It was an unusually uncomfortable event for Allianz: At the Annual General Meeting on Wednesday, which was also held virtually this year, shareholders vented their anger at the US hedge fund debacle.
“Everything would be wonderful, great, great if it weren’t for the problems in the USA. How could you go so wrong?” asked Daniela Bergdolt from the German Association for the Protection of Securities (DSW) in her recorded video message. She suspects significant deficiencies in the control by the board of directors and the supervisory board.
It’s about failed strategies of the subsidiary Allianz Global Investors (AGI) with highly speculative structured alpha funds. A good two dozen pension funds and other large investors in the US had sued Allianz for a good six billion dollars.
She had sold them the hedge funds with a volume of 15 billion dollars as a supposedly safe investment. At the beginning of the corona crisis, however, investors lost a large part of their stake when the stock markets collapsed. They accused Allianz of deviating from its investment strategy in view of the temporary panic on the markets.
The processing costs a lot of money. In mid-February of this year, the Munich-based group had already made a provision of 3.7 billion euros. This reduced the surplus for the past year by 2.8 billion euros. In his speech to the shareholders, CEO Oliver Bäte repeated that things couldn’t stay that way. From Allianz’s point of view, additional burdens are to be expected before the proceedings with plaintiffs and authorities can be concluded.
Board member Renate Wagner became more specific: According to her, an agreement was reached with investors in February, for which around $3.5 billion in compensation was paid. In the weeks that followed, around another billion dollars were paid to plaintiffs. However, complaints from investors are still pending.
Bäte again referred to the strict confidentiality requirements of the US authorities. Deviating from the text of his speech, however, he announced that the alliance wanted to close the issue shortly. He is counting on a “quick and final agreement” on the lawsuits and investigations into the structured alpha funds, after which all legal and financial issues should be clarified. The insurer then wanted to reveal details about the expensive debacle.
Above all, the major investors in Allianz are pushing for a quick clarification. Especially since it is far from clear what dimensions possible compensation and penalty payments can still take on. “Should the suspicion of market manipulation at AGI prove true, it would be much more expensive for Allianz to get rid of the Structured Alpha issue,” feared Janne Werning in his video message.
The fund manager from Union Investment was responding to a rumor that had been circulating among volatility experts since the summer of 2020 and first became public in the Institutional Investor industry service: According to this, a market participant could have tried to change the VIX volatility index during the massive price losses at the beginning of the corona crisis in March 2020 to manipulate.
An indication of this is said to have been a rash at the beginning of trading on March 18, 2020, which differed significantly from the index levels of the days before and after. However, it is not known how it came about or who is responsible for it. The US Securities and Exchange Commission and the US Department of Justice have been investigating ever since.
Supervisory board seeks advice from law firm
The problems surrounding the failed hedge fund strategies in the USA have had top priority on the Allianz board of directors for the past year. In addition, an Audit Committee working group was set up to deal exclusively with the Structured Alpha process. The working group is advised by the international law firm Gibson Dunn.
According to the head of the supervisory board, Michael Diekmann, the fees for this amounted to around 610,000 euros last year, and so far this year it has been around 750,000 euros. “However, I would like to make it clear that at the current time we have no indication of any breaches of duty by active or former members of the Management Board.”
Diekmann also spoke on his own behalf, whose contract as supervisor was up for a vote for a further four years. He will be 71 years old on December 23, 2025, which means that he will be five months over Allianz’s regular retirement age by the end of his term of office at the 2026 Annual General Meeting. The Supervisory Board considered this exceeding of the standard retirement age to be within the tolerance limit. “I am happy to comply with this request in order to create the necessary continuity when the Supervisory Board is reorganized,” said Diekmann. The chairman of the supervisory board was re-elected by the shareholders with a voting result of 89.15 percent, but all other five proposals from the employer side received significantly more approval in some cases.
This will lead to two major changes in Allianz’s control body. On the one hand, the system of the so-called “staggered board” is to be used more and more over the next few years. Accordingly, the contracts of the individual members should end at different times. For this reason, investors voted on Wednesday for terms of two, three and four years for the supervisory board.
On the other hand, Jim Hagemann Snabe and Godfrey Hayward, two members of the twelve-person board, are leaving.
Former SAP boss Snabe justified his resignation in February with shareholder criticism of so-called overboarding, i.e. a large number of supervisory mandates. He is followed by Rashmy Chatterjee, CEO of British cyber specialist Istari Global. She will head the technology committee in the future. The Brit Godfrey Hayward, on the other hand, is a victim of Brexit. Only candidates from the EU are permitted on the employee side. He will therefore have to vacate his place for Allianz Italy’s Primiano di Paolo.
The election of Friedrich Eichiner was criticized by the shareholders. Hendrik Schmidt from the fund company DWS accused the former BMW chief of finances of having too many mandates, since he still works for the Swabian automation specialist Festo and on the audit committee of Infineon. Supervisory Board Chairman Diekmann pointed out, however, that not all major investors see an accumulation of offices at Eichiner. Friedrich Eichiner was re-elected by the shareholders with a majority of 91.21 percent.
Extension of Management Board contracts
The Supervisory Board recently made landmark decisions on the successor to the Management Board. The contract of personnel manager Renate Wagner, who has been a member of the board since the beginning of 2020, was extended by five years. Head of Germany Klaus-Peter Röhler received a four-year extension until he reaches retirement age.
There was also news in the operational business on Wednesday. Allianz is setting up a joint venture for a total of 29 African countries with the South African insurer Sanlam after months of negotiations on the transaction.
Namibia was to be added later. South Africa is not part of the agreement, the joint statement said. The joint venture has a goodwill equivalent to around two billion euros. This creates the largest insurer in Africa, in most countries one is among the top three insurers.
Allianz boss Bäte expects similar opportunities in Asia and the USA in the future. Growth can be generated there both organically and through acquisitions. He sees opportunities, for example, in the growing business with electric vehicles and in health insurance. In addition, the two Group divisions of life insurance and asset management are to grow closer together.
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