Allianz Controversy: What’s Going On With the Hedge Fund?

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Feb. 18 2022, Published 11:00 a.m. ET

German financial giant Allianz SE (OTC:ALIZY) owes investors big, and it’s going into debt to pay them back. Allianz has been charged $4.2 billion to cover settlement costs tied to its Florida-based hedge funds. Ultimately, this price tag might just be the start.

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Here’s what we know about the multi-billion dollar Allianz controversy, including how it's impacting investors and employees.

Allianz is charged $4.2 billion to pay settlement over 2020 trading debacle.

allianz
Source: Getty

Allianz CEO Oliver Bate

As reported by Bloomberg, when the market crashed in February 2020, investors in certain Allianz hedge funds (called Structured Alpha Funds) expected their investments to pull through. However, Allianz couldn’t keep its investment vehicles afloat while the market was down for a number of weeks. The funds showed an inability to withstand strong volatility. Two funds liquidated and Allianz continued to deconstruct the others. Ultimately, $15 billion worth of Allianz funds collapsed.

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As a result, big-time investors sued Allianz for failing to protect their assets. Public pension funds, New York’s Metropolitan Transportation Authority, Blue Cross & Blue Shield, and more lost money in the process.

Once Allianz realized it was losing money, it took an “extraordinarily risky and self-interested gamble,” according to plaintiffs, which made the losses worse. Now, Allianz owes 3.7 billion euros or the equivalent of about $4.2 billion. Allianz took out a charge to cover the settlement costs.

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More fees will likely materialize as the SEC and Department of Justice continue to investigate Allianz assets. “There are still ongoing conversations with remaining plaintiffs,” Allianz CFO Guilio Terzariol said in a Bloomberg TV interview.

Allianz maintains that investors knew they were investing in a high-risk private fund, but plaintiffs say that they expected downside risk protections.

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Allianz cuts employee bonuses and executive compensation.

On Feb. 18, Allianz CEO Oliver Bate spoke about employee payments within Allianz. The CEO and board will reportedly receive big cuts for bonuses as a result of the financial burden. Bate didn't specify how much the cuts will amount to, but he did say it will cause a “significant impact.”

“We want to demonstrate we are taking this matter extremely seriously and we regret really the losses,” Bate adds.

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In 2020, the Allianz board earned a collective 32 million euros or more than $36.4 billion.

With the dissolution of the $15 billion Structured Alpha Funds, it will be difficult for Allianz management to regain investor trust for certain hedge fund services. Still, it continues to manage $2.95 trillion in assets.

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Allianz stock is struggling despite positive earnings.

In 2021, Allianz's financials were dismal—the company incurred 292 million euros in net losses in the fourth quarter alone. Despite that, the company says its future looks strong thanks to a revenue increase of 5.7 percent to 148.5 billion euros by the end of 2021.

“In spite of challenges in 2021, Allianz proved its resilience and adaptability,” Bate says.

Shareholders for Allianz public stock aren’t so sure. ALIZY stock fell 5.18 percent from the market close on Feb. 16 to the market open on Feb. 18. Ongoing litigation remains a cause for concern.

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