Raytheon Technologies Corp. filed a lawsuit against Allianz Global Investors, alleging mismanagement of an enhanced return strategy the firm managed for one of the Waltham, Mass.-based corporation's pension funds.
The lawsuit, filed April 9 by the company's pension administration and investment committee in U.S. District Court in New York, alleges Allianz Global Investors breached its fiduciary duties in its management of its Structure Alpha strategies, resulting in losses in February and March 2020 totaling $280 million for the Raytheon Master Pension Trust, according to the court filing.
The losses were incurred before the closing of the merger of Raytheon Co. and United Technologies Corp. in April 2020.
The pension trust was invested in the manager's Structured Alpha U.S. Equity 500 strategy. The numerical values in the strategy names correspond to the amount of alpha in basis points above a corresponding index the strategy is expected to achieves.
The Allianz structured alpha strategies historically have been designed to identify "areas of systematic disagreement with option prices about the probability distribution of future index moves," according to a September 2016 AllianzGI presentation.
The lawsuit claims AllianzGI was guilty of prohibited transactions by managing the plan's assets in its "own self-interest" and to maximize its own fees. Rather than putting hedges in place "at all times" to cap the downside risk of the strategy, the lawsuit claims Allianz worked in its own self-interest by constructing its portfolio to be largely unhedged in the first two months of 2020, and adding more risk to its portfolio to "chase return (and thus fees) rather than safeguarding the trust's investment."
"Allianz acted in its own self-interest to recover its fees as quickly as possible, and not in the best interests of the plans' participants and beneficiaries, when Allianz refused to accept more modest losses and instead relayered additional risk into the portfolio," the filing said.
The suit also alleges Allianz was guilty of a breach of contract and breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 "when it sold the new-configuration hedges and took on new risk-bearing positions starting in late February 2020," according to the court filing.
Raytheon Technologies is seeking restoration of all losses, accounting and disgorgement of fees and profits, and a money judgment exceeding $75,000.
Raytheon originally invested $330 million in the strategy in August 2019. According to the filing, the trust had about $375 million in assets invested in Structured Alpha U.S. Equity 500 as of Jan. 31, 2020. That amount had fallen to about $95 million as of March 31.
The Raytheon Master Trust was merged with a UTC master trust into a unitized master trust on Dec. 1, CIO Robin Diamonte said in a February email. As of Dec. 31, the UTC plans had $33.4 billion in assets and the Raytheon plans had $21.8 billion in assets, according to the plans' most recent performance report.
“While the losses were disappointing, the allegations made by Raytheon Technologies Corporation Pension Administration and Investment Committee are — like other plaintiffs’ — legally and factually flawed, and AllianzGI will defend itself vigorously against them,” AllianzGI spokesman John Wallace said in an email.
Raytheon Technologies spokesman Chris Johnson declined to comment, and Daniel Z. Goldman, partner at Petrillo Klein & Boxer, attorney for the plaintiff, could not be immediately reached for comment.