Stone Ridge ILS & reinsurance funds pass $3B, interval hits $1.66B

New York based Stone Ridge Asset Management has continued to see impressive growth of its insurance-linked securities (ILS), catastrophe bond and reinsurance linked investment funds, passing $3 billion under management across the three funds for the first time.

Stone Ridge reached this milestone at the 31st January 2015, when the total net assets of its three insurance and reinsurance-linked investment funds hit $3.006 billion, up a massive 42% since the end of October 2014.

At the 31st October 2014 Stone Ridge reported ILS and reinsurance assets as $2.124 billion, as Artemis wrote at the time. Around the end of the year it became clear Stone Ridge was looking to increase its assets further, in order to take advantage of investment opportunities around the end of year reinsurance renewals no doubt. Now it’s clear just how much the mutual fund manager has been able to raise, with all three funds growing, especially its Interval fund.

Stone Ridge, a provider of mutual fund investments across a variety of beta focused alternative risk exposures including reinsurance and insurance-linked securities (ILS), has demonstrated huge success in raising assets for its ILS funds, leveraging networks of registered investment advisors (RIA’s) to encourage capital inflows.

It launched in late 2012, with two funds, the Stone Ridge Reinsurance Risk Premium Fund and Stone Ridge High Yield Reinsurance Risk Premium Fund, with assets of around $350m. Stone Ridge then grew its ILS assets under management to $766m by July 2013, then to $1.4 billion by January 2014 with the help of the launch of the Stone Ridge Reinsurance Risk Premium Interval Fund, then again to $1.8 billion by the end of April, then $2.03 billion at July 31st followed by another leap to $2.124 billion at the 31st October.

Now the manager has dramatically increased its ILS assets under management once again, reaching a stunning $3.006 billion, across the three fund strategies. This is an addition of $882m in three months, or growth of 42%.

All three of the dedicated ILS fund strategies managed by Stone Ridge have grown once again, but the bulk of its capital expansion has been directed into the interval strategy that it manages, which was already the largest fund.

The Stone Ridge Reinsurance Risk Premium Fund, the lowest risk ILS strategy, had total net assets of just over $789m at the 31st October 2014. As of the 31st January 2015 this fund had grown to $941.58m, an increase of just over 19% in just three months.

The Stone Ridge High Yield Reinsurance Risk Premium Fund, a higher risk and return strategy, had assets totaling $333m at 31st October 2014. This fund has grown to $401.27m at the end of January, an increase in assets of almost 21%.

The Stone Ridge Reinsurance Risk Premium Interval Fund, which follows the interval fund approach of offering staggered liquidity opportunities to investors, enabling it to invest in less liquid assets, is again the growth driver for Stone Ridge’s reinsurance-linked assets under management.

The Interval Fund passed the billion dollar mark at the 31st October, growing to $1.002 billion of ILS assets under management in the fund. At the 31st January 2015 the Stone Ridge Interval ILS fund is reported at approximately $1.664 billion of total net assets, a very impressive jump of 66% in the three month period.

This kind of rapid asset inflow and growth rate will be the envy of other managers, many of whom have put the brakes on raising too much capital in the current market environment. However Stone Ridge is a clear demonstration that ILS and reinsurance linked strategies are attractive to RIA’s and their end-investors and there is a significant pool of capital that could be tapped into there.

The split of assets contained within each of the Stone Ridge ILS funds hasn’t changed too much, with the Reinsurance Risk Premium Fund still the most exposed to catastrophe bond investments, the High Yield Reinsurance Risk Premium Fund adding a little more return through exposure to sidecars and quota-share deals, while the Interval fund remains largely exposed to private ILS deals and quota-shares or sidecars.

The Interval ILS fund has also increased its allocations to other ILS funds, now having $104m allocated to three Aeolus Capital Management Ltd. ILS fund strategies, which is more than double the $48m it allocated to two Aeolus funds at 31st October.

Another interesting position that Stone Ridge has taken is over $100m of the world’s largest reinsurer Munich Re’s latest collateralized reinsurance sidecar, Eden Re II. This is just one of many sidecars that Stone Ridge allocates capital to across its three ILS fund strategies.

The charts below break down the asset allocation for each of the three Stone Ridge reinsurance mutual funds as at the 31st January 2014 (compare this breakdown to our previous report here):

Stone Ridge Reinsurance Risk Premium Fund breakdown by type of assets managed

Stone Ridge High Yield Reinsurance Risk Premium Fund breakdown by type of assets managed

Stone Ridge Reinsurance Risk Premium Interval Fund breakdown by type of assets managed

One interesting point to note is that at 31st October the Stone Ridge Interval ILS fund held the least amount of short-term assets (largely money market funds). Now, the fund has 7% of its total assets invested in money market vehicles, perhaps demonstrating that the manager knows that having a liquid component to the fund in case of losses or redemptions is vital.

The Interval fund has also increased its holdings of Participation notes from quota shares, where previously it was more focused on preference shares. The catastrophe bond allocation however remains roughly aligned.

Stone Ridge has doubled its ILS and reinsurance linked assets over the year to 31st January 2015. Impressively the manager now holds over 5% of the outstanding catastrophe bond market and as estimates of total ILS and alternative capital come in around $65 billion, Stone Ridge’s $3.006 billion of ILS assets makes up approximately 5% of the total ILS and collateralized reinsurance marketplace.

Stone Ridge recently launched a new multi-asset class fund which can also invest in ILS and reinsurance as well, so in future we could see the growth continue across four funds, rather than just the three dedicated ILS ones.

Now having passed the $3 billion mark, in just over two years of operation, Stone Ridge remains one of the fastest growing ILS investment managers in the market. Stone Ridge Asset Management now sits as the seventh biggest ILS fund manager, by assets managed, in our Insurance Linked Securities Investment Managers & Funds Directory.

We suspect Stone Ridge will move further up the ranks soon.