Rochdale mutual ILS fund to target $500m, strategy details revealed

In its first two years of operation, the City National Rochdale Select Strategies Fund which has been launched as a U.S. 1940’s Act mutual insurance and reinsurance linked securities fund by a subsidiary of the Royal Bank of Canada, will target raising ILS assets under management of $500 million in its first two years of operations.

The City National Rochdale Select Strategies Fund was registered with the SEC earlier this year, targeting a largely industry loss warranty (ILW) driven reinsurance linked investment strategy, it had initially been registered as the City National Rochdale Reinsurance Premium Fund but was renamed.

The investment manager behind the fund is City National Rochdale, LLC, an indirect subsidiary of the Royal Bank of Canada and we understand that the initial capital raising is now underway.

As we wrote previously, the mutual fund is structured in an interval style and expects to invest a significant proportion of its assets in Cartesian’s Iris Re vehicle, hence the ILW focus.

So this is more of a partnership between Royal Bank of Canada owned investment manager City National Rochdale and experienced ILS and reinsurance investment manager Cartesian Iris.

In its latest filing the investment manager reveals that the City National Rochdale Select Strategies Fund will have a target raising a maximum $500 million of assets under management for its first two years of operation.

This will be to prevent it raising more assets than it can match with attractive reinsurance linked investment opportunities, and with the majority of the investments set to flow into Cartesian’s reinsurer, with now 80% of the fund’s assets expected to be invested in special purpose entities of the Iris Reinsurance Ltd., it means the matching of capital to risks can be more tightly controlled between City National Rochdale and Cartesian.

In total ILW’s are expected to make up around 70% or more of the fund’s allocation, which given the limited size of the ILW market means that raising too much capital could be problematic as well, given available opportunities may not match asset inflows. Hence capping the target for the fund’s assets under management at $500 million for the first two years is prudent.

Further details on how the Rochdale ILS fund will interface with Cartesian’s Iris Re have also been revealed.

Iris Re is expected to create at least thirteen new Special Purpose Entities (akin to segregated accounts), which will be ring-fenced pools of risk for the City National Rochdale ILS fund to invest in.

Each of the special purpose entities generated by Iris Re will enter into ILW contracts with different risk profiles, so providing a pillared approach to diversification, for example Florida wind, all natural perils Europe, U.S. wind, Japan earthquake, etc. This will provide geographic and risk diversification, while other entities may only focus on contracts that trigger above a specific industry loss (eg. Florida wind $40bn, etc).

The City National Rochdale Select Strategies Fund will invest in equity linked notes of the Iris Re special purpose entities, while another class of quota share notes may also be available for other hedge funds to invest, which could be Cartesian’s own strategies we’d expect.

For ILS and reinsurance investment manager Cartesian Re, the tie-up with City National Rochdale will offer it a way to bring additional assets into its strategies from mutual fund investors, enabling it to write more risks while benefitting from fee income through the mutual fund.

City National Rochdale benefits by working with a recognised ILW expert manager, which also provides it with a differentiated mutual ILS fund strategy, as the only one currently available to predominantly focus on ILW derivative contracts, rather than more broadly investing in collateralized reinsurance as the other available mutual funds do.

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