MTA pensions ‘decimated’ by COVID-19 market crash, lawsuit says

[Via Garibaldi 8]

BUSINESS

MTA pensions ‘decimated’ by COVID-19 market crash, lawsuit says

By Noah Manskar                                                                  September 28, 2020 | 4:35pm | Update

 

A German money manager “decimated” New York City subway workers’ retirement funds this spring with risky investments that backfired as the coronavirus pandemic roiled the stock market, a new lawsuit alleges.

Allianz Global Investors promised that it would buy options to keep subway employees’ nest eggs safe during a short-term market downturn, three Metropolitan Transportation Authority pension funds claimed in a lawsuit last week. But the firm allegedly veered from that playbook as it bet that the market would normalize after it started to plunge in February.

Allianz increased risky investment positions in its Structured Alpha family of funds instead of exiting them — a “negligent and imprudent bet” that “proved to be disastrous” as stocks continued to plunge, the complaint says.

As a result, its Structured Alpha 1000 fund — where MTA pensions had an account balance of more than $330 million at the end of last year — dropped nearly 87 percent for the year by mid-March, according to the suit.

After Allianz was forced to liquidate that fund in late March, the MTA pension funds were left with just about $9 million — an investment value loss of than 97 percent in a single quarter, the complaint alleges.

That’s despite the fact that Allianz had vowed to invest the MTA’s money in “all-weather” funds that were protected against market crashes, the suit claims.

“Out of greed, AllianzGI sacrificed the hard-earned pension and benefits of the MTA’s workers, who at that time were risking their lives under COVID keeping New York alive,” the pension funds said in their Manhattan federal court complaint filed last Wednesday.

Allianz, however, said the MTA knew what it was getting into when it invested in risky hedge funds that promised lofty returns. The firm said it plans to defend itself “vigorously” against the “legally and factually flawed” allegations.

"The claimants are professional investors, most of whom were advised by a sophisticated investment consultant to evaluate the Structured Alpha strategy,” an Allianz spokesperson said in a statement. “… The MTA determined that the Structured Alpha Portfolio fit with their overall investment goals and risk tolerances.”

The MTA’s three pension funds have a total of $4.8 billion invested in various places, MTA spokesman Aaron Donovan said.

“To be clear, no employees will be affected as these MTA plans are defined benefit and as a result employee pensions are not at risk,” Donovan said. “The MTA is aggressively pursuing full damages from Allianz for breach of duties as they failed to properly hedge against the market crash as contractually required.”

The lawsuit is reportedly one of several lawsuits pension funds have brought against Allianz over $4 billion lost by the Structured Alpha funds. Other suits have been filed by pension funds for the Teamsters labor union, Arkansas teachers and Blue Cross and Blue Shield, according to Reuters.

Source: https://nypost.com/2020/09/28/allianz-accused-of-wiping-out-mta-pension-funds-amid-covid-crash/?fbclid=IwAR0kk_qFT5HfcJAC5u58Cd6h1cOVu2b5JCppXhDtunUF2-hB2XjaObX5duY

 

 

 

 

[Deucey]

I’d bet that whomever the fund manager at Allianz is, s/he tried to short the market and pocket the profit for the bank and just give  the standard return (ie if max return to  was 10% and the bank made 25%, they’d only give  10%) and ignored the advice of the team.

And it was likely someone at Allianz’s NYC office and not in Munich HQ.

Might be a good payday for  if they went to trial and won - full loss plus compensation awards. But that settlement is gonna be shit - probably $200m - because contracts and ’s lawyers might be too timid to argue against COVID-related circumstances.

[Via Garibaldi 8]

13 hours ago, Deucey said:

I’d bet that whomever the fund manager at Allianz is, s/he tried to short the market and pocket the profit for the bank and just give  the standard return (ie if max return to  was 10% and the bank made 25%, they’d only give  10%) and ignored the advice of the team.

And it was likely someone at Allianz’s NYC office and not in Munich HQ.

Might be a good payday for  if they went to trial and won - full loss plus compensation awards. But that settlement is gonna be shit - probably $200m - because contracts and ’s lawyers might be too timid to argue against COVID-related circumstances.

Yeah, I find it hard to believe that they lost $300 million and there was no funny business going on.

[Bill from Maspeth]

Just for the record, as a retired NYCT hourly employee, my pension, as well as the rest of my Local 100 NYCT fellow retired hourly employees, comes from the NYC Employees Retirement System.  The same System from where the police, fire, sanitation and many others come from.  And if I'm not mistaken, the retired ATD/TD's and TSS' pensions come from the same source.  I do not know about the superintendents tho, as well as employees represented by ATU (Queens/Staten Island) employees.

I believe the MTA pensions are for management/suits working in the offices.

[Via Garibaldi 8]

1 minute ago, Bill from Maspeth said:

Just for the record, as a retired NYCT hourly employee, my pension, as well as the rest of my Local 100 NYCT fellow retired hourly employees, comes from the NYC Employees Retirement System.  The same System from where the police, fire, sanitation and many others come from.  And if I'm not mistaken, the retired ATD/TD's and TSS' pensions come from the same source.  I do not know about the superintendents tho, as well as employees represented by ATU (Queens/Staten Island) employees.

I believe the MTA pensions are for management/suits working in the offices.

Yeah your pensions should be ok. In other words, they will pay out, but the  is still going after Allianz, as are other groups.

[R10 2952]

@Bill from Maspeth Exactly.  If it's the executives' pensions that dry up, I frankly couldn't care less.  I have no sympathy for those empty suits at 2 Broadway- their incompetence has contributed significantly to many of the agency's longstanding problems.

Edited September 29, 2020 by R10 2952

[20SecondSignalTimer]

2 hours ago, R10 2952 said:

@Bill from Maspeth Exactly.  If it's the executives' pensions that dry up, I frankly couldn't care less.  I have no sympathy for those empty suits at 2 Broadway- their incompetence has contributed significantly to many of the agency's longstanding problems.

I have to wonder how much is incompetence and how much is just plain ol' negligence, and so on. Non-transit worker here, though. Anyone could listen to the grievances expressed by many a t/o and conductor on this very forum, though, and get a decent sense that there's a toxic relationship between the workers and the TA/MTA/MTA Bus Co. 

Also, media outlets tend to leave complaints (the actual court filing which initiates a lawsuit) out of their articles. Here is the complaint on Law360 (hope the direct URL works).

[MHV9218]

"After Allianz was forced to liquidate that fund in late March"

What kind of an escape clause is that? Selling late March is the worst thing anybody could possibly have done. Had they held on, if they even remotely followed the market, they'd probably be not far from break-even on the year. I understand there might be some stop-loss mechanism for a huge loss, but man, that's short-sighted. 

[Via Garibaldi 8]

3 minutes ago, MHV9218 said:

"After Allianz was forced to liquidate that fund in late March"

What kind of an escape clause is that? Selling late March is the worst thing anybody could possibly have done. Had they held on, if they even remotely followed the market, they'd probably be not far from break-even on the year. I understand there might be some stop-loss mechanism for a huge loss, but man, that's short-sighted. 

What I found absurd is they took no measures to mitigate losses from the fund, so how is it an "all-weather" fund then if they continued to be bullish when the market was tanking?

[MHV9218]

2 hours ago, Via Garibaldi 8 said:

What I found absurd is they took no measures to mitigate losses from the fund, so how is it an "all-weather" fund then if they continued to be bullish when the market was tanking?

I agree. It's baffling. All I can think is that they must have been levered up beyond belief, because with the possible exception of say, Hertz, and a couple airlines/cruise companies, nothing went down 87%, least of all 'all-weather' (read: industrials, managed funds).

[Deucey]

9 minutes ago, MHV9218 said:

I agree. It's baffling. All I can think is that they must have been levered up beyond belief, because with the possible exception of say, Hertz, and a couple airlines/cruise companies, nothing went down 87%, least of all 'all-weather' (read: industrials, managed funds).

Makes me wonder how much of the fund was based on price increases/trading vs blue chips paying dividends and bonds.

[MHV9218]

12 minutes ago, Deucey said:

Makes me wonder how much of the fund was based on price increases/trading vs blue chips paying dividends and bonds.

Yeah, they must have been playing something ridiculously aggressive and then levering on top of it. Which is one thing for your hotshot hedge fund, but for a pension fund? 

[QM1to6Ave]

The whole situation is strange. Most pensions have very strict mechanisms in place to ensure conservative investments with returns that are as predictable as possible.

But of course, something similar happened when Madoff's ponzi scheme crashed and it turned out that a lot of investment managers secretly shunted funds into Madoff's firm, even though everyone knew Madoff was too good to be true, wiping out many pensions. 

Still, a big company like the MTA usually would have better oversight mechanisms in place. I'll be curious how this all plays out. 

 

@Bill from Maspeth have you had any issues with NYCERS recently? My neighbor had a huge headache with them screwing up his deductions and payments during covid, and he said it's nearly impossible to get anyone there to help sort it out

[Lex]

4 hours ago, Via Garibaldi 8 said:

What I found absurd is they took no measures to mitigate losses from the fund, so how is it an "all-weather" fund then if they continued to be bullish when the market was tanking?

There's a kudlow somewhere...

[Via Garibaldi 8]

2 hours ago, QM1to6Ave said:

The whole situation is strange. Most pensions have very strict mechanisms in place to ensure conservative investments with returns that are as predictable as possible.

But of course, something similar happened when Madoff's ponzi scheme crashed and it turned out that a lot of investment managers secretly shunted funds into Madoff's firm, even though everyone knew Madoff was too good to be true, wiping out many pensions. 

Still, a big company like the MTA usually would have better oversight mechanisms in place. I'll be curious how this all plays out. 

 

@Bill from Maspeth have you had any issues with NYCERS recently? My neighbor had a huge headache with them screwing up his deductions and payments during covid, and he said it's nearly impossible to get anyone there to help sort it out

Well supposedly, it was an all-weather fund, but at the same time, Allianz claims that they told the  in advance that they would be undertaking an aggressive approach that was risky, but could produce good returns, and that the  was fine with it. lol You had to be living under a rock to not have seen what was going on with the market when it started tanking. Just insane. Sounds like lots of people that were greedy, mixed in with lots of incompetence.

Edited October 1, 2020 by Via Garibaldi 8

[Via Garibaldi 8]

7 minutes ago, Lex said:

There's a kudlow somewhere...

I miss Larry Kudlow on CNBC...

[Deucey]

22 minutes ago, Via Garibaldi 8 said:

Well supposedly, it was an all-weather fund, but at the same time, Allianz claims that they told the  in advance that they would be undertaking an aggressive approach that was risky, but could produce good returns, and that the  was fine with it. lol You had to be living under a rock to not have seen what was going on with the market when it started tanking. Just insane. Sounds like lots of people that were greedy, mixed in with lots of incompetence.

 

On 9/29/2020 at 1:27 PM, Bill from Maspeth said:

Just for the record, as a retired NYCT hourly employee, my pension, as well as the rest of my Local 100 NYCT fellow retired hourly employees, comes from the NYC Employees Retirement System.  The same System from where the police, fire, sanitation and many others come from.  And if I'm not mistaken, the retired ATD/TD's and TSS' pensions come from the same source.  I do not know about the superintendents tho, as well as employees represented by ATU (Queens/Staten Island) employees.

I believe the MTA pensions are for management/suits working in the offices.

Does beg a new question: why aren’t affected  employees part of the City or State retirement system pensions?

[QM1to6Ave]

5 hours ago, Deucey said:

 

Does beg a new question: why aren’t affected  employees part of the City or State retirement system pensions?

It may have to do with whether or not they are unionized employees, but that's just my semi-educated guess LOL

[Bill from Maspeth]

20 hours ago, Deucey said:

 

Does beg a new question: why aren’t affected  employees part of the City or State retirement system pensions?

Could be they are not Civil Service employees.

[Bill from Maspeth]

On ‎10‎/‎1‎/‎2020 at 4:02 PM, QM1to6Ave said:

The whole situation is strange. Most pensions have very strict mechanisms in place to ensure conservative investments with returns that are as predictable as possible.

But of course, something similar happened when Madoff's ponzi scheme crashed and it turned out that a lot of investment managers secretly shunted funds into Madoff's firm, even though everyone knew Madoff was too good to be true, wiping out many pensions. 

Still, a big company like the MTA usually would have better oversight mechanisms in place. I'll be curious how this all plays out. 

 

@Bill from Maspeth have you had any issues with NYCERS recently? My neighbor had a huge headache with them screwing up his deductions and payments during covid, and he said it's nearly impossible to get anyone there to help sort it out

I haven't had any issues with my monthly pension payments.