(Reuters) – The US Department of Justice's investigation into the German insurer Allianz SE looks at possible misconduct by fund managers and incorrect picture of risk for investors, said three people with knowledge of the matter.
The probe unveiled by the company on August 1, is focused on Allianz funds that used complex alternative strategies to generate returns but suffered heavy losses when the spread of COVID-19 triggered wild stock markets in February and March 2020.
DOJ is investigating about executives at Allianz Global Investors Structured Alpha Funds abandoning a strategy to provide protection against market crashes and how they communicated the amount of risk to investors, the sources said.
DOJ and Allianz declined to comment on the nature of the investigation, which could lead to criminal charges.
The US Security and Exchange Commission launched an investigation into the loss of money last year, Allianz reveals since the Arkansas Teacher Retirement System filed a lawsuit in July 2020, claiming $ 774 million in damages.
Since then, it has had at least 25 investor targets, primarily of U.S. public pension funds, including those for New York subway workers and Milwaukee employees. , has been brought against Allianz for a total of approximately $ 6 billion in damages.
The company tries to get the lawsuits dismissed and claims that it is not responsible for the investors' losses.
The DOJ launched its probe following a referral from the SEC, while German financial regulator BaFin has also looked at the demise of the structured alpha funds, Reuters reported this week.
In addition to its insurance business, the German company is one of the world's largest money managers with $ 2.9 trillion in assets under management through fixed income giant PIMCO and Allianz Global Investors.
& # 39; Massive backback & # 39;
Allianz said in August that it had reconsidered the risks to the funds in the light of the DOJ investigation and concluded that the issue could have a significant impact on its future results.
Berenberg, who gives Allianz a "buy", has estimated the worst case for the insurer could be $ 8 billion ̵1; equivalent to net profit last year – if it loses all lawsuits and is fined by US authorities.
"It's a massive setback for Allianz," Ingo Speich, head of sustainability and corporate governance at Deka, a top Allianz investor, told Reuters. "This raises the question of the extent to which Allianz, as an insurer, should be involved in asset management and the offering of complex products." had been warned, the strategies were speculative.
Nevertheless, investors argue in their lawsuits that the collapse of the structured alpha funds was a result of Allianz deviating from its stated strategy of providing protection against market falls with put options.
In a February 2020 presentation presented in an investor trial, Allianz Global Investors marketed the $ 15 billion Alpha fund family, saying, "Today we are as prepared as ever for a severe market shift."
By the end of March this year, two funds worth a total of $ 2.3 billion had been liquidated by the end of 2019 after losing much of their value and investors that Arkansas Teachers began to recover from If the other Alpha funds lose large losses.
Investor Cases claims that Allianz Global Investors had said it would always buy more put options to protect against market falls than the number of put options it sold to earn premium income, but did not maintain that approach.
“The most important error here that we claim is the abandonment of the trading strategy. They said they would make this strategy; they did not, ”a plaintiff's lawyer told a New York judge at a pre-trial hearing, according to a transcript. consent or notice.
The two funds that were closed were aimed at surpassing a three-month US Treasury bill index by 10% or more per year. Other Alpha funds aimed to outperform US or global equity indices by 2.5%, 3.5% or 5% per year using different option strategies.
However, one of the funds, the Global Equity 500, lost 78% in the first quarter of 2020 while the benchmark it measured against fell by 22%, according to the Arkansas lawsuit.
The Arkansas lawsuit also cites option position data for the US Equity 250 fund on February 29, 2020, which shows that it would be subject to losses in the S&P 500 Index and an increase in the VIX volatility index.
Just a few weeks later, S&P had fallen by a quarter since the end of February and VIX had more than doubled.  Arkansas, which had $ 1.6 billion in three Alpha funds at the end of 2019, chose to move the remainder of its investments to rival asset manager BlackRock in April 2020, minutes of an Arkansas retirement plan board meeting.
Allianz has declined to disclose what is left in the Alpha funds that were not liquidated.
Reiner Kloecker, fund manager with Union Investment, another of Allianz's largest shareholders, said the DOJ investigation "reinforces the suspicion of obvious internal misconduct or lack of control processes."
Speaks August 8th. 6, a few days after Allianz announced the DOJ investigation, CEO Oliver Baete said it had been a terrible week for him and the insurer.
Mr. Baete said the events had nothing to do with the Allianz Group's ability, culture or ethics. "Not everything went perfectly with the fund management," he told reporters.
At the same time, the fallout in Arkansas continues.
A committee of state legislators overseeing general retirement put the losses on the agenda for a September meeting, Senator Kim Hammer, who chairs the committee, said.
He told Reuters that the committee would look at the Arkansas Fund's investment policy and whether Allianz was “a company we should have been involved in from the beginning.