Pioneer Investments is launching a new insurance-linked securities (ILS) fund strategy, named the Pioneer ILS Bridge Fund, which is designed to enable investors to maintain or grow their allocations to reinsurance as an asset class, particularly after a market-dislocating catastrophe event.
The new fund, for which a registration statement and initial prospectus has now been filed, will seek to help U.S. mutual fund manager Pioneer Investments to capitalise on the expected need for more capacity when the reinsurance market finally faces a massive catastrophe loss.
The Pioneer ILS Bridge Fund will invest in a range of insurance-linked securities (ILS), including catastrophe bonds, quota share reinsurance sidecars, collateralized reinsurance investments, industry loss warranties (ILW’s), event-linked swaps (catastrophe swaps), as well as other securities of companies in the insurance or reinsurance sector, and other types of insurance- and reinsurance-related securities. Around 80% of the fund’s assets would be expected to normally be held in ILS assets at any one time.
Pioneer recognises that after the next major catastrophe events strike the insurance and reinsurance market there could be a significant need for capital, providing a window of opportunity for ILS fund managers, such as themselves, to channel investor funds into the market.
Time will be of the essence when this market dislocation occurs, making the preparation for the next major catastrophe event essential for ILS managers. Many ILS funds have arrangements with key, large investors to gain access to rapid inflows of new capital after major events. For mutual ILS fund managers having a specific structure ready is key, and this is what Pioneer is putting in place with the ILS Bridge Fund.
The Pioneer ILS Bridge Fund will be operated as an interval style mutual fund, giving the managers more control and certainty over redemptions and capital. Pioneer already operates one ILS Interval Fund, so this will be its second.
The Pioneer ILS Bridge Fund will follow the same objectives and strategy as the ILS Interval Fund and the prospectus notes that at some point in the future the Bridge fund could be reorganised into the Interval fund, enabling the two to be combined. This would likely happen post a major catastrophe event, or alternatively if the market did not move as expected post-event.
The ILS Bridge Fund will be managed by Charles Melchreit, Senior Vice President and Director of Investment Grade of Pioneer, and Chin Liu, Vice President and Associate Portfolio Manager at Pioneer, who between them manage the rest of Pioneer’s ILS investments.
The new fund vehicle will enable Pioneer to secure additional investor inflows ready for use at the next market turn, or should that not happen then the ILS Bridge Fund will simply expand its ILS asset base and could be merged into the Interval fund in the future.
As such it helps to prepare Pioneer for the potential occurrence of a reinsurance market capacity shortage after a major catastrophic loss event, while augmenting its own capacity.
With the prospectus now filed Pioneer will be actively raising capital for this new fund and it will be interesting to see how much capital it seeks to raise in the first instance, or whether it looks for commitments rather than inflows to begin.
Pioneer is not the first to seek to position itself to be ready for the next major reinsurance market dislocation. Fellow mutual ILS fund manager Stone Ridge Asset Management launched the Stone Ridge Post-Event Reinsurance Fund earlier this year.