City National Rochdale, LLC’s insurance-linked securities (ILS) and reinsurance linked investment mutual fund is set for launch by the investment advisor. The City National Rochdale Select Strategies Fund expects to invest a significant proportion of its assets in Cartesian’s Iris Re vehicle.
City National Rochdale, LLC is a wholly owned subsidiary of City National Bank, which is in turn a wholly owned subsidiary of an entity named RBC USA Holdco Corporation, which is a wholly owned indirect subsidiary of Royal Bank of Canada.
The investment advisor filed a prospectus for an ILS and reinsurance interval mutual fund last December, the City National Rochdale Reinsurance Premium Fund, but yesterday filed a registration statement with the SEC for this differently named 1940’s Act mutual ILS fund.
It turns out that this is the same mutual fund strategy, which has been renamed by Rochdale to the City National Rochdale Select Strategies Fund, but will continue to seek out returns from the reinsurance and insurance-linked securities (ILS) market for its investors.
The newly renamed fund is still an interval fund, so will offer liquidity opportunities to investors at intervals in order to control inflows and outflows from investors.
The City National Rochdale Select Strategies Fund will invest in “particular types of reinsurance investments providing exposure to the insurance risk of natural catastrophes, such as hurricanes and earthquakes,” the registration statement says.
The fund will invest “significantly” in structured reinsurance investments, “such as equity-linked notes and preferred shares, issued by insurance company segregated accounts or special purpose vehicles whose return is tied to underlying industry loss warranties and/or catastrophe bonds,” it explains.
Under normal investment conditions instruments exposed to ILW’s are anticipated to make up around 70% or more of the fund’s allocation, with equity-linked notes the major vehicle for gaining access to these instruments.
This is interesting as ILW’s are typically accessed directly, but the City National Rochdale fund is set to target them via another vehicle it seems.
The prospectus says; “The fund expects to have indirect exposure exceeding 25% of the fund’s assets to ILWs and/or catastrophe bonds underwritten by Iris Reinsurance Ltd.”
Iris Reinsurance Ltd. (Iris Re), launched in 2009, was sponsored by global private equity investment firm Cartesian Capital Group, LLC and is an affiliate of and managed by Cartesian’s insurance-linked securities (ILS) investment unit Cartesian Re.
Iris Re is a Class 3 Bermudian reinsurance vehicle which predominantly offers its collateralised reinsurance capacity in industry loss warranty (ILW) form, although based on both index and parametric triggers.
So by investing in the equity-linked notes of Iris Re the City National Rochdale mutual fund will achieve its goal of accessing the ILW market.
Also of note is the fact that Iris Re issued a new class of non-voting, redeemable preferred shares and listed them on the Bermuda Stock Exchange (BSX) back in April 2016. The manager also said that it would report its modelled net asset value on a regular basis in November last year.
Both of those facts may play into the emergence of this new fund, as through a new share class with transparency in terms of reporting, a mutual fund could invest in Iris Re and benefit from the exposure to its ILW portfolio, while Cartesian Re can benefit from a new source of capital via mutual fund investors and the registered investment advisor marketplace.
The fund, which will be offered to investors through registered investment advisors, is going to have a cap on its assets under management for the first two years of $500 million, which again is interesting but is perhaps something to do with the strategy of seeking to access the ILW market, which has limited supply of course, largely via Cartesian’s Iris Re.
It does seem likely that Cartesian Capital and Cartesian Re are aligned with the launch of City National Rochdale’s first ILS fund, with a type of mutually beneficial partnership arrangement behind the scenes, although we should stress that we cannot confirm that at this time, it’s just an assumption.
The City National Rochdale Select Strategies Fund’s portfolio managers are named as Garrett R. D’Alessandro, President, Chief Executive Officer and Interim Chief Investment Officer of City National Rochdale, and Thomas H. Ehrlein, a member of the investment advisors asset allocation committee and portfolio manager of its high-yield alternatives fund.
So it would seem plausible that some of the moves made by Cartesian Re to list equity in its ILW focused reinsurance vehicle Iris Re and report the NAV via the equity listing, could help this Rochdale mutual reinsurance fund access that market, while bringing a new source of capital from the mutual fund investment arena to Cartesian Re’ ILS strategies.
Whether by design or happy coincidence, the City National Rochdale Select Strategies Fund will bring new investors into Iris Re’s ILW strategies, which will be a benefit for the manager. For City National Rochdale this strategy will offer it a way to bring a diversified catastrophe reinsurance focused investment strategy to its investor-base as well.
It will be fascinating to watch the fund build out, as being a mutual it will be regularly reported via the SEC.