Allianz Global Investors Liquidates Two Hedge Funds -- Update

By Justin Baer

Allianz Global Investors is liquidating two hedge funds after they took heavy losses in recent weeks on stock-options trades.

An Allianz Global Investors spokesman said the two funds, Structured Alpha 1000 and Structured Alpha 1000 Plus, had been 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 didn't work, in large part because the market sold off more rapidly this month than it had during past downturns, including the 2008 financial crisis, a person familiar with the funds said.

This pace "had a particularly large impact on the options positions held by Structured Alpha funds, particularly the two highest target alpha private strategies," the spokesman said in an email.

As the market continued its descent, the funds were forced to lock in losses.

"The portfolios were restructured and de-risked significantly during the course of this turmoil, but not without sustaining significant realized losses," the spokesman said.

Allianz Global Investors, an investing arm of German insurer Allianz SE, will also close a related offshore feeder fund.

"While markets will remain challenging, we believe the remaining funds are now well positioned," the spokesman wrote. The firm has 27 Structured Alpha funds.

Structured Alpha 1000 and 1000 Plus were the most aggressive of those funds. The "1000" in their names refer to their return targets: 1,000 basis points, or 10 percentage points, above their benchmarks.

U.S. stocks sold off sharply earlier this month as the coronavirus pandemic upended everything from travel and commerce to manufacturing and tourism.

While many hedge funds have reported losses this year, the group has held up well relative to benchmark indexes. The HRFC Global Hedge Fund Index is down 5.5% this year through March 13, besting the S&P 500 index's 2020 decline of 19%.

Allianz Global Investors manages $569 billion in assets. Like many large insurers, Allianz owns money-management businesses that oversee its assets, as well as those of outside clients. Another Allianz manager, Pacific Investment Management Co., is one of the world's largest bond investors.

Write to Justin Baer at justin.baer@wsj.com

(END) Dow Jones Newswires

March 27, 2020 15:42 ET (19:42 GMT)

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