German asset manager Allianz Global Investors is selling most of its US business to Voya Investment Management after agreeing to pay more than US$1 billion in fines to the Securities and Exchange Commission (SEC) and over $5 billion to investors who lost money in a “massive fraudulent scheme”.
The deal, which includes the transfer of AllianzGI’s investment teams, select client service and sales professionals to Voya, will increase the Connecticut-based firm’s assets under management to approximately $370 billion from $254 billion as of end-March.
In return, AllianzGI will receive up to 24% stake in Voya, the German company says in a statement on May 18, a day after the SEC charged its US unit and three former senior portfolio managers with “a massive fraudulent scheme that concealed the immense downside risks of a complex options trading strategy they called Structured Alpha”.
According to the SEC , Allianz Global Investors US marketed and sold the strategy to around 114 institutional investors, including pension funds for teachers, clergy, bus drivers, and engineers.
“After the Covid-19 market crash of March 2020 exposed the fraudulent scheme, the strategy lost billions of dollars as a result of AllianzGI US and the portfolio managers’ misconduct,” the regulator says in a statement on May 17.
On top of the fines, the regulator has barred AllianzGI is from providing advisory services to US-registered investment funds for the next ten years.
SEC Chair Gary Gensler says AllianzGI “admitted to defrauding investors over multiple years, concealing losses and downside risks of a complex strategy, and failing to implement key risk controls”.
“This case once again demonstrates that even the most sophisticated institutional investors, like pension funds, can become victims of wrongdoing,” he says.
According to AllianzGI, the firm already took measures to strengthen its oversight, investment analytics and client communication controls, and will continue to implement enhancements to its compliance and risk framework going forward.
"AllianzGI also decided not to support any further high-return private hedge funds," the company tells Asia Asset Management in a statement.
Munich-based AllianzGI had 637 billion euros ($666.68 billion) of assets under management as of end-March.