Allianz Hedge Fund CFO Faces Liquidation After Investor Vote

Allianz SE’s 300 million-euro ($387 million) collateralized fund obligation linked to the performance of 80 hedge funds will be liquidated after a vote by investors.

Bondholders decided to close the so-called CFO after Allianz limited withdrawals from the 2.2 billion-euro Phenix Alternative Holdings fund of funds backing the security. More than 75 hedge funds have liquidated, suspended client withdrawals or limited redemptions since the start of the year because of turmoil in financial markets, according to data compiled by Bloomberg.

CFOs are similar to collateralized debt obligations that parcel fixed-income assets such as bonds, loans or asset-backed debt into securities of varying risk and returns. Asset managers including Munich-based Allianz and Man Group Plc, the largest publicly traded hedge-fund manager, created about $5 billion of CFOs to raise long-term capital by selling bonds linked to income from hedge funds.

The Phenix CFO “could not survive a shock of the magnitude that we have experienced in 2008,” said Jean-François Vert, chief executive officer of Allianz Alternative Asset Management in Paris. Investors will be repaid in “two or three months,” although holders of 60 million euros of lower-ranking equity may take losses, he said.