Entropics cat bond fund approved by CSSF, set to open in Sweden

by Artemis on December 10, 2014

Entropics Asset Management AB has now had its first ILS fund, the SEF Entropics Cat Bond Fund, approved by the Luxembourg financial supervisory authority, the CSSF, and passported into the Swedish Market allowing it to be officially opened for business.

Entropics is the first insurance-linked securities (ILS) and catastrophe bond fund manager to be established in Scandinavia. Entropics received its license from Finansinspektionen, the Swedish Financial Supervisory Authority, in July and has been planning to launch its first UCITS catastrophe bond fund, the SEF Entropics Cat Bond Fund, in time for an expected pick-up in issuance around the first-quarter of 2015.

Now that the SEF Entropics Cat Bond Fund has been approved and authorisation received from the Commission de Surveillance du Secteur Financier (CSSF), Entropics can open the fund at its own discretion. Entropics is now the ninth fund manager globally to have a UCITS compliant cat bond fund available for investors to allocate capital to.

“Entropics will soon provide Swedish and international investors with a new source of diversification in traditional portfolios,” commented Robert Lindblom, CEO of Entropics. “Furthermore, Cat Bond investments have a clear ethical aspect, as the investments enable improved catastrophe insurance protection and provide capital for disaster relief.”

Entropics says that it will continue to monitor the market to look for precisely the right time to open the Fund, when the market conditions are favourable. That decision will be made in dialogue with both distributors of the risk assets and the institutional investors themselves.

Entropics first Fund has been set up using the Luxembourg fund company of Sweden’s largest banking institution, Swedbank. Entropics believes that working with Swedbank will ensure a solid infrastructure for the fund and allow for an independent valuation of the Fund’s assets at all times.

Entropics says that the Fund is expected to be made accessible to external shareholders via selected distributors in 2015. The SEF Entropics Cat Bond Fund will invest in a globally diversified portfolio of liquid catastrophe bonds and aims to return a target of 4% to 6% above the risk free interest rate per annum to its investors.

“In the last two decades, the structure of the global reinsurance market has changed fundamentally through the introduction of instruments such as cat bonds. To investors, like us, this opens the opportunity to deliver good risk adjusted returns uncorrelated to traditional asset classes,” said Lindblom.

Entropics says that it intends to attempt to protect returns for shareholders in the Fund, by actively managing the inflow of capital raised to match the investment opportunities available in the market. It aims to achieve this primarily through transparent communication with investors, but with an option to introduce a subscription fee if it deems it necessary to protect the interest of existing investors.

Two share classes will be offered, an Institutional Investor Class (Class I) and a Retail Class (Class A). The Institutional Class of shares will be made accessible to selected partner institutions, such as banks and insurance companies, Entropic says. The management fee will be a maximum of 0.66% (Class I) or a maximum of 1.40% (Class A), respectively, with a performance fee of 15% above a hurdle rate, subject to a maximum.

Because the SEF Entropics Cat Bond Fund is authorised by the Luxembourg CSSF it is passported into the Swedish market, according to UCITS regulation. While the Fund will only be marketed in Sweden and in its domicile of Luxembourg, if demand is sufficient, Entropics will look to market the fund into other EU markets.

We asked Lindblom where Entropics might look to expand the reach of the fund to and whether there were any concrete plans in place yet to do so.

He told Artemis; “As a matter of fact, yes. We are currently evaluating the opportunity to start a Euro share class. If we decide on this, the class could be in place in a matter of two to three months and make the fund more attractive in markets using the Euro, such as Finland.”

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