously against the allegations”. At their peak before the pandemic, the Structured Alpha Funds had €13bn of assets under management.

Allianz said on Sunday that it was “currently neither feasible to predict how the SEC and DoJ investigations and the pending court proceedings may be resolved nor the timing of any such resolution”.

The Arkansas Teacher Retirement System last summer claimed that the funds betted against an escalation of market volatility as it wanted to recoup losses incurred earlier, arguing that risk controls were ditched.

According to the lawsuit, the funds were presented to investors as a so-called market neutral portfolio that balances out bets on a rise against those on a fall in prices.

Last summer, AllianzGI said: “The premise of the lawsuit is simply incorrect and without foundation, as the funds in the Structured Alpha portfolio did not diverge from their investment strategy.”

With €598bn in assets under management for institutional and retail investors globally, Allianz Global Investors is Germany’s second-largest asset manager 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 funds, Pimco.

The SEC and justice department did not immediately respond to requests for comment.

Additional reporting by Patrick Temple-West in New York

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