Stone Ridge ILS & reinsurance assets near $3.3bn, up 9.4%

Insurance-linked securities (ILS) and reinsurance linked assets under management at New York based Stone Ridge Asset Management, the beta and alternative risk focused mutual fund manager, have neared $3.3 billion, up 9.4% in three months.

Stone Ridge’s growth has slowed in recent months, perhaps a reflection of the softened reinsurance market environment, but also likely due to deal and investment selection becoming more challenging as the reinsurance market has been more challenging.

Stone Ridge manages a range of mutual fund investments across a variety of beta focused alternative risk exposures including reinsurance and insurance-linked securities (ILS). The ILS and reinsurance strategies, which it manages across three funds, have been particularly successful for the investment manager.

With total assets from its three insurance-linked securities (ILS) and reinsurance funds now having reached $3.288 billion as at the 30th April 2015, Stone Ridge’s reinsurance mutual funds business is up 9.4% in terms of total assets at the three ILS funds since 31st January.

Stone Ridge’s success has been in raising capital through networks of registered investment advisors (RIA’s) to encourage capital inflows into its reinsurance mutual funds range.

The investment manager launched in late 2012 with assets of around $350m in two funds, the Stone Ridge Reinsurance Risk Premium Fund and Stone Ridge High Yield Reinsurance Risk Premium Fund.

Stone Ridge then grew its ILS and reinsurance assets under management to $766m by July 2013, then to $1.4 billion by January 2014 with the help of the launch of the Stone Ridge Reinsurance Risk Premium Interval Fund, then again to $1.8 billion by the end of April, then $2.03 billion at July 31st followed by another leap to $2.124 billion at the 31st October, then up another 42% reaching $3.006 billion at the 31st January 2015.

The latest increase is at a much slower pace, taking the total reinsurance and ILS fund assets under management to $3.288 billion, up 9.4% in the quarter.

Once again, there has been some growth in all three of the dedicated ILS fund strategies managed by Stone Ridge, but the Interval ILS fund has again shown its popularity, outstripping the other two funds.

The Stone Ridge Reinsurance Risk Premium Fund, the lowest risk ILS strategy, had total net assets of just over $941.58m at the 31st January 2015. This fund has grown to $982.642m at 30th April 2015, up 4.4%.

The Stone Ridge High Yield Reinsurance Risk Premium Fund, a higher risk and return strategy, had assets totaling $401.27m at the end of January 2015. This fund has grown to $413.79m, an increase in assets of just 3.12%.

The Stone Ridge Reinsurance Risk Premium Interval Fund, following the interval fund approach of offering staggered liquidity opportunities to investors, enabling it to invest in less liquid assets, sat at $1.664 billion of total net assets at the end of January. This fund has grown by 14% to $1.892 billion at the 30th April 2015.

Interestingly, the semi-annual report from Stone Ridge shows that depreciation in the value of catastrophe bonds has hit the funds a little, which is unsurprising given the bulk of the outstanding market sits below par currently.

Also, the Stone Ridge High Yield Reinsurance Risk Premium Fund shows ‘liabilities in excess of other assets’ of $16.78m. We assume this to be related to a loss (perhaps yet to be fully realised, although we can’t confirm) given the total assets of the fund are reported as $413.79m but the ILS and short-term assets contained within it have a value of just over $430m. However that’s to be expected with the Stone Ridge portfolio. It is, after all, there to pay claims when required.

Of note in the last three months, Stone Ridge’s Interval ILS fund has added a marine and energy quota share, through a Kane segregated account named Victoria, as well as some more agriculture risk through a segregated account named Bayswater.

As Stone Ridge continues to grow its portfolio size it has managed to remain largely invested. Stone Ridge clearly has access to a wide range of deal-flow, judging by the large cat bond portfolio and the wide range of quota shares, sidecars and private ILS deals it participates in.

There hasn’t been any dramatic change in the mix of ILS and reinsurance assets contained within each of the Stone Ridge funds, however it is perhaps worth noting that the amount of liquid, short-term assets such as money market funds has increased in each of them. This perhaps positions Stone Ridge better for any liquidity needs.

Stone Ridge remains one of the fastest growing ILS investment managers in the market, nearing $3.3 billion in just under two and a half years of existence. Stone Ridge Asset Management remains firmly in the top ten ILS fund managers, by assets managed, in our Insurance Linked Securities Investment Managers & Funds Directory.

These charts below break down the asset allocation for each of the three Stone Ridge reinsurance mutual funds as at the 30th April 2015 (compare this breakdown to our previous report here):

Stone Ridge Reinsurance Risk Premium Fund breakdown by type of assets managed - As at 30th April 2015

Stone Ridge High Yield Reinsurance Risk Premium Fund breakdown by type of assets managed - As at 30th April 2015

Stone Ridge Reinsurance Risk Premium Interval Fund breakdown by type of assets managed - As at 30th April 2015