Allianz SE will take a 3.7 billion euro ($4.2 billion) charge related to its hedge funds that collapsed early in the pandemic, and said more spending came from multiple lawsuits and regulatory investigations caused by the implosions.

The charge prompted a loss in the fourth quarter as Allianz said it expected to settle soon with major investors in so-called structured alpha funds. But the Munich-based insurer said it could not put a full price tag on the debacle as discussions with other plaintiffs, the US Department of Justice and the US Securities and Exchange Commission are ongoing. .

Investors have alleged billions of dollars in losses from the collapse of Florida-based hedge funds, which were designed to provide protection against a stock market crash, but suffered heavy losses when Covid-19 hit. Allianz liquidated two of the funds in March 2020 and has since liquidated the rest.

Lawsuits and investigations have overshadowed the company’s strong rebound from the pandemic, and Allianz – which owns bond giant Pacific Investment Management Co. – appointed a new head of asset management last year.

“The fee may be lower than some expected, but what’s unclear is how much the payout might increase as settlements are made,” Bloomberg Intelligence analyst Charles Graham said. .

CEO Oliver Baete raised the insurer’s medium-term targets in December as he seeks to persuade investors that the company is strong enough to bear the additional bill of legal troubles.

The German company hadn’t set aside any money for the deal earlier because it couldn’t estimate the cost. Berenberg analysts saw potential settlement costs of 5.8 billion euros in a note dated February 8, adding that the issue is the “main overhang for Allianz”.

In August, Allianz warned that the implosion of hedge funds could “have a significant impact” on future earnings, after the US Department of Justice launched an investigation into the funds. Allianz had previously been the subject of investor lawsuits alleging losses of some $6 billion, as well as an investigation by the Securities and Exchange Commission.

Allianz appointed its life insurance chief Andreas Wimmer as head of asset management in October, following the departure of Jackie Hunt. Wimmer indicated in an interview last month that the insurer plans to push further into alternative asset classes and continue to focus on active fund management.

Allianz management backed its unit that offered the funds – called Allianz Global Investors – while pledging to look closely at the products it offers. Of the approximately 450 active investment strategies that existed at the end of 2019 in the unit, about 140 have been discontinued or merged with other strategies over the past two years, Wimmer said in an interview in January.