Blue Cross Blue Shield sues AllianzGI over investment strategies

https://www.pionline.com/courts/blue-cross-blue-shield-sues-allianzgi-over-investment-strategies

Blue Cross Blue Shield’s national employee benefits committee filed a lawsuit against Allianz Global Investors and its investment consultant Aon Investments USA, charging both with breaches of fiduciary responsibilities and breach of contract regarding more than $2 billion in losses in the insurer’s defined benefit plan trust.

The lawsuit, filed Wednesday in U.S. District Court in New York, alleges that AllianzGI took “reckless actions” in the management of three funds the manager had said offered downside protection against market declines and volatility, according to the court filing.

As of Jan. 31, the National Retirement Trust of the Blue Cross and Blue Shield Association had a total of $2.9 billion invested in the AllianzGI Structured Alpha Multi-Beta Series LLC I, AllianzGI Structured Alpha Emerging Markets Equity 350 LLC, and the AllianzGI Structured Alpha 1000 LLC, according to the filing.

The numerical values in the strategy names correspond to the amount of alpha in basis points above a corresponding index the strategy is expected to achieve.

After the funds experienced heavy losses in February and March, the investments were liquidated and redeemed, and the committee received about $540 million, according to the filing.

As of Dec. 31, 2018, the Blue Cross and Blue Shield Association National Retirement Trust had $4.6 billion in assets, according to its most recent Form 5500 filing.

The lawsuit, which includes claims breach of fiduciary duty and breach of contract against both AllianzGI and Aon, alleges that AllianzGI “caused the (benefits) committee to believe that structured alpha’s risk profile was consistent with Allianz’s stated investment strategy rather than the actual risk profile, either by making false or misleading representations about structured alpha or failing to disclose information necessary to correct prior representations that were inconsistent with how Allianz was actually managing the strategy.”

The suit alleges Aon breached its obligations by “failing to monitor and inform the committee of breakdowns in Allianz’s risk management protocols, learning only after the catastrophic events of March 2020 that Allianz had inadequate risk management in place.”

AllianzGI’s structured alpha strategies have historically been designed to be both long and short volatility, according to a September 2016 presentation: Taking range-bound spread positions, to sell options that were most likely to expire worthless (short volatility); hedged positions designed to protect against market crashes (long volatility); and directional spread positions designed to generate returns when equity indexes rise or fall more than usual during multiweek periods (long/short volatility).

The lawsuit alleges that “when equity markets declined, volatility spiked and the funds’ option positions were exposed to a heightened risk of loss in February and March 2020, those promised protections were absent.”

The lawsuit seeks relief including restoration of all losses, actual damages and accounting and disgorgement of fees and profits.

John Wallace, AllianzGI spokesman, said in an email: “While the losses sustained by the Structured Alpha portfolio during the market downturn in late February and March were disappointing, AllianzGI believes the allegations made by Blue Cross Blue Shield are legally and factually flawed. We will defend ourselves vigorously against these claims. Blue Cross Blue Shield was advised by a sophisticated investment consultant to evaluate the Structured Alpha strategy. These funds sought to deliver substantial returns of as much as 10% above, net of fees, the returns of the fund’s benchmark, an index like the S&P 500. As was fully disclosed to Blue Cross Blue Shield, the Structured Alpha strategy involved risks commensurate with those higher returns. Blue Cross Blue Shield and their consultant determined that the Structured Alpha Portfolio fit with their overall investment goals and risk tolerances.”

The $15.3 billion Arkansas Teacher Retirement System, Little Rock, filed its own lawsuit against Allianz Global Investors and subsidiaries in July, regarding its own losses in structured alpha strategies.

Robert Elfinger, Aon spokesman, said the company does not comment on pending litigation.

Sean W. Gallagher, Adam L. Hoeflich, Nicolas L. Martinez, Abby M. Mollen and Mark S. Ouweleen, partners at Bartlit Beck, attorney for the plaintiffs, could also not be immediately reached for comment.

 

 

 

 

Merkel says pandemic reveals limits of ‘fact-denying populism’

https://thehill.com/policy/international/506393-merkel-says-pandemic-reveals-limits-of-fact-denying-populism?fbclid=IwAR1gnqKU3igIHkK-e2p4iZjGPTfswBYJFMjvf3ewGH9uRPNIp5ROr6y5qns#.XwZdo2fqr7s.facebook

Covid-19 has exposed the limits of 'fact-denying populism', Merkel ...

German Chancellor Angela Merkel told European Union (EU) countries Wednesday that the coronavirus pandemic is showing the limits of “fact-denying populism” as she urged the bloc to reach an agreement on an economic recovery package.

Merkel said that the EU “must show that a return to nationalism means not more, but less control,” according to France 24.

Without naming any specific nations, Merkel said: “We are seeing at the moment that the pandemic can’t be fought with lies and disinformation, and neither can it be with hatred and agitation.”

“Fact-denying populism is being shown its limits,” she added. “In a democracy, facts and transparency are needed. That distinguishes Europe, and Germany will stand up for it during its presidency.”

The pandemic has killed more than 100,000 people in the 27 EU nations and sparked what is expected to be the largest recession the continent has experienced in decades.

On Tuesday the EU released a report predicting the bloc’s economy will contract more than initially expected due to coronavirus-related lockdowns.

Merkel on Wednesday joined EU Economy Commissioner Paolo Gentiloni in urging the commission to quickly reach an agreement on the 750 billion-euro stimulus package proposed earlier this year.

“The depth of the economic decline demands that we hurry,” Merkel told lawmakers, according to The Associated Press. “We must waste no time — only the weakest would suffer from that. I very much hope that we can reach an agreement this summer. That will require a lot of readiness to compromise from all sides — and from you too.