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Global Economy

Hedge fund losses cost Allianz billions

A legal dispute in the USA will be expensive for the insurance group Allianz, which is listed on the DAX: The management put aside 3.7 billion euros for comparisons with major investors at its subsidiary Allianz Global Investors (AGI) and with a view to talks with US authorities, Allianz said . However, the board anticipates further charges before the matter is fully resolved. When this will be the case is unclear.

US investors lost billions with AGI hedge funds at the beginning of the Corona crisis and sued the group for more than six billion dollars. The investment subsidiary had developed "Structured Alpha" hedge funds in the US and sold them primarily to large US pension funds that believed in a safe investment.

Additional charges are to be expected

But when the markets wobbled in March 2020, they suffered billions in losses. Around 25 investors have sued Allianz because they had lost a large part of their stake with the allegedly crisis-proof securities. Her accusation is that the fund managers have deviated from their investment strategy in view of the temporary panic on the markets. The US supervisory authorities had also dealt with the case.

CEO Oliver Bäte pushed for an early settlement of the lawsuits in order to protect Allianz from further damage to its reputation. "The forthcoming settlements are an important step on the way to ending all proceedings," Allianz said. Negotiations are still ongoing with other plaintiffs, the US Department of Justice and the US Securities and Exchange Commission. Therefore, "additional burdens are to be expected before these procedures can finally be completed".

Operating record result

But because Allianz's operational business is going better than expected, Allianz can cope well with the billion-euro payment. Profits fell just 3 percent last year to 6.6 billion euros, despite a net provision for hedge fund losses of 2.8 billion euros.

All in all, that was the lowest profit since 2013. In operational terms, however, the insurer's result rose by a quarter to a record value of 13.4 billion euros. In the previous year it was 10.8 billion. "Despite ongoing challenges in 2021, Allianz has demonstrated its resilience and adaptability," said CEO Bäte.

Dividend is increased

In 2021, all of Allianz's business areas produced more in day-to-day business than in the first Corona year, 2020. This time, they put up with the devastating damage caused by the flood disaster that hit Germany and several neighboring countries in July. A decline in basic claims and the release of claims reserves would have compensated for the increased burden from natural catastrophes, it said.

The funds business of the group's subsidiaries Pimco and AGI also went brilliantly, if you exclude the billions in costs from the ongoing legal dispute. Investors pushed more than 110 billion euros in fresh money into the funds of the two Allianz companies. The assets managed for third parties grew by around 15 percent to almost 1.97 trillion euros from the end of 2020 to the end of 2021. The division's operating result increased by 22 percent to around 3.5 billion euros.

The Allianz dividend is to be increased sharply by EUR 1.20 to EUR 10.80 per share. In addition, Allianz also wants to buy back its own shares this year and thus return up to one billion euros in capital to the shareholders.

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