Swedish ILS manager Entropics launches. Cat bond fund to launch in April

by Artemis on March 5, 2014

The first insurance-linked securities (ILS) fund manager based in Scandinavia has now launched. Entropics Asset Management AB announced itself today and is set to launch its first investment strategy, a catastrophe bond focused fund, in April.

Entropics Asset Management AB said today that it has recently filed its application to become a manager of investment assets with the Swedish financial supervisory board (Finansinspektionen).

Entropics aims to target the Swedish private and institutional investor market primarily, but may look outside to other Scandinavian countries for investors in future. Its first investment strategy launch will be a UCITS compliant cat bond fund, putting it among the first ten investment managers of a UCITS ILS strategy in the world

Founder and CEO of Entropics, Robert Lindblom, has a long career in the Swedish insurance and fund management industries. Before founding Entropics, Lindblom was CEO and the driving force behind establishing Brummer Life, the life insurance branch of Swedish hedge fund manager Brummer & Partners.

“The main reason to start Entropics is the need for diversifying investment opportunities on the Swedish market”, commented Mr. Lindblom. “Still, uncertainties loom about the long term stock market and low interest rates seem to be more or less permanent. I meet a lot of investors looking for new asset classes with good risk adjusted return and low correlation with traditional asset classes.”

The first fund to be managed by Entropics, the UCITS cat bond strategy, will be administered by Swedbank and Swedbank Management Company SA will be responsible for all of the fund’s business activities.

Entropics will act as investment manager for the fund, making investment decisions on which cat bonds to allocate capital to, which to sell on the secondary market and responsible for diversification and achieving the cat bond funds targets.

The capacity of the fund is anticipated to be as much as 6 billion SEK (approximately €680 million). The fund will be offered both as a component of distributors’ mixed funds as well as being offered directly to both private and institutional investors. Here Swedbank’s reach and scale should assist Entropics in attracting investors and securing capital commitments.

“We want to bring cat bonds to Swedish investors, many of whom still lack resources and capability to invest in the cat bond space”, explained Mr Lindblom.

At Entropics, Lindblom has built a seven strong team of experienced personnel with a proven track record across the insurance, reinsurance and investment sectors in Sweden and globally.

Dr Gunnar Roos, the chief underwriter of Entropics, has more than 20 years’ experience working as an actuary and underwriter of reinsurance and tail risk management. Dr. Roos is a partner of FM Försäkringsmatematik.

Completing the Entropics investment committee at launch, Dr Roos and Mr Lindblom are joined by Tyrel Jonsson, an insurance executive with extensive experience of catastrophe risk management and run off operations, Stig Aggevall, a well-known and senior advisor to the Swedish and international insurance industry and meteorologist Martin Hedberg, with a long term interest in the connection between extreme weather events and the financial markets.

“Our investment management of Cat-bonds is based on an actuarial evaluation of global insurance risks, which is indispensable in this asset class. The positions taken are chiefly based on these evaluations and this is an apparent extension of traditional investment management strategies. Furthermore, our investment management policy requires a number of supplementary key numbers, such as attachment probability, expected loss and exhaustion probability, being crucial for a thorough understanding of this asset class. My view is that our approach generates considerable added values, in order to optimise the yield in conjunction with the underlying risk being under control,” explained Dr Roos.

The catastrophe bond and ILS asset class is not particularly well-known in Sweden, so Entropics aims to use public relations and educational efforts to inform potential investors about the asset class.

An example of this, which Artemis finds refreshing and a great way to explain a complex asset to investors, is this animated video created by Entropics Head of communications, Henrik Sjöholm, who has a long career in Swedish politics, both as a PR consultant and as head of public affairs at the Swedish Federation of Business Owners.

Entropics wanted to make the ILS asset class much easier to understand and more accessible to investors who may be completely new to the idea of investing in catastrophe risk returns. The decision to invest in the educational film has been well received by potential investors, said Mr Lindblom.

Lindblom said that the film serves two purposes. As well as educating the market about the asset class, it helps to give investors reasonable expectations about how the asset class will perform. He warned that lack of investor understanding could ultimately undermine ILS managers’ investment strategies, as calls may emerge for restrictions on investments.

Lindblom explained; “Let’s say that investors are more educated on one peril and lack knowledge of others . This could lead to concentration issues, both in terms of diminishing returns on that market and an unhealthy concentration of risk.”

So far the ILS investment market has not suffered from this but it could become an issue with a growing market and new investors allocating capital to it. Lindblom said that this is not just an issue for new ILS managers in new markets like Sweden; “I have found out that many existing Cat Bond managers face the same challenge. As managers, we must assume the responsibility to educate the markets, not least to make sure that our mandate from investors is strong enough.”

“With an excellent team with great experience, knowledge end extensive network in reinsurance, we are set to deliver good returns. Our communication skills provide for transparency in our investor communications” said Mr Lindblom.

Being the first ILS manager to launch in Sweden and launching its first fund venture alongside a financial organisation with the scale of Swedbank should give Entropics good access to a relatively untapped investor base. It will be interesting to watch the development of the firm and how it expands in terms of assets under management and strategies offered to investors in the coming years.

Read our previous article on the development of Entropics Asset Management AB, the first Scandinavian ILS & cat bond fund manager.

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