The Arkansas Teacher Retirement System will net $507.4 million out of a $642.8 million settlement of a lawsuit that it filed against an investment manager, the system's general counsel said Monday.
The system filed a complaint in July 2020 in federal court in New York seeking to recover losses that the system claimed it incurred as a result of negligence and breaches of fiduciary and contractual duties by Allianz Global Investors U.S., LLC, and related defendants.
During a meeting late Friday afternoon, the system's trustees unanimously approved the proposed settlement of the lawsuit after attorneys representing the system in the lawsuit and the system's staff recommended approving the settlement.
The system has received the final amounts related to the Allianz settlement that was approved by the board Friday, System General Counsel Martha Miller said Monday.
"The gross amount of the settlement is $642,861,750," she said in a written statement. "The net amount of the distribution to ATRS today is $507,446,092 after legal fees ($135,000,968) and expenses ($414,690.78)."
Miller responded to a request made Monday morning by the Arkansas Democrat-Gazette under the Arkansas Freedom of Information Act for any documents that would shed light on the attorney fees' that will be paid out of the system's $642 million settlement with Allianz.
Asked about the split on the attorney fees between the two law firms, Miller said late Monday afternoon "I have no idea."
The securities monitoring firms Kaplan Fox & Kilsheimer LLP in New York and Bernstein Litowitz Berger & Grossman LLP in New York represented the system in the lawsuit.
The teacher retirement system is the state government's largest retirement system with about $21 billion in investments and more than 100,000 working and retired members.
The system's lawsuit alleged that Allianz deviated dramatically from the market-neutral strategy its contracts and fiduciary obligations required the firm to follow. The system estimated that it suffered $700 million to $800 million in trading losses through three funds managed by Allianz when the board authorized the hiring of the two securities monitoring firms in June 2020 to file the lawsuit.
In September 2020, Allianz Global Investors spokesman John Wallace said, "as we set out at the time, the Structured Alpha portfolio sustained losses during the severe market rout in late February and March" of 2020.
"While the losses were disappointing, the allegations made by ATRS ... are legally and factually flawed, and we will defend ourselves vigorously against them," Wallace said at that time.
The system's trustees were advised by an attorney for Kaplan Fox & Kilsheimer on Friday that the firm's expectation is that the system's case was not likely to proceed to trial until at least mid-2023, if not later.
Hannah Ross, an attorney for Bernstein, Litowitz Berger & Grossman LLC, told the system's trustees Friday that settlement negotiations in this case started in August 2021 through a mediation process led by a retired federal judge, and the discussions through the mediator were intense and took place over several months.
"However, fortunately we were able to reach a compromise, and we are here today to present the settlement for approval," she said.
"We recommend this settlement," Ross said Friday. "It is a fair and appropriate settlement given the risks of continued litigation."
Asked for confirmation of the $642 million settlement and any comment about it, Wallace of Allianz Global Investors said Saturday in an email to the Arkansas Democrat-Gazette that "On 18 Feb, alongside its annual results presentation, Allianz stated that since announcing a provision the previous day, it had settled with investors in Structured Alpha representing a substantial majority of its litigation exposure.
"The details of those settlements -- including with whom we have settled -- are confidential, so I am afraid I cannot confirm the details you have put to me."