Behind Allianz’s $4 Billion Fund Blowup, Red Flags and Fat Fees

It’s every investor’s dream: Make money when markets go up, and when markets go down, and even when markets go practically nowhere.

But inside Allianz SE, where a handful of hedge fund managers claimed they could do just that, few grasped how wrong that dream could go. Four billion dollars wrong so far, with outside estimates that it could grow much larger.

Two years after the spectacular collapse of the insurance giant’s Structured Alpha hedge funds, a low-profile business registered in Florida, 5,000 miles from the Munich headquarters, the shock waves continue to reverberate.

Careers have been upended. Investor ...