Sirius Capital Markets prepares to raise capital for first ILS fund

Sirius Capital Markets LLC, the newly formed insurance-linked securities (ILS) and third-party reinsurance capital asset management arm of White Mountains Insurance Group, Ltd., is preparing to launch its first ILS fund later this year and to raise capital from external investors.

The Sirius Capital Markets unit was formed earlier this year in May and brings ex-Deutsche Bank ILS sector exec Michael Halsband, leading the initiative from New York, together with Deanne Nixon, who has been with the Sirius Group for a number of years focusing on catastrophe reinsurance, retrocession, catastrophe bonds and ILW’s, who leads the Bermuda office.

Since the units formation the Sirius Capital Markets team has been building out an infrastructure to allow it to participate meaningfully in the insurance-linked securities (ILS) and third-party reinsurance capital management space. Now the focus has moved to preparing for the launch of its first ILS fund and raising capital from third-party investors.

Allan Waters, CEO of Sirius Group, commented in the firms third-quarter earnings press release; “We expect continued pressure on rates in most lines of business through the January 1, 2014 renewals, particularly U.S. property catastrophe excess business. Sirius Capital Markets should begin raising third party capital this quarter.”

Plans for the launch of the first ILS fund are well underway and Sirius Capital Markets hopes to begin presenting the offering to external investors this year. A second ILS fund is likely to be launched in future as well.

Michael Halsband, President of U.S. based Sirius Capital Markets LLC, told Artemis; “In mid October, Sirius Capital Markets filed with the SEC to become a Registered Investment Advisor. Work on the private offering memorandum for the first of two funds to be managed by Sirius Capital Markets — the SCM High Yield Reinsurance Risk Strategies Fund — is soon to be concluded. Sirius Group will provide the first of its capital contributions towards this effort to seed this fund by year end. We anticipate opening the fund to third parties at or about that time.”

It is no surprise that Sirius Capital Markets is launching a high-yield fund first, which will likely invest across the range of reinsurance-linked assets including collateralized reinsurance contracts, where potential returns to investors will be higher rather than a catastrophe bond focused fund. With returns on catastrophe bonds down, in-line with pricing declines, many ILS investment managers are moving towards a high-yield approach to raise potential returns.

With Sirius Group set to provide seed capital for the SCM High Yield Reinsurance Risk Strategies Fund by year-end it might put Sirius Capital Markets in a position to begin deploying capital at the January renewals, enabling it to build a track-record which will help its capital raising activities.