The Arkansas Teacher Retirement System on Friday unanimously approved a $642 million settlement with Allianz, the German finance company it sued for losing $774 million of its pension fund during the March 2020 market panic.
The settlement amount does not include attorney's fees and other litigation costs. It's expected to be paid early next week.
The teachers fund filed suit in U.S. District Court for the Southern District of New York in July 2020, accusing Allianz of breach of contract, breach of fiduciary duty and negligence. The suit accused Allianz of taking an “extraordinary risky and irrational gamble" with its portfolio management, including betting heavily on stock options. Allianz argued that the losses were the result of unprecedented market volatility at the beginning of the COVID-19 pandemic.
For the fiscal year that ended mid-2019, ATRS’ assets were $17.7 billion and expected liabilities reached $21.9 billion, an 81% funding ratio.
The fund was represented by two national law firms, Kaplan Fox and Bernstein Litowitz Berger & Grossmann LLP, in the lawsuit.
Attorneys told the fund's board of trustees Friday that the settlement amount was "strenuously contested" and was reached after several months of mediation. Hannah Ross of BLBG said that if the case were decided by the court, a settlement could've been calculated based on factors including investment gains and the downturn in the market in recent months.
The pension fund’s goal is to earn 7.5% per year on its investments.
The teachers fund wasn't the only investor with Allianz to suffer heavy losses. Blue Cross Blue Shield Association also sued Allianz over an alleged $2 billion loss.
The fund losses have led to investigations by the U.S. Justice Department and Securities and Exchange Commission.
Allianz told the Wall Street Journal this week that it had settled with major investors but did not identify them. The paper reported that the company set aside $4.2 billion to cover legal expenses.