Royal Bank of Canada unit Rochdale launches ILS interval fund

by Artemis on December 6, 2016

A mutual fund investment management unit subsidiary of the Royal Bank of Canada has launched a prospectus for the City National Rochdale Reinsurance Premium Fund, a new ILS and reinsurance interval investment fund.

The interval ILS and reinsurance linked mutual investment fund is being offered to investors by investment advisor City National Rochdale, LLC, which is a wholly-owned subsidiary of City National Bank, which is in turn a wholly-owned subsidiary of an entity named RBC USA Holdco Corporation, which is a wholly-owned indirect subsidiary of Royal Bank of Canada.

Royal Bank of Canada and Los Angeles-based City National Bank merged in November 2015, bringing investment manager City National Rochdale into its fold, as an asset manager focused on creating and managing personalised portfolios for high-net-worth individuals, families, and foundations.

City National Rochdale, currently managing around $30.7 billion of assets, also manages mutual funds, including alternatives, but the launch of the City National Rochdale Reinsurance Premium Fund is the first to be focused on investments in ILS, or catastrophe insurance and reinsurance risk linked assets.

According to the prospectus, the City National Rochdale Reinsurance Premium Fund will largely (at least 80%) allocate its assets to a range of ILS instruments, from catastrophe bonds, to industry loss warranties (ILW’s), as well as other structured and collateralised reinsurance linked investments such as quota shares and special purpose vehicles whose performance is tied to an underlying reinsurance transaction.

The City National Rochdale Reinsurance Premium Fund will aim to invest largely in structured reinsurance investments, with a particular focus on equity-linked notes, which it describes as “A type of Structured Investment, whose return is tied primarily to underlying ILWs and/or event-linked bonds.”

Operating as a registered investment fund under the 1940 Act and structured as an interval fund, City National Rochdale will be following the path led by the likes of Stone Ridge Asset Management and Pioneer Investments, in launching a mutual fund which has some control over liquidity events by offering quarterly repurchase opportunities for at least 5% and not more than 25% of its outstanding shares at NAV.

This enables mutual ILS and reinsurance fund managers to allocate capital to less liquid assets, such as quota shares and collateralised reinsurance structures safe in the knowledge that they cannot face a run on liquidity and giving them time to plan for redemptions.

The prospectus is fairly standard in its terms, laying out the offering and operations of an interval fund focused on ILS and reinsurance linked investments. The portfolio managers are not named and it will be interesting to see whether any well-known ILS faces emerge as the managers behind the strategy, as a partnership cannot be ruled out at this time.

Interestingly, City National Rochdale has a stake in the Stone Ridge Reinsurance Risk Premium Interval Fund that amounts to around $26.2 million in some of the fixed income funds run under its mutual fund brand City National Rochdale Funds.

As the investment manager has clearly got a taste for ILS and reinsurance linked investments for its clients it is understandable that it would seek to branch out and launch its own interval fund focused on an ILS investment strategy.

It’s another sign of the increasing popularity of insurance and reinsurance linked investments in ILS instruments, as another mutual fund targets raising funds to launch.

As investment managers gain experience by investing in the ILS asset class it is only natural that a number will seek to launch their own strategies, which will in time bring new investors and capital into reinsurance as the convergence with the capital market continues.

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