Allianz Settles Suits Over Multibillion-Dollar Fund Blowup

(Bloomberg) -- A group of investors suing Allianz SE over losses tied to the collapse of its U.S.-based hedge funds asked a judge to dismiss the lawsuit after agreeing to settle with the insurance giant.

Investors allege they lost billions of dollars as a result of the collapse of Allianz’s Structured Alpha hedge funds, which also prompted probes by U.S. regulators. The German company earlier this month took a $4.2 billion charge to cover settlements and related costs.

Blue Cross and Blue Shield Association and Raytheon Technologies pension systems filed requests for dismissal Monday. Some two dozen public pension funds, including the Arkansas Teacher Retirement System and the Employees’ Retirement System of the City of Milwaukee, are also part of the settlement, a person familiar with the matter said. Terms weren’t disclosed. 

Allianz, which owns bond giant Pacific Investment Management Co., had also said the ongoing probes by the U.S. Securities and Exchange Commission and Department of Justice are at a “sensitive” stage and that it couldn’t yet estimate the final price tag to resolve those matters.

The SEC declined to comment on its probe. The DOJ didn’t immediately respond to a request for comment. Allianz, which didn’t admit to any wrongdoing, also declined to comment on the settlement.

What Bloomberg Intelligence Says

“Allianz’s Feb. 17 statement that it’s booking a provision of 3.7 billion euros for 2021 in connection with lawsuits and government investigations related to losses in its Structured Alpha investment funds suggests that an anticipated settlement could approach the $6 billion in investor losses.

--Elliott Z Stein, Senior Litigation Analyst, Click here to read report.

The Structured Alpha hedge funds were promoted as offering a way to cushion the movement of traditional assets. Using equity and volatility options, they were said to perform well under various market conditions. 

However, the funds suffered catastrophic losses during the market turmoil of early 2020. Greg Tournant and Stephen Bond-Nelson, who managed the funds for Allianz Global Investors, were dismissed in December for what the company said in regulatory filings were compliance violations. A third manager involved in running the funds, Trevor Taylor, left at the same time, a person familiar with the matter said.

The Structured Alpha funds were designed to protect against downturns by “pursuing a combination of long and short volatility positions via selling and buying options,” according to a 2016 marketing document. Tournant likened the strategy to selling insurance, earning premiums on both put and call options, a promotional video from the same year shows.

“We could be labeled as an insurance company using reinsurance to further protect the portfolio,” Tournant had said.

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