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Aberdeen Asset Management open new funds with ILS & cat bond remit


Investment management group Aberdeen Asset Management has opened two new multi-asset class strategy funds, both of which have mandates that allow investment into insurance-linked securities (ILS) such as catastrophe bonds.

Aberdeen Asset Management is a large investment only group with over $420 billion of assets under management and advice across its global group.

Fixed income is a major part of the Aberdeen world and as a result ILS and catastrophe bonds are already on the asset managers radar and have been included in some multi-asset strategies in the past. Now the manager has added two new funds, one a U.S. 40’s act mutual fund and the other a new multi-asset class fund strategy focused on less traditional, or alternative, investments.

Both of these new funds are designed to be able to invest in a broad range of asset classes and strategies, in order to target long term appreciable total return through diversified portfolios. Both will also feature assets that have low levels of correlation with broader financial markets, somewhere that insurance-linked investments such as catastrophe bonds fit in perfectly.

The U.S. mutual fund is called the Aberdeen Global Unconstrained Fixed Income Fund, unconstrained in that it can invest across a broad range of fixed income instruments and asset classes, at most times this mutual fund will allocate around 80% of its assets to fixed income securities.

This fund has existed in a more constrained manner for some time, but now the investment strategy has been adjusted to enable a broader range of fixed income assets to be invested in, with catastrophe bonds one of the less correlated classes now being targeted.

As a mutual fund, this strategy will be available to high net worth retail type investors, as well as having institutional share classes as well.

Aberdeen Asset Management explains the benefits of adding catastrophe bonds to this fund as they “are not closely linked with the stock market or economic conditions” and that “investors can usually obtain a higher yield with cat bonds relative to alternative investments” for a similar level of risk. Additionally, “the insurance risk securitization of cat bonds shows no correlation with equities or corporate bonds, meaning they may provide a good diversification of risks,” the asset manager explains.

Meanwhile, in Europe the Luxembourg domiciled Aberdeen Global Multi Asset Growth fund strategy has been launched to offer investors access to a multi-asset class investment strategy focused on more alternative classes of investments.

The fund targets a return of 4.5% above the Euribor rate annually, while aiming to be significantly less volatile than equity markets. Equities will remain a component of the fund, the asset manager said, but less traditional asset classes are set to make up the bulk of the portfolio, with insurance-linked securities (ILS) and catastrophe bonds one of the core component.

The addition of catastrophe bonds and other ILS assets into what are relatively mainstream investment funds reflects the continuing mainstreaming of the ILS asset class. Catastrophe bonds in particular are becoming more regularly included in multi-asset class or fixed income fund strategies, as the managers gain a greater appreciation for the benefits they can offer to a portfolio mix.

Granted, inclusion of catastrophe bonds in these fund mandates is not going to grow the overall ILS market significantly, but it could help to stimulate greater demand for more cat bond issuance. These funds and others like them would prefer an asset that is transferable, that has a secondary market and that is securitized, hence the cat bond is the most likely form of ILS instrument that they will allocate capital to.

As more mainstream funds add cat bonds as an eligible asset class demand for them will likely grow. With issuance insufficient for the ILS fund managers and direct institutional buyers, this added demand could help to squeeze pricing even further in the secondary market unless primary issuance can be boosted to soak up some of this incremental demand.

The more capital is looking at cat bonds the more issuance is required. It leaves one feeling like any level of issuance could be soaked up right now, once again providing a meaningful opportunity to sponsors to come to market with ILS issues.

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