The CEO of Allianz SE has defended the culture of the German financial giant in the face of government investigations and civil lawsuits stemming from the huge losses suffered by its investment funds during the market panic linked to the pandemic in early 2020.
In his first public comments since the company disclosed a US Department of Justice investigation into the funds, Oliver Bäte said that “the event has nothing to do with performance capability, culture or ethics of the Allianz group..
He said the company understands investors’ anger that investments in its Structured Alpha funds have not led to the expected results. However, one could argue that these were high risk investments, Bäte said.
Several large investors, including the Blue Cross Blue Shield Association and the Arkansas Teacher Retirement System, are suing the insurer for suffering large losses during the market downturn last year. The United States Securities and Exchange Commission is also investigating Allianz.
Mr Bäte said the Justice Ministry’s investigation led Allianz to reassess the situation around the funds and that over the past week the company realized that “everything had not gone perfectly well done in fund management “. He said the analysis was separate from whether the products were good or bad investments.
The Structured Alpha funds sold insurance against short-term market liquidation, while purchasing longer-term protection. Transactions were turned upside down in March 2020 and Allianz closed two of its most aggressive structured Alpha funds, recording huge losses. The two funds managed nearly $ 2.3 billion. Other Structured Alpha funds, including those held by US pension plans, posted year-to-date losses well above their benchmarks.
The Munich-based company is one of the largest asset managers in the world with nearly 2.4 trillion euros under management, the equivalent of around 2.8 trillion dollars. In addition to his insurance business, he controls Allianz Global Investors, the part of the company that managed funds at the center of the case, and bond giant Pacific Investment Management Co.
Interest from the DOJ dramatically increased the pressure on Allianz, dropping its stock this week. The company did not give full details on the nature of the investigation or the scope of possible penalties. Allianz warned that the impact on future revenues from government investigations and lawsuits could be significant.
Mr Bäte said on Friday that the case hinged on whether the products were performing as they promised and whether everything had gone well in the management of the fund.
During a media call, CFO Giulio Terzariol declined to say whether any employees had been sanctioned or fired for the matter. He said the funds in question represented less than 1% of third-party assets under management and that there had been no other incidents like this.
Since 2019, the company has sought to simplify and eliminate investment strategies at Allianz Global Investors, Mr. Bäte said. For Structured Alpha funds in particular, he said the company had undertaken intensive product performance assessments as well as analyzes to identify improvements last year.
Shares climbed as high as 3% on Friday after Allianz reported strong earnings and announced Thursday that it would repurchase up to € 750million of shares, but remained below its trading level before the disclosure of the DOJ investigation on Sunday. The company adopted a positive tone on its outlook for the year, after net income rose significantly in the second quarter.
Allianz said its operating profit for the year is now in the upper half of the target range of € 11 billion to € 13 billion. The forecast comes after second-quarter net profit rose 46% to 2.23 billion euros, boosted by operating profit growth in its main divisions.
The company said it would pay nearly € 400 million in claims related to the July European floods after reinsurance.
—Pietro Lombardi contributed to this article.
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