GAM announces new catastrophe bond investment fund

by Artemis on March 8, 2011

Investment manager GAM has announced the launch of a new catastrophe bond fund which aims to capture the structural return of the catastrophe bond market using a portfolio comprised of cat bonds and complimented by investments in other insurance-linked securities. Through the new fund, named GAM FCM Cat Bond, they seek to produce attractive, consistent returns for their clients which are uncorrelated to more traditional asset classes.

GAM have teamed up with Fermat Capital Management, a leader in the ILS and cat bond investment market, to launch the fund. The fund will be offered by GAM to retail investors and has a minimum subscription of $25,000. The fund itself will be managed by Fermat.

Dr John Seo, Co-Founder and Managing Principal at Fermat Capital Management said; “Given catastrophe bonds unique underlying risks, they are likely to remain a truly uncorrelated asset class. During the recent financial crisis, cat bonds have proven that they deserve their reputation as a genuine alternative investment strategy.”

Craig Wallis, Global Head of Institutional & Fund Distribution at GAM commented; “We are excited to be able to work with such a high calibre manager and to offer this very interesting investment strategy to a broader set of clients.”

This is quite a unique offering as it seeks to bring catastrophe bond investments to a broader range of clients than most existing investment funds in the sector. Generally cat bond investment opportunities are targeted at large, institutional investors and the likes of pension funds. Lowering the entrance barriers to enable retail investors to tap the cat bond market for a source of investment diversification is a smart move and the fund is likely to be well subscribed to (we believe).

It’s too early to say whether the sector will see increasing interest from retail investors and as such it will be interesting to see how well received this fund is (our feeling is it’s likely to be well received). Expanding the cat bond investment sphere to include more retail investors could help to accelerate the deal pipeline as issuers (such as the reinsurance market) seek to take advantage of additional, new demand and available, interested funds. We’ve seen other markets grow significantly once the investment opportunity filters down to the retail side, it will be interesting to see if this move impacts the cat bond market in a similar way.

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