Did you lose money investing in Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus?
Galvin Legal, PLLC (“Galvin Legal”) is launching an investigation on behalf of investors who suffered losses investing in Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus at the recommendation of their financial advisor. If you suffered losses in the investment, then Galvin Legal may be able to help you recover your losses in a Financial Industry Regulatory Authority (“FINRA“) arbitration claim against the brokerage firm that recommended the investment.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
About the Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus
According to Allianz Global Investors, the Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus funds were net buyers of puts, or options giving the holder the right to sell an asset at a predetermined price in the future. The puts were designed to hedge against losses the funds might endure from other positions should the market decline. They did not work, in large part because the market sold off more rapidly this time than it had during past downturns, including the 2008 financial crisis, according to a person familiar with the funds.
This pace “had a particularly large impact on the options held by Allianz Structured Alpha funds, particularly the two highest target alpha private strategies”, according to a spokesman. As the market continued to decline, the funds were forced to lock in losses.
The Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus were the most aggressive of the funds. The “1000” in their names refer to their return targets: 1,000 basis points, or 10 percentage points, above their benchmarks.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
Highlights from a July 2016 brochure from Allianz Global Investors (available as of 5/18/2020 at (emphasis added below):
- “The Allianz Structured Alpha strategy aims to provide consistent, uncorrelated returns regardless of the direction of equities and volatility.”
- “The strategy pursues risk-controlled returns by buying and selling put and call options on US equity and volatility indexes.”
- “The three-pronged investment objective is:
- To profit during normal market conditions.
- To protect against a market crash, hedging against extreme downside market moves.
- To navigate as wide a range of equity market outcomes as possible.”
- “Expected Behavior
- Structured Alpha is constructed in anticipation of any type of market environment. Its expected behavior would be as follows:
- Normal markets: when equity markets are risking or falling in typical fashion over time, the strategy can be expected to outperform in line with its return target.
- Volatile markets: if markets are choppy at the time new positions are established, the higher volatility level would enable increased outperformance potential and better risk control. In this regard, a protracted bear market is a highly favorable environment for the strategy.
- Rapid change from low to high volatility: performance may be more volatile and the portfolio may underperform for a few weeks. However, higher volatility levels would enable greater excess-returns potential in subsequent months.
- Rapid change from high to low volatility: outperformance potential would be enhanced for a few weeks. The transition to a lower volatility environment would bring performance potential back to normal levels of expected return.”
- Structured Alpha is constructed in anticipation of any type of market environment. Its expected behavior would be as follows:
- “The Structured Alpha Strategy is able to weather different market environments due to the continual optimization of the three types of building blocks.” (emphasis added)
- “‘We are able to navigate as wide a range of market positions as possible. The rotations, interplay among these three enables us to be resilient.’ – Jeff Sheran, Structured Alpha Product Specialist”
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
Important Updates About the Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus
UPDATE 3/27/2020:
According to a Flash Report, “Aon’s Liquid Alternatives research team has downgraded the entire Allianz Structured Alpha product suite to a ‘Sell’ rating…. following an assessment of the key issues since being placed ‘In Review’ on March 13, 2020.” The team recommended that “clients place redemption requests for the next available redemption date, April 30, 2020, for which notification is due by April 7, 2020.” (emphasis added)
The Flash Report went on to state that when “performance estimates exceeded our worst-case expectations through the equity market sell-off in February and the beginning of March, we placed the Allianz Structured Alpha strategy ‘In Review’ on March 13, 2020 and sought to determine the reasons behind the losses as well as the prospects for the strategy going forward. Throughout this period, Allianz has been less forthcoming with information than we would have hoped in such a critical time for investors. Nevertheless, we were able to identify several key issues that drove our ratings downgrade to ‘Sell.'” (emphasis added)
“Investment Process: Our downgrade from a 3 to a 1 reflects the flawed portfolio construction and poor portfolio management decisions during the drawdown.” (emphasis added)
“When Allianz restructured the portfolio after the initial equity market sell-off the hedges were not positioned to properly offset the risk of the short put options in a continued market decline. Ongoing efforts to add new hedges were ineffective, in part due to market conditions. In addition, we are disappointed that multiple discretionary restructuring efforts exposed the portfolio to further downside risk, rather than accept the modest losses and aim to recover in a reasonable time period as Allianz has done in previous volatility episodes. (emphasis added)
“Allianz has proposed a new portfolio structure going forward which may be able to capitalize on an attractive volatility environment. However, this modified strategy is unproven and we are unable to have confidence in Allianz’s ability to execute at this time given the poor management of the original structure.”
“Risk Management: Our downgrade from a 3 to a 1 reflects risk management failures on multiple levels.”
“The losses experienced by the Structured Alpha strategy in a time of sharp equity market losses are at odds with the risk profile described by the Allianz team and illustrated in the stress testing they provided. Allianz’s analysis failed to properly account for the risk of a previously unseen market move. We further note the lack of appropriate independent risk controls to present the portfolio from being exposed to significant downside risk.” (emphasis added)
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
UPDATE 5/16/2020:
Allianz Global Investors is liquidating these strategies after they took heavy losses on options trades.
UPDATE 5/13/2020:
Aon’s Liquid Alternatives research team has placed the Allianz Structured Alpha product suite “In Review.”
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
Due Diligence Requirement
FINRA requires brokerage firms to conduct due diligence on investments and to conduct a suitability analysis when recommending securities to a customer that takes into account the customer’s knowledge and experience. FINRA Rule 2111(a) states that “a member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”
Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. Brokerage firms that fail to conduct adequate due diligence on investments they recommend, such as Allianz Structured Alpha 1000 and Allianz Structured Alpha 1000 Plus, or that make unsuitable recommendations can be held responsible for the customer’s losses in a FINRA arbitration claim.
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
Request a Free Consultation with a Securities Attorney
If you suffered losses and would like a free consultation with a securities attorney, then please call Galvin Legal at 1-800-405-5117.
This information is all publicly available and is being provided to you by Galvin Legal.
Galvin Legal, PLLC is a national securities arbitration, securities mediation, securities litigation, securities fraud, securities regulation and compliance, and investor protection law practice. For more information on Galvin Legal, PLLC and its representation of investors, please visit www.galvinlegal.com or call 1-800-405-5117.
