Allianz warns results could be hit by US Alpha Fund litigation

Allianz’s share price fell by 9.5% at the start of August as it prepared to publish its first-half 2021 results, as news broke of litigation pending in US courts against Allianz Global Investors US LLC and other Allianz group companies in relation to its Structured Alpha funds.

The investigation was started by the US Securities and Exchange Commission (SEC) in March last year, when the Allianz group funds took heavy losses during the first Covid-19 lockdown. US pension funds were reportedly angry that they were misled because these funds were supposedly designed to generate above-market returns, or ‘alpha’, irrespective of whether stocks rose or fell.

Following the investigation, Allianz confirmed that the US Department of Justice (DoJ) has begun an investigation concerning the Structured Alpha funds. The Munich-based insurer also said that Allianz Global Investors US LLC has received a voluntary request for documents and information from the DoJ.

“Allianz is fully cooperating with the SEC and the DOJ in the investigations and has immediately started its own review of this matter,” it said.

The insurer is expected to post a healthy set of first-half numbers on the back of reduced Covid-19-related claims and improved market conditions overall. But it warned that there is now a risk that future results could be hit by the legal action in the US.

“In light of the DoJ investigation and based on information available to Allianz as of today, the board of management of Allianz SE has reassessed the matter and has come to the conclusion that there is a relevant risk that the matters relating to the Structured Alpha funds could materially impact future financial results of Allianz Group,” it stated.

“However, it is 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. It is in particular not feasible to reliably estimate the amount of any possible resolution including potential fines. Therefore, no provision has been recognised at the current stage,” added the group.

News agency Reuters reported this week that the lawsuits allege that the Structured Alpha family of funds strayed from a strategy of using options to protect against a short-term financial market crash.

Last year, Allianz was forced to shut two private hedge funds after severe losses, prompting a wave of litigation that the company has said is “legally and factually flawed”.

Reuters reported that together, the various suits filed in the US Southern District of New York claim investors lost a total of about $4bn.