Pioneer ILS Interval fund hits $305m, some loss impact in half-year

The Pioneer ILS Interval Fund, a U.S. mutual fund insurance-linked securities and reinsurance linked investment strategy operated by asset management giant Pioneer Investments, has seen its assets under management jump to $305 million by April 1st, a 25% increase in a three month period.

The last time we reported on the ILS interval style mutual fund strategy operated by Pioneer Investments, a mutual fund manager with near $240 billion of assets under management globally and recently acquired by investment giant Amundi, the fund AuM was $245 million as of January 31st 2017.

Growth continues as Pioneer targets the kind of high-net worth investors typically accessed by registered investment advisors in the United States for its ILS strategy and the fund’s total net assets have increased by an impressive 25% to reach $305 million as of April 30th 2017.

This strong growth reflects both the increasing number of investors Pioneer has seeking access to its fund, but also the increasing number of opportunities Pioneer has for investing the assets, particularly during a period of such strong catastrophe bond issuance and new collateralised reinsurance transaction activity.

Pioneer has also reported on the half-year results of the fund up to the end of April 2017, revealing a return of 3.38% at net asset value during the six-month period, easily beating the ILS Interval Fund’s benchmark, the Bank of America Merrill Lynch (BofA ML) 3-Month U.S. Treasury Bill Index, which returned 0.23%.

This is despite suffering some level of losses due to major catastrophe events seen during the period, including Cyclone Debbie in Australia, the Kaikoura earthquake in New Zealand and also U.S. severe thunderstorms and tornadoes.

Commenting on the loss events witnessed during the six month period, portfolios managers Charles Melchreit and Chin Liu explained; “Only two major events occurred during the six months, while a third event that occurred shortly before the start of the period did not result in significant claims. Due to this fact, the Fund continued to generate positive returns from premium income derived from reinsurance contracts, offsetting the negative effects of a relatively low level of damage claims.”

On the impact of Cyclone Debbie and the Kaikoura earthquake, the portfolio managers said; “While we do not know the final damage-claim figures, we expect some moderate losses.”

On the convective weather and storms experienced in the U.S., they commented; “During the period, we also saw an unusual increase in the number of tornado events in the United States, primarily in the Midwest, over the early months of 2017. Initial reports suggest that while frequency has been high, severity has been moderate. We anticipate only a modest impact on the Fund from the tornado events.”

Performance has perhaps been a little lower than anticipated, despite the loss impacts, largely down to the softened state of the reinsurance market resulting in lower returns.

“While the Fund’s performance has been positive, income from premium contracts has in fact been trending lower, primarily because the reinsurance industry has enjoyed relatively lighter claims in recent years,” the portfolio managers said.

However the managers do see the stabilisation of rates, or at least the slower softening, that has become gradually more evident; “We have seen some stabilization in the market, and the rate of declines in premiums has slowed significantly.”

Pioneer maintains positions in many well-known collateralized reinsurance sidecars, numerous private ILS and reinsurance deals, as well as catastrophe bond investments.

Almost 87% of the ILS Interval Fund’s investments are in so-called structured reinsurance investments, which are the sidecars and private ILS deals, with the rest cat bonds (or event-linked bonds as Pioneer terms them).

The cat bond component of the portfolio has continued to shrink slightly, as a percentage of the overall fund, reflecting the fact that more attractive returns are often possible from private ILS and collateralized reinsurance deals, although of course that higher return often comes with a little more risk.

Interval style mutual funds are an increasingly popular way to bring ILS investments to a new class of investor base, and Pioneer is finding it possible to grow its investor-base for the ILS Interval Fund strategy, as evidenced by the continued growth of the fund.

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