Pioneer ILS Interval fund hits $983m, but catastrophe impacts show

Assets under management of the Pioneer ILS Interval Fund have grown sharply again in the last quarter of record, jumping another 21% to reach almost $983 million at the end of July 2018. However, the impacts of the 2017 catastrophe losses is evident in the reduced valuations of many positions in the fund.

The U.S. mutual insurance-linked securities and reinsurance linked investment fund, managed by Amundi Pioneer Investment Management, has been growing steadily with each passing quarter as the investment manager gets increasing numbers of its investors interested in ILS and reinsurance as a strategy.

Less than a year ago, at the end of October 2017 the strategy stood at just over $359 million. It then grew strongly to reach $676.4 million of assets by the end of January 2018, then saw another 20% increase in net assets to just over $810 million by the end of April 2018.

The next quarter has seen further strong growth and the Pioneer ILS Interval Fund reached just under $983 million at July 31st 2018.

The portfolio managers have clearly taken advantage of the improved property catastrophe pricing at renewals so far in 2018, which has helped them to allocate more assets to the strategy and support this growth.

But with the Pioneer ILS Interval Fund allocating to the full range of ILS instruments, from catastrophe bonds, through collateralized reinsurance sidecars, private quota share transactions and other private ILS deals, the fund has broad exposure to catastrophe loss events and the effects of the 2017 hurricanes and other losses remains evident in the portfolio.

As at the last quarterly reporting interval, this fund shows evidence of both recovery in certain investment positions that had been impaired by the 2017 catastrophe events, but also the effects of loss creep and deterioration in the value of other investment positions which have been impacted by rising loss estimates.

The full impact of last year’s events, as well as other severe weather or catastrophes that may have impacted some positions in the Pioneer ILS Interval Fund portfolio, is clear when comparing the principal amount of the assets versus their latest valuations.

The principal amount for the full portfolio is actually listed as just slightly below $1.2 billion, where as the current valuation of all of the ILS and reinsurance linked investments in the portfolio is actually just over $974 million.

Yes, there’s an element of churn and maturing assets in this, or assets that have already been written down but need to mature to get removed from the portfolio, but a reasonable number of assets with a decline in value will be due to the impact of catastrophe and weather loss events.

It’s important to note that some of these positions will also recover some value and also that within the portfolio are also many positions that have increased in value, as they were not exposed or are newer investments from 2018.

It’s also important to note that there are assets issued in 2018 that the fund has invested in which show a decline in value as well, suggesting some attrition from loss events during this year as well, given these won’t have been exposed to 2017 losses.

It will take some more months before impaired assets start to cycle out of the portfolios of ILS funds, such as Pioneer’s. But the increasing asset base does position the manager well to capitalise on new deal flow and it’s likely the growth in assets will continue through the rest of 2018.