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Superannuation
Pension funds sue Allianz Global Investors

Several pension funds are suing hedge funds managed by Allianz Global Investors for allegedly engaging in risk-taking behaviour and losing billions of dollars in retirement savings.

The Arkansas Teacher Retirement System (ATRS) was the first pension fund to file a complaint in July, alleging that Allianz GI failed its stewardship over the now-defunct Structured Alpha Funds portfolio.

Now, the Teamster Members Retirement Plan, and the pension schemes for New York's Metropolitan Transportation Authority and Blue Cross Blue Shield Association, have also filed similar lawsuits. Reuters reports that around US$4 billion has been lost from members' savings.

Lawyers for ATRS, Bernstein Litowitz Berger & Grossmann, claim the Structured Alpha Funds used an investment strategy designed to provide stable returns and protection during a market downturn. However, the lawyers' analysis found Allianz deviated dramatically from this market-neutral strategy and lacked any meaningful protection against a downturn.

Once the funds began incurring losses in February 2020, Allianz took a series of actions in contravention of its contractual and fiduciary duties that exacerbated the Alpha Funds' losses, and may have engaged in market manipulation in a desperate attempt to mitigate such losses, the law firm said.

Interestingly, the funds' strategy contradicted the warnings of the global firm's chief economist Mohamed El-Erian.

In early February, El-Erian cautioned that the then-burgeoning pandemic would have substantial market ramifications, and urged investors to "resist our inclination to buy the dip."

The funds however, did the opposite by selling short equity put options worth US$117 million, while purchasing long equity put options worth only US$67 million.

Essentially, the Structured Alpha 250 Fund was not "market-neutral" but was in fact betting on an increase in equity prices, the law firm said.

On March 25, Allianz GI told investors it was forced to liquidate more funds in the Structured Alpha Funds portfolio (the Structured Alpha 1000 and Structured Alpha 1000 Plus) because of insurmountable losses. Two days later, it said it will liquidate Structured Alpha 1000 and Structured Alpha 1000 Plus.

Munich-based Allianz commented: "As we set out at the time, the Structured Alpha portfolio sustained losses during the severe market rout in late February and March. While the losses were disappointing, the allegations made by claimants are legally and factually flawed, and we will defend ourselves vigorously against them.

"The claimants are professional investors, most of whom were advised by a sophisticated investment consultant to evaluate the Structured Alpha strategy.

"They bought these hedge funds in the knowledge that they sought to deliver substantial returns, net of fees, of as much as 10% above the returns of the fund's benchmark, an index like the S&P 500. As was fully disclosed, the Structured Alpha funds involved risks commensurate with those higher returns. The claimants and their investment consultants determined that the Structured Alpha Portfolio fit with their overall investment goals and risk tolerances."

Read more: AllianzStructured Alpha FundsAllianz Global InvestorsATRSArkansas Teacher Retirement SystemBernstein Litowitz BergerBlue Cross Blue Shield AssociationMetropolitan Transportation AuthorityMohamed El-ErianReutersTeamster Members Retirement Plan
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