AGI’s Structured Alpha Hedge Funds: Good News for Institutional Investors | Miscellaneous | 05/11/2022

Allianz SE is setting aside a further 1.9 billion euros for the remaining risks arising from the collapse of its structured alpha hedge funds two years ago. Allianz expects a higher amount of compensation money for major investors affected.

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Allianz insurance is increasing its provisions for any compensation payments relating to the collapse of its structured alpha hedge funds by a further 1.9 billion euros to a total of 5.6 billion euros, reports Bloomberg. The sum is based on a “realistic assessment” in relation to compensation payments to investors and payments as part of a possible completion of official procedures, the insurance group announced this week. An agreement with the US authorities is sought “promptly”. The provisions come on top of the €3.7 billion Allianz made earlier this year after a first round of settlements with investors, Bloomberg writes.

Compensation for damages burdens the quarterly profit
The new provision will weigh $1.6 billion on the group’s net income for the first quarter after tax. It is now only 600 million euros. The dividend policy remains unaffected.

The CEO Oliver Bäte is thus approaching the end of a difficult chapter for the Munich insurer’s huge asset management business. The case brought the alliance into the sights of the US Department of Justice and the US Securities and Exchange Commission, both of which opened investigations.

Black Swan caught Strategies off guard
The structured-alpha hedge funds were meant to offer investors protection from a market crash, but suffered hefty losses in the tumultuous early days of the pandemic. According to their own statements, investors have lost billions of dollars. Allianz dissolved two of the funds in March 2020 and wound up the others. So far, it has paid out $4.5 billion to investors, Bloomberg writes.

“extraordinarily risky and self-interested gambling”
Investor lawsuits have accused Allianz of abandoning its stated investment mandate and downside protection in its structured alpha funds, and then resorting to risky strategies to recoup losses during market volatility – a move some plaintiffs have accused of described as “extraordinarily risky and self-interested gambling”.

Major shareholder sends cautiously positive signals
Investor Union Investment was cautiously positive on Wednesday. The provision “can be seen as a certain relief despite the overall high absolute amount, since potential worst-case scenarios can be avoided according to the current status,” explained fund manager Steffen Weyl. However, there will only be final certainty when the US Department of Justice has finally published its report. (aa)

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