AXA IM grows ILS team, reaches $500m ILS AuM, to launch third fund

The insurance-linked securities investments team at global asset manager AXA Investment Managers is adding two new hires, has grown its ILS assets under management to circa $500m and is set to launch a third insurance linked investment fund.

AXA Investment Managers (AXA IM) reported its full year results yesterday for 2013. During the year AXA IM saw net new capital inflows of$16.2 billion come into its strategies, largely from third-parties, taking the firms total assets under management at the end of 2013 to $726 billion.

The AXA IM ILS teams operations are a small piece of this large and diverse global asset manager, with insurance linked assets under management at the firm now approximately $500m, according to AXA IM’s Head of ILS Christophe Fritsch.

Despite being a small piece of the AXA IM investment machine, the ILS team is important enough to be mentioned in the asset manager’s annual results. Andrea Rossi, CEO of AXA IM, cites insurance-linked securities as an example of an asset class which allows AXA IM to leverage its relationship with AXA Group to; “Stay at the forefront of financial innovation and enables us to understand the needs of complex clients and develop tailor-made solutions.”

AXA IM also cites insurance-linked securities as a valuable asset class in a post quantitative easing world. In a publication released in recent weeks, AXA IM discusses the portfolio of the future for a post-QE world and said that ILS as an important diversifier as part of an active allocation approach as quantitative easing ends.

So the ILS team is clearly important to the AXA IM asset management mothership and is a targeted asset class for growth. Christophe Fritsch told Artemis that the ILS team at AXA IM is growing, with two new hires coming on board in the first-quarter of 2014.

Fritsch said that AXA IM’s ILS assets under management have increased and the new team members are being hired to support further growth and the launch of new products.

Fritsch commented; “Our ILS AUM is circa USD$500m with mainly investors who are Family Offices, Pension Funds and Life Insurance companies. We’ve hired a new portfolio manager to the ILS team and have a catastrophe analyst coming to join us as well.”

The first new hire is the portfolio manager who is joining the AXA IM ILS team from reinsurer Partner Re where he worked in catastrophe modelling and reinsurance subscription. The second new AXA ILS team member, a catastrophe analyst, is joining from the AXA Group parent company, where they worked as a catastrophe modeller at the AXA owned insurance company.

The AXA IM ILS team is targeting growth through the launch of a third insurance linked investment fund as well. Currently the team operates two ILS funds; one GAIA targets predominantly catastrophe bond investments and the second one CRONOS focus more on private transactions with high expected losses. The new fund will have a broader strategy, by investing in private collateralized reinsurance contracts as well as cat bonds, with a target risk return in between GAIA and CRONOS.

Fritsch said; “We are about to launch a third new fund, focusing on being able to invest both in cat bonds and private transactions, in order to be able to benefit from market timing and conditions (capital market and reinsurance market).”

Fritsch sees the mixed strategy fund as a good option for investors currently, giving them more flexibility in the ILS market right now and also having added liquidity benefits.

He explained; “It can make sense for investors to have access to both markets. We are pursuing this strategy rather than launching funds like UCIT, which can solely include cat bonds and can show liquidity issues in case of big catastrophes which at the end can be detrimental to the final investors.”

Here Fritsch is talking about the risk that a major catastrophe event, such as a devastating U.S. hurricane, caused the secondary catastrophe bond market to lose liquidity. For a UCITS ILS fund which invests solely in cat bonds this could result in a tricky time, as its investors may want to withdraw capital but it may not be able to see assets easily to support that.

Of course the same could be true of a mixed cat bond and private ILS or collateralized reinsurance strategy, however the UCITS funds are mandated to offer a certain level of liquidity whereas investment managers have more freedom to set their own liquidity rules for a non-UCITS fund.

The AXA IM insurance-linked securities team looks set to capitalise on the current interest in insurance and reinsurance linked investments and with the support of a large parent company it is well positioned to grow its ILS assets under management in years to come.