DCG Iris ILS fund aiming to close next capital raise in late May

by Artemis on April 30, 2013

The DCG Iris insurance-linked securities fund, a London Stock Exchange listed closed end ILS investment fund operated by investment manager Dexion Capital, is actively raising more capital and aiming to close another placement of new shares in the fund by late May. DCG Iris has been raising new capital as part of a share placement programme announced last October. DCG Iris said at the time its aim was to increase their assets under management to £150m by 30th June 2013.

According to documents posted late last week, a new placement of shares is underway and is expected to be finalised and approved by the end of May. The last share placement by DCG Iris under this programme occurred in December, when an additional 11m shares were placed taking the ILS fund to around £51m in size.

The circular document does not give any hint as to how many shares will be placed in this latest round of capital raising, but it does give an insight into who one of the investors in this round will likely be.

Mobile device and technology firm Ericsson has a large stake in the DCG Iris ILS fund through the investment made on behalf of its pension fund. Currently Ericsson holds 10,967,000 shares in DCG Iris, equivalent to 21.45% of the issued share capital of the ILS fund. As a result, Ericsson holds more than 20% of the voting rights making it the largest single investor in the fund.

Ericsson intends to increase its holdings of DCG Iris shares as part of the current share placement, but as it holds such as large share already the other shareholders have to be notified of its intention to increase that. The circular says that Ericsson has indicated that it will subscribe for shares as part of the placement, but this constitutes a ‘related party transaction’ given the size of its holdings and accordingly requires shareholder approval.

According to the circular, Ericsson will not increase its holdings to any more than 22% of the voting rights of DCG Iris. So, how many shares it is allowed to acquire in this placement will depend on the overall size of this new placement, were this placement to take DCG Iris to £100m in size then the Ericsson pension fund would be allowed 22% or around 22m shares, so almost doubling its holding from the current level.

Whether Ericsson would choose to exercise its right to buy up to the 22% of voting rights limit is unknown. However, as the largest share holder in DCG Iris already it is clear that the Ericsson pension fund enjoys having an allocation to ILS and reinsurance within its alternatives portfolio.

The DCG Iris board see the potential for Ericsson to increase its holding as positive for the shareholders as it will contribute to the overall growth of the ILS fund. The board said that Ericsson increasing its stake would have the effect of reducing the fixed costs as a proportion of the funds net asset value, raise the funds profile, and could widen the audience of potential investors in DCG Iris whose investment criteria for closed-ended investment companies may include size-based factors.

The current share placement is expected to close on the 21st of May, the day after a board meeting will seek approval for it and the related party transaction. The admission of the new shares to listing and dealing is expected on the 28th May.

We’ll update you as the latest round of capital raising for DCG Iris moves to completion.

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