Allianz SE is selling $120 billion in assets under management to Voya after Allianz agreed to pay $6 billion to settle charges that its investing division defrauded clients by hiding losses and risks that led a hedge fund to collapse during the 2020 market meltdown.
The collapse wiped out pension funds of more than 100,000 people, while three portfolio managers reassured 114 institutions that their money was secure in what federal investigators called a historic fraud. Allianz has agreed to pay $5 billion in restitution to victims, along with $1 billion to settle the Securities and Exchange Commission’s charges.
Allianz Global Investors is also banned from advising registered investment funds, such as mutual funds and some pensions, for 10 years but the company said it expects that the SEC will exempt Allianz Life and Pacific Investment Management Co. from the order.
A 'Handful' Of People
Allianz said the fraud was limited to a “handful” of people in its Structured Products Group who are no longer with the company, and that the government’s investigation did not find wider knowledge of their actions. Three fund managers were accused of misleading investors who put $11 billion into Structured Alpha Funds about its risks.
The fund’s lead portfolio manager, Gregoire Tournant, fabricated financial reports to hide risks, for example by dropping a number to show a 42.1% loss in a market crash scenario in a risk report as 4.1% instead, according to the SEC.
Tournant is fighting the charges while Co-Lead Portfolio Manager Trevor L. Taylor and Portfolio Manager Stephen G. Bond-Nelson have pled guilty and are cooperating witnesses, although Bond-Nelson had fled during testimony in 2020 after he asked for a bathroom break, according to an SEC investigator speaking at a press conference last week.
The fabricated reports showed that the funds, since 2014, were protected from a sudden market shock by a cushion of hedges. But those promised hedges became too expensive in 2015 and Tournant secretly bought cheaper ones that increased risk, according to the Department of Justice.
The 2020 market crash was the receding tide that showed just how naked the fund was as it lost more than $7 billion in market value, including over $3.2 billion in principal, faced margin calls and redemption requests and ultimately were shut down.
The years-long scheme helped the unit to account for 25% of Allianz Global Investors’ revenue in recent years, according to the DOJ, which also said Tournant assured investors that their money was safe because Allanz was a “master cop” ensuring that Tournant would follow the risk guidelines promised to investors.
“Despite Tournant’s claim that Allianz acted as a ‘master cop’ looking over his shoulder, no one at AGI or Allianz was verifying that Tournant and his colleagues were actually adhering to the investment strategies promised to investors,” the DOJ said. “No risk or compliance personnel at AGI verified, attempted to verify, or were responsible for verifying that Tournant and his colleagues were purchasing hedging positions within the range that was represented to investors.”
Voya last week said Allianz agreed to transfer a “substantial majority” of its Allianz Global Investors assets to Voya’s asset management business.
Voya will acquire AGI’s equity and fixed income investment teams, select client service and sales professionals and $120 billion of AUM, consisting of income and growth, fundamental equity and private placement assets, which will increase Voya’s AUM to $370 billion. AGI would receive up to a 24% stake in in Voya Investment Management.
Voya said it will be insulated from Allianz’s legal trouble: “Although the transaction will be structured as an acquisition only of selected investment teams and assets from AGI U.S., the terms of the proposed transaction will provide robust protection for Voya Financial against any and all legal or regulatory liabilities related to AGI’s other business activities, including all activities in the United States prior to the closing of the contemplated transaction.”
Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected]