Fermat Capital launches new ILS fund in Australia, seeded by superannuation fund

Insurance-linked securities and catastrophe bond investment manager Fermat Capital have, along with specialist investment advisor, Brookvine, launched a new fund in Australia called the Fermat ILS Yield Fund. The new fund will invest in catastrophe bonds and Fermat Capital will manage the investment side of it while Brookvine will assist with marketing and client servicing management as well as having provided Fermat with advice on entry to the Australian and New Zealand investment markets.

The Fermat ILS Yield Fund has been seeded with a AU$30m investment from one of Australia’s largest superannuation funds, NGS Super, the AU$4.4 billion superannuation fund for employees in education and community-focused organisations. By seeding the new ILS fund NGS Super are seeking to diversify from equity risks by trying out a new asset class and attain the high returns that catastrophe bonds regularly offer according to their CEO Anthony Rodwell-Ball.

Rodwell-Ball said; “We pride ourselves on our ability to innovate valuable investment solutions for the benefit of our members. Insurance-linked securities has been an area of particular interest for some time. We are particularly attracted to the diversification benefits it provides and the possibility of the sorts of double-digit yields that have been realised in the past.”

John Seo, Co-Founder and Managing Principal of Fermat Capital Management said; “We are excited by the launch of the Fermat ILS Yield Fund and are proud to be appointed by such a thought leading investor as NGS Super. The increasing recognition of the Australian and New Zealand market of our capabilities is also gratifying.”

“This news demonstrates the continuing trend for institutional and high net worth investors around the world to look favourably on insurance-linked securities as attractive investment diversification opportunities, a trend we see continuing”, Mr Seo added.

The Fermat ILS Yield Fund is an Australian domiciled managed investment scheme and is open to institutional investors. It invests directly into a portfolio of catastrophe insurance-linked securities and is hedged to Australian dollars.

CEO of Brookvine Steven Hall said that the firm has been working with Fermat in Australia and New Zealand for two years. The launch of the Fermat ILS Yield Fund in Australia is testament to the commitment and patience of Fermat to engage with sophisticated investors on the structure of the asset class and the reasons for its inclusion in diversified portfolios he went on. “The work required to establish an Australian Registered Managed Investment Scheme in this field was complicated and resource intensive. But we firmly believe the ability to deliver innovative investment solutions in the form most readily accepted by local investors warrants the effort,” he added.

The launch of this new fund is further evidence of the growing reach of the ILS and cat bond market and asset class. It is particularly pleasing to note the seed investment from one of the largest superannuation funds, an Australian sector with significant capital which could potentially have a portion directed to the ILS space.

Rodwell-Ball of NGS Super is also reported by Investment Magazine as commenting; “We wanted an investment that is not equity market-linked and this fitted the bill. Hopefully it won’t be correlated with market movements.” According to the article he also added that NGS Super had achieved “good commercial terms” as the seed investor to the Fermat ILS Yield Fund and that they chose to invest in it over other “growth alternatives such as long/short equity strategies”.