Raytheon Technologies’ corporate pension fund is the latest of a bevy of retirement plans to sue Allianz over alleged mismanagement of certain structured product investments.
Raytheon's complaint, filed on Friday, alleges that it lost about 75 percent of its $375 million investment with Allianz — losses that “far exceed” what it would have lost if Allianz “prudently” managed the investment strategy.
Raytheon joins several other pension funds that have already sued Allianz over the alleged mismanagement, including the Blue Cross Blue Shield Association National Employee Benefits Committee, the Teamster Members Retirement Plan, and Lehigh University, among several others.
“As we set out at the time, the Structured Alpha portfolio sustained losses during the severe market rout in late February and March,” an Allianz spokesperson said via email Tuesday. “While the losses were disappointing, the allegations made by Raytheon Technologies Corporation Pension Administration and Investment Committee are – like other plaintiffs’ – legally and factually flawed, and AllianzGI will defend itself vigorously against them.”
The Arkansas Teacher Retirement System was the first to file against Allianz, in July 2020, alleging that it incurred a loss of $774 million on its $1.62 billion investment, Institutional Investor previously reported. That loss was eclipsed by Blue Cross Blue Shield’s alleged loss of over $2 billion on its $2.9 billion investment.
Raytheon is specifically suing Allianz for breach of fiduciary duty, prohibited transaction, and breach of contract, the complaint said.
In August 2019, Raytheon made its initial investment into Allianz’s structured alpha product, which was designed to generate returns through an options strategy, according to the complaint. Allianz allegedly told Raytheon that there would be hedges in place “at all times” to limit losses.
Allianz allegedly did not charge an asset-based management fee but instead opted for a 30 percent performance fee on returns exceeding their benchmark. Raytheon alleges that Allianz — particularly in February and March 2020 “knew that it needed to generate enormous returns just to return to the highwater mark at which it could hope to earn any fees.”
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However, according to the lawsuit, Allianz had allegedly abandoned the hedges and had placed a bet that volatility would remain low, an “equivalent of a ticking time bomb,” the lawsuit said.
That alleged time bomb exploded in February and March 2020: As uncertainty surrounding the COVID-19 pandemic swelled, so too did volatility, tanking markets. Allianz’s Structured Alpha products took large losses as a result, according to the lawsuit.
It also came at a transitory time for Raytheon. On April 3, 2020, Raytheon and United Technologies completed their merger of equals, according to an announcement from that time. The lawsuit said that in December 2020, the pension plan benefits of the two entities merged.
The pension fund is seeking a restoration of all of its losses, accounting and disgorgement of fees and profits, a money judgment exceeding $75,000, an order awarding pre- and post-judgment interest, and attorney’s fees and costs, the complaint said. A spokesperson from Raytheon declined to comment on the lawsuit on Tuesday.