Allianz’s Volatility Fund Problems Get Bigger

Losing billions was only the beginning, with the SEC asking questions and lawsuits mounting.

Nathan Laine/Bloomberg

Nathan Laine/Bloomberg

Investment and insurance giant Allianz is facing questions from the U.S. Securities and Exchange Commission and another lawsuit over major losses in its Structured Alpha volatility hedge funds, according to the company and court filings.

The regulator asked Allianz for information related to its Structured Alpha products, which incurred serious-to-fatal losses in March, the firm disclosed in its 2020 interim report. Allianz said it is cooperating fully with the SEC.

Separately, public pension funds for Fairfield, Connecticut, have followed the Arkansas teachers’ fund in suing Allianz Global Investors late this month.

Among the defunct and grievously injured volatility vehicles, the Allianz Global Investors funds stand out because they were owned by a deep-pocketed corporation. Standalone hedge funds that blew up, such as Malachite Capital, left little behind for burned investors to potentially recoup, although whispers of litigation continue to swirl.

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Fairfield’s firefighters and retirees lost $11.6 million in Structured Alpha 250 — just a fraction of the nearly three-quarters of a billion dollars that Arkansas’ educators claimed they lost on the funds, per filings.

But the thrusts of the burned pension funds’ arguments are similar.

“Despite the fact that the stated mandate of the Structured Alpha Funds was to always remain hedged against sharp market downturns by being a net buyer of puts, Structured Alpha’s exposure during that time period demonstrated that it was not meaningfully hedged,” the Fairfield lawsuit stated. “Positioning the Alpha US 250, and the rest of the Structured Alpha Funds, in such a way in the middle of the COVID-19 pandemic, was an abandonment of the Structured Alpha Funds’ mandate and represents a complete failure of any risk management on the part of AllianzGI.”

Insurance and investment giant Allianz has disputed these arguments generally in public documents and previously to Institutional Investor, but has not yet addressed them in detail. The company said in its interim 2020 report that it “is currently reviewing the complaints and intends to defend vigorously against the allegations therein, which Allianz believes to be legally and factually flawed.”

AllianzGI liquidated two of its volatility-trading vehicles at the end of March — called Structured Alpha 1000 and 1000 Plus — citing “significant realized losses.” The less aggressive versions lost between 33 and 75 percent of their value, court filings stated.

Frustrations compounded as the firm stonewalled its clients, Fairfield claimed.

“Allianz refused to provide any detail to investors, including Fairfield, as to what investments led to the massive losses, stating ‘they were still unsure what exactly went wrong’ and not telling them how much money they’d get back, or when to expect it. AllianzGI has to date failed to provide any substantive explanation.”