Allianz SE will take a 3.7 billion-euro ($4.2 billion) charge tied to its hedge funds that collapsed at the start of the pandemic, and said more expenses are coming from the multiple lawsuits and regulatory probes spurred by the implosions.
The charge prompted a loss in the fourth quarter as Allianz said it expects to settle soon with major investors in the so-called Structured Alpha Funds. But the Munich-based insurer said it can’t put a total price tag on the debacle as discussions with other plaintiffs, the U.S. Department of Justice and the U.S. Securities and Exchange Commission are ongoing.
Investors have alleged billion-dollar losses stemming from the collapse of the Florida-based hedge funds, which were designed to provide protection against a market crash yet suffered steep losses when Covid-19 hit. Allianz liquidated two of the funds in March 2020 and has since been winding down the rest.
The lawsuits and probes have overshadowed the company’s otherwise strong rebound from the pandemic, and Allianz -- which owns bond giant Pacific Investment Management Co. -- last year installed a new head of asset management.
“The charge may be lower than some were expecting, but what is not clear is how much the payment could increase as settlements are made,” Bloomberg Intelligence analyst Charles Graham said.
Chief Executive Officer Oliver Baete in December raised the insurer’s medium-term targets as he seeks to persuade investors that the company is strong enough to shoulder the extra bill from the legal issues.
The German company hadn’t set aside money for the matter earlier because it couldn’t estimate the cost. Berenberg analysts saw potential settlement costs of 5.8 billion euros in a note dated Feb. 8, adding that the issue is the “main overhang for Allianz.”
In August, Allianz warned that the hedge funds implosion could “materially impact” future earnings, after the U.S. Department of Justice started a probe into the funds. Allianz had already been facing lawsuits by investors alleging losses of some $6 billion, as well as an investigation by the Securities and Exchange Commission.
Allianz appointed its life insurance executive Andreas Wimmer as new head of asset management in October, following the departure of Jackie Hunt. Wimmer indicated in an interview last month that the insurer plans to push further into alternative asset classes and continue its focus on active fund management.
Allianz management has backed its unit that offered the funds -- called Allianz Global Investors -- while pledging to take a close look at the products it offers. Of the about 450 active investment strategies that existed at the end of 2019 at the unit, around 140 were discontinued or merged with other strategies in the last two years, Wimmer said in an interview in January.