Lehigh has filed a lawsuit seeking more than $62 million from the investment firm AllianzGI.
The university had invested endowment funds with Allianz based on the firm’s “market-agnostic” strategy with “stringent risk controls to limit losses,” said Lori Friedman, Lehigh’s director of media relations. Market-agnostic means to be unbiased in the approach taken to solve a business or financial problem, according to Forex Education.
Lehigh alleges in its lawsuit, however, that Allianz “abandoned” its strategy by making a “high-risk bet on the direction and volatility of the markets.” Lehigh’s lawsuit alleges Allianz abandoned its strategy as COVID-19 impacted the stock market.
Lehigh is seeking to “recover its losses” based on the alleged mismanagement of the university’s investments.
Between 2013 and 2019, Lehigh said in its lawsuit that it had invested $67 million in AllianzGI — close to 5 percent of its total $1.4 billion endowment. During the first quarter of 2020, Lehigh alleges Allianz had wiped out $62 million of its $67 million investment through a combination of “misrepresentation and negligence.” The university said in its lawsuit it was expecting the investment to provide a “modest incremental return.”
Lehigh alleges two of the university’s funds that it invested with AllianzGI had declined nearly 19 percent each in February 2020 — well outpacing the general stock market declines of 9 percent in that month due to the pandemic.
Lehigh filed its lawsuit in the Southern District of New York and is demanding a trial by jury.
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7 Comments
Something I was taught at home and at school, when making investments of any kind:
Caveat Emptor
Perhaps Lehigh’s administration lost its interpretation when Latin was expunged from its logo?
I agree. Sounds like a few years of headaches.
As described in this article “Caveat Emptor” would not apply due to known exceptions to the standard, but the courts would have final say.
Wonder if this has anything to do with President Simon stepping down; the timing seems a bit coincidental and he had a contract through 2025.
Jordan, what you’ve linked to is about “industry agnostic”; I think this is likely closer to what Lori’s wittering about:
https://www.investopedia.com/terms/m/marketneutral.asp
In other words, quanty bullshit. Instead of believing you have magical algorithms in one type of investing, one shtick you’re well-known for, believe that you have magical algorithms dancing everywhere you look, and that you can make some modernist, dissonant symphony of magical algorithms pull out a consistent yield. Or make your clients believe it, anyway. And I’m now suddenly worried, because these university president types aren’t long on bold imagination, and my dumbass president’s been tub-thumping about a magical 50-year deal he did that relies on our making a consistent return over that 50 years, and he’s sold on the idea that this will happen. If it doesn’t, we’re on the hook for a few billion anyway, but he’s certain it’ll go. I wondered at the time why he was so insistent that this would happen, because if there’s a thing it seems pretty dumb to be certain about, it’s that you’ll have a particular yield over half a century. I think I’ll wait till tomorrow to look through the docs for the inevitable and depressing “market-agnostic” or “market-neutral” phrase, there’s enough bad news today.
Well, maybe we’ll get a new university president soon, too. It’s amazing how none of these people ever seem to go to jail.
Here, these nice greedy Canadians explain in a massively oversimplified way:
https://www.youtube.com/watch?v=3qDAl5PUz1E
If you think about your Lehigh biz friends, and consider their ability to handle something of this complexity over, I don’t know, dozens of markets and thousands of companies plus any other non-equity vehicle you might think of, what could possibly go wrong?
I’m reminded of the opening scenes of The Big Short, where Louis Whatshisname’s shoveling CDOs at some midwestern pension-fund manager in the 1980s.
More seriously, or less lightheartedly, anyway, Jordan, see if you can get a look at the documents Lehigh signed with AllianzIG. I bet they’re full of language that essentially say that Allianz can do whatever the hell they want in pursuit of yield and Lehigh won’t sue them. Sell themselves to someone else. Flirt with the edges of the law. I’m guessing this is so because I’m seeing it in ordinary consumer contracts with investment companies, and if that’s an industry-standard thing, then a university with $1B in its pocket has no choice: it has to go somewhere. (Another conversation: should universities be so expensive to run that they’re looking for billion-dollar endowments in the first place?). I don’t know what happens when these crooks are sued ,whether or not judges are inclined to say “that’s a ridiculous contract, of course those provisions don’t hold” or not, but I wonder how much of the point here is just to try to wrestle Allianz into refunding some money by taking shots at its rep.
Another question: When did Lehigh notice that the money was vanishing, and why did this fund manage to get almost all the way to $0? Why didn’t Lehigh pull the plug? I mean I know they’re saying Q1, but if you’re responsible for $67M at Lehigh, you probably aren’t just humming a tune and playing esports while waiting for the firm to mail you your Q1 results, you’re watching those numbers bounce around daily. Is Lehigh locking itself into these contracts, unable to get out when the parachute is clearly not opening? And if so, why should alumni give? Ask Deirdre about that — she’s very nice and smart (hi, Deirdre), and I bet she’s a bit worried about it.
It’s not necessary to invest in complicated investment funds, with the latest market run. Being a 1982 Finance graduate, we were taught better. Our Board is made up with the best of our Finance class but whoever was on the committee to pick those investments should resign immediately. Invest as Buffet does, in products you understand and use.