Allianz Probed by German Regulator Over Hedge Fund Business

(Bloomberg) -- German regulator BaFin has started its own investigation into Allianz SE’s Structured Alpha Funds, which are at the center of lawsuits and probes in the U.S. following steep losses during the pandemic.

BaFin is looking at the extent to which Allianz officials outside the Florida-based funds knew of the events leading up to the losses, according to a person familiar with the matter, who asked for anonymity to discuss internal information. Reuters reported on the BaFin probe earlier.

“Allianz regularly reports to and discusses with BaFin all matters of relevance and importance for Allianz SE and Allianz Group,” a spokeswoman for the insurer said by email. “This also relates to the issues around the Structured Alpha Funds. That is part of the normal process and there are no new developments.”

A spokesperson for BaFin declined to comment.

Allianz last month disclosed that the U.S. Department of Justice had started a probe into the funds and warned that the matter could “materially impact” future earnings, sending shares of the insurer tumbling. The company had already been facing lawsuits by investors alleging losses of some $6 billion, as well as an investigation by the Securities and Exchange Commission.

The BaFin involvement adds to pressure on Chief Executive Officer Oliver Baete, who has said the insurer is fully cooperating with the U.S. probes. Baete has backed the Allianz Global Investors unit that housed the hedge fund business, while pledging to take a close look at the products AGI offers to clients. 

BaFin is working to repair its image after failing to detect the fraud that led to collapse of payments company Wirecard AG last year, which shook confidence in Germany as a place to do business. While BaFin has since worked on high-profile probes, notably of Greensill Capital’s German banking unit and allegations of green-washing against Deutsche Bank AG’s asset management arm, the watchdog has struggled to shrug the perception that it can act quickly enough.

The Florida-based private hedge funds in question were designed to offer stable returns in a broad range of market conditions and provide protection against a market crash. Two of the hedge funds were liquidated at the end of March 2020, and Allianz is in the process of winding down the rest.

The company’s asset manager AGI has been defending itself from lawsuits by large pension funds and other investors challenging how it invested client money during the Covid-19 market downturn. Allianz told a Manhattan federal judge in February that the plaintiffs are sophisticated investors that chose high-risk private funds with their eyes open.

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