By Danielle Nichole Smith

Law360 (September 24, 2020, 5:30 PM EDT ) Pension and benefit plans for the employees of New York's Metropolitan Transportation Authority have hit Allianz Global Investors with a lawsuit claiming the investment manager torpedoed the workers' savings by making risky bets when the coronavirus pandemic hit.

In their complaint filed Wednesday in New York federal court, the MTA Master Trust, MaBSTOA Pension Plan and MTA Retiree Benefits Plan say that Allianz Global Investors U.S. LLC dropped the ball in managing the so-called Structured Alpha funds during the coronavirus crisis and caused the plans to lose 97.26% of their investments' value between Dec. 31 and April 23.

"This case is about how the hard-earned pension funds of some of New York's hardest working public employees were decimated by the negligent and imprudent mismanagement of an investment manager that failed to act as a reasonably prudent manager would act in the face of an historic market dislocation," the complaint says.

According to the complaint, AllianzGI marketed the Structured Alpha funds as "all-weather" funds that were "capable of generating positive returns even in adverse market conditions," and said that it would "pursue a strategy focused on hedging and risk-management."

However, when the COVID-19 pandemic struck, AllianzGI abandoned that strategy and instead "maintained and increased its risky positions," taking "unreasonable risks" with investors' money at the beginning of March to generate revenue, the complaint says.

"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 plans say.

If AllianzGI had conducted risk assessments, as it said it would, they would have "set off alarm bells throughout the organization," the plans contend. The investment advisers either didn't do the tests or buried the results, the plans say.

When the plans collected what was left of their investments in one of the funds on April 23 after its liquidation was announced, the MTA Retiree Benefits Plan redeemed $644,124 from an account with a balance of $23.5 million on Dec. 31; the MTA Master Trust recovered $5.2 million from an account that previously held nearly $191.8 million; and MaBSTOA Pension Plan collected about $3.2 million from an account formerly worth $115.4 million, the complaint says. 

The suit alleges negligence, breach of contract and violations of the Employee Retirement Income Security Act. Allianz SE, AllianzGI's parent company, is also named as a defendant.

"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," MTA Spokesman Aaron Donovan told Law360 in a statement Monday. "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."

AllianzGI is also facing litigation over its handling of the Structured Alpha funds during the pandemic from a Teamsters Union retirement plan and a Blue Cross Blue Shield employee benefits committee.

A spokesperson for AllianzGI said in a statement Thursday that the company "will defend ourselves vigorously against these claims"

"While the losses sustained by the Structured Alpha portfolio during the market downturn in late February and March were disappointing, AllianzGI believes the allegations made by the MTA are legally and factually flawed," the spokesperson said. "These funds sought to deliver substantial returns of as much as 10% above, net of fees, the returns of the fund's benchmark, an index like the S&P 500. As was fully disclosed, the Structured Alpha strategy involved risks commensurate with those higher returns. The MTA determined that the Structured Alpha Portfolio fit with their overall investment goals and risk tolerances."

Counsel for the plans declined to comment Thursday.

The plans are represented by Javier Bleichmar and George N. Bauer of Bleichmar Fonti & Auld LLP, and Regina Calcaterra and Justin Teres of Calcaterra Pollack LLP.

Counsel information for AllianzGI was not immediately available Thursday.

The case is Metropolitan Transportation Authority Defined Benefit Pension Plan Master Trust et al. v. Allianz Global Investors U.S. LLC et al., case number 1:20-cv-07842, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Dean Seal. Editing by Abbie Sarfo.

Update: This story has been updated to include comment from the MTA. 

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