No one seemed to buy the sales pitch coming out of Allianz Global Investors US more than Jamey Sharpe.
Over the years, Sharpe helped steer billions into several hedge funds inside an affiliate of Allianz SE that claimed they’d thrive in any market. In time, no investor was in deeper than his employer, the Blue Cross and Blue Shield Association.
Now, Sharpe -- a retired pension functionary who operated far from the glare of Wall Street -- has been thrust into an uncomfortable legal spotlight. He’s one of a cast of characters enmeshed in the drama over who’s to blame in the fallout from the multibillion-dollar Allianz Structured Alpha funds collapse.
Fingers are pointing everywhere. The US investment subsidiary of Allianz SE has pleaded guilty to securities fraud related to the funds. Federal authorities say three former portfolio managers from Allianz misled investors. Two have pleaded guilty to securities fraud and investment adviser fraud, among other charges. The third, Structured Alpha’s chief investment officer Greg Tournant, is fighting criminal charges.
A Blue Cross and Blue Shield Association benefits committee says an adviser that was supposed to help investors vet their risks fell down on the job. And now that adviser, Aon Investments USA, claims Sharpe and others at Blue Cross failed to do their jobs.
A spokesperson for Aon declined to comment.
This much is certain: Blue Cross bet big on Structured Alpha. In the process, it appears to have ignored a fundamental rule of investing: Diversify. By the time it was over, Blue Cross -- a federation with more than 100 million customers -- had sunk $3 billion into the Allianz funds. That was as much as 62% of its entire pension portfolio. Now, it’s the biggest loser, by far, among the 114 institutions that collectively invested $11 billion in Structured Alpha.
Allianz has agreed to pay $6 billion to clean up the mess. In recent weeks, it’s settled with the authorities and about two dozen investors, including Blue Cross.
Lawsuits
But its deal didn’t cover all of the Blue Cross losses. Blue Cross has sued Aon, and Aon has responded by suing five Blue Cross executives, including Sharpe, who retired in January after three decades at Blue Cross. One of those Aon sued was Sharpe’s boss, claiming he failed to oversee him. Hundreds of millions of dollars are potentially on the line in the legal fight.
The key question is how and why the Blue Cross pension office ended up investing so much of its portfolio into Structured Alpha, offered by a relatively small, obscure unit inside the giant German insurer’s US investment subsidiary. The portfolio managers there said they would use options to make money no matter which way the markets went. Authorities say they criminally concealed the risks they were taking.
Aon blames Sharpe, who it says “was central to the Committee’s management of the Trust” and others. In a lawsuit filed May 17 in New York federal court, the adviser alleges Sharpe, the Blue Cross chief investment executive, encouraged the committee that oversees pension investments to repeatedly commit more to Structured Alpha. It also claims he fired a senior employee who disagreed with his strategy.