Allianz Sued by Milwaukee Pension Over Steep Virus Losses

A Milwaukee pension fund covering municipal workers sued Allianz SE and subsidiaries in a Manhattan federal court, alleging the company caused $286 million in pension losses by failing to mitigate risk during the Covid-19 market downturn and “doubling down” on a losing strategy.

The lawsuit, filed in the U.S. District Court for the Southern District of New York, says Allianz made an “extraordinarily risky and self-interested gamble” that wiped out hundreds of millions of dollars held by the Employees’ Retirement System of Milwaukee.

The company mishandled its Alpha Funds vehicles—which were structured to protect against volatile, declining markets like that of early 2020—by abandoning their stated investment mandate and making a bad bet against market volatility in an ill-fated attempt to recoup losses, the pension fund alleges in the complaint.

Allianz “violated its contractual obligations and fiduciary duties by abandoning the Funds’ stated investment mandate and required downside risk protection positions, and then ‘doubled down’ on its imprudent strategy after incurring losses at the very time when positions to protect against a market downturn were needed most,” the pension fund says.

Allianz said it would fight the lawsuit.

“As we set out at the time, the Structured Alpha portfolio sustained losses during the severe market rout in late February and March,” a spokesperson told Bloomberg Law in an email. “While the losses were disappointing, the allegations made by the Employees’ Retirement System of the City of Milwaukee (CMERS) are legally and factually flawed, and we will defend ourselves vigorously against them.”

The spokesperson added that the Milwaukee pension fund is a “professional investor” with sophisticated advisers that made a knowing investment in funds with higher risk profiles.

The suit was filed Oct. 16.

Several large investors have sued Allianz over the performance of its Alpha Funds in early 2020. The company has seen recent suits filed by the Arkansas Teacher Retirement System, Blue Cross & Blue Shield, a Chicago Teamsters pension, New York City’s Metropolitan Transportation Authority, and Lehigh University.

Causes of Action: Negligence, fiduciary breach, and breach of contract.

Relief: Declaration of negligence and breach, money judgment, interest, and equitable relief.

Attorneys: Bernstein Litowitz Berger & Grossmann LLP represent the pension fund.

The case is Emps.’ Ret. Sys. of Milwaukee v. Allianz Glob. Invs. US LLC, S.D.N.Y., No. 1:20-cv-08642, complaint 10/16/20.