Oppenheimer grows cat bond fund AuM despite impact of losses

by Artemis on December 11, 2018

OppenheimerFunds, Inc, the asset manager that is in the process of being acquired by investment giant Invesco to create a $1.2 trillion global powerhouse, has grown the catastrophe bond and related insurance-linked security (ILS) assets under management of its flagship cat bond fund.

The Oppenheimer Master Event-Linked Bond Fund, LLC, counted total net assets of just shy of $300 million as of March 31st 2018.

By the end of September 2018 that figure had jumped to $373.2 million, an increase of almost 25% over just six months of this year.

This is despite the Oppenheimer run catastrophe bond funds facing its share of losses from the 2017 catastrophe events, with a number of its positions that provide reinsurance to the likes of USAA and Nationwide Mutual marked down because of the impacts of multiple hurricanes and other catastrophe loss events.

The AuM figure is now slightly down on the middle of the year, when total net assets of the Oppenheimer cat bond fund had reached $380 million, but it’s still an impressive result for the investment manager in the face of the largest losses the cat bond market has faced.

The catastrophe bond market as a whole is facing roughly $1.1 billion to $1.2 billion of losses, based on current secondary market pricing and investors expectation of losses from the 2017 and 2018 catastrophe events.

Oppenheimer has seen its cat bond positions dented somewhat, the current portfolio is marked as having had a cost of $387.8 million, so clearly higher than its current AuM, reflecting the mark-to-market and expected losses, but overall the outcome has not been as significant as may have been assumed for a broadly diversified cat bond fund strategy.

This has likely helped the investment manager in attracting new assets over the course of this year, resulting in the increased AuM since the end of March.

The fund has reported a 3.7% return over a one-year reporting period to the end of September, not a bad result considering the impact of losses across ILS and reinsurance linked investment strategies in the marketplace.

Positions were impacted by the 2017 hurricanes, the California wildfires and winter storms in the U.S., with various USAA sponsored Residential Re cat bonds and Nationwide Mutual sponsored Caelus Re cat bonds the worst impacted.

The cat bond funds AuM has likely been hit in recent weeks, since the end of the reported quarter, by the write-down of the Cal Phoenix Re wildfire cat bond and possibly by the expanding expectation of losses to USAA cat bond positions driven by the recent California wildfires.

However, Oppenheimer remains confident in the ability of catastrophe bonds to continue to expand as an asset class, highlighting the protection gap and under-insurance as opportunities for the capital markets as provider of reinsurance capacity.

Oppenheimer is still in the process of launching an insurance-linked securities (ILS) interval mutual fund, which will be focused on collateralized reinsurance, reinsurance sidecars and privately negotiated quota shares, Artemis understands.

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