According to Moody’s, the US Department of Justice (DOJ) investigation of the Structured Alpha Funds managed by Allianz Global Investors US, Allianz’s asset management subsidiary, has raised a risk which could potentially affect the future financial results of the carrier.
The US Securities and Exchange Commission (SEC) launched an investigation into the Structured Alpha Funds last year after pension funds said Allianz had failed to safeguard their investments throughout the pandemic.
Moody’s believes that the DOJ’s investigation is likely to negatively impact Allianz’s credit due to the increased risk of material financial and reputational fallout, pointing to the governance challenges of managing Allianz’s broad and complex global business.
A prolonged DOJ investigation or indications of wrongdoing could complicate the resolution of the pending litigation and lead to a more costly outcome, while potential SEC and DOJ fines or penalties remain a possibility, says Moody’s.
Even though the re/insurer holds a strong operating income of €10.8 billion in 2020, which would enable it to absorb a severe negative outcome within earnings, the resolution of these matters could include litigation settlements or fines.
These resolutions could result in having a meaningful negative effect on profitability and impact the firm’s ability to take advantage of growth opportunities as economies emerge from the pandemic.
Allianz GI had net inflows of €7 billion and €374 billion in assets under management (AuM) at year-end 2020 spread across equities, alternative and multi-asset investment strategies. The company is positioned to benefit from rising demand for private and illiquid assets.
However, the negative reputational effects from the DOJ’s investigation could weigh on asset inflows for Allianz GI, particularly if the investigation were to proceed beyond its initial information gathering phase.
