(Noted News) — One of the world’s largest asset managers, handling over $1 trillion in funds management, is getting sued by truckers, teachers, subway workers, and others for losing massive chunks of their pension investments during the Coronavirus market crash.
Allianz, headquartered in Munich, Germany, lost roughly $4 billion worth of investments, according to the lawsuits.
A spokesman for the German investment giant defended the situation, claiming the lawsuits were unfounded.
“While the losses were disappointing, the allegations made by claimants are legally and factually flawed, and we will defend ourselves vigorously against them.”
According to the spokesman, the investors were well aware of the fact that their investments “involved risks commensurate with those higher returns.”
Among the series of lawsuits is one from the pension fund from the Metropolitan Transportation Authority that claims that Allianz lost their entire initial investment of $200 million, robbing over 70,000 employees of their retirements.
Another one of the lawsuits came in July, when the Arkansas Teacher Retirement System sued Allianz for losing over $774 million worth of pension fund investments “in a matter of weeks”.
Similar lawsuits have been filed by the Teamster labor union and Blue Cross and Blue Shield, and the whole debacle has garnered the involvement of the SEC to investigate whether or not Allianz was acting recklessly or in a way that violated any procedures.
Though all investments carry risk, the MTA’s lawsuit alleges that Allianz attracted their clients with an “all-weather” investment style, but instead gambled their entire equities with no coherent risk management or hedging strategies. Normally, investment funds on this scale use call and put options to hedge against unexpected market volatility, but the lawsuits claim there were no such precautions taken to limit or hedge losses. Allianz is reportedly cooperating with the SEC.
The insurance arm of Allianz has also taken big hits from the slashed demand in car and travel insurance, as well as the huge number of claims from businesses being forced to close down and cancel events. A number of these claims have apparently been left unfulfilled by Allianz.
Amid the giant meltdown, Allianz released a report in July offering an explanation, claiming that the losses were not the result of irresponsibility or recklessness, but bad luck and misfortune. The report goes over their various option strategies and how Allianz never strayed from the same methods that have made them profitable in the majority of previous years.
“By way of example, from March 2 to March 16, approximately two-thirds of the losses in the Structured Alpha 1000 fund were caused by S&P 500 put options. Approximately one-fourth of the losses in the fund were caused by short VIX and VXX options. These losses were partially offset by gains generated by the fund’s protective S&P 500 long puts that comprised a portion of the Hedging Positions, which contributed gains of approximately 5%, modestly offsetting losses.”
It is unclear whether anyone at any of the plaintiff pension funds understands any of the hedging strategies employed by hedge funds, or the strategies outlined in Allianz’s report.
“While the losses suffered within the Structured Alpha Portfolio are of course deeply disappointing, our analysis to date of the Portfolio’s March 2020 performance confirms that those losses were not the result of any failure in the Portfolio’s investment strategy or risk management processes. Rather, AllianzGI’s normal portfolio restructuring was overtaken by the combined market decline and volatility increase.”
The recent losses have raised questions on why pension funds even invest previous retirement money into hedge funds, which, on average, are less successful than the S&P 500.