Aeolus controlling stake to be sold to hedge fund Elliott Management Corporation

Aeolus Capital Management Ltd., one of the leading insurance-linked investment managers focused on collateralized property catastrophe reinsurance and retrocession, is getting a new investor as hedge fund Elliott Management Corporation is set to acquire a controlling stake.

Aeolus founder Peter Appel and key shareholder Allied World Assurance Company are both selling shares to Elliott, enabling the hedge fund manager to acquire a controlling stake in the Bermuda-based ILS management firm.

Aeolus and Elliott announced this evening that an agreement has been reached that will see Elliott Management Corporation acquire a controlling interest in Aeolus Capital Management and its affiliated entities, in a transaction that is expected to close by the end of the year.

Elliott manages two hedge funds with combined assets of around $29 billion and has stakes in the reinsurance sector already through its investments. Its investor base includes pension funds, sovereign wealth entities, endowments, high-net worth individuals and family offices, all investors that will likely appreciate closer access to reinsurance and ILS linked returns through Aeolus.

Both Peter Appel and insurance and reinsurance firm Allied World Assurance Company will continue to hold significant minority stakes in Aeolus. Appel will continue to serve as a Non-Executive Chairman of Aeolus and Allied World will keep its investments in Aeolus funds, leaving it as one of the more substantial capital providers to Aeolus’ ILS and reinsurance-linked investment funds.

Allied World took a minority stake and invested capital in Aeolus’ ILS funds in 2012. The commitment AWAC makes to Aeolus’ ILS funds fluctuates with market conditions, having been as high as $350m but in 2016 was down to $200m as AWAC sought to reduce its property catastrophe exposure.

The relationship has helped AWAC to access the property catastrophe reinsurance market in partnership with Aeolus, enabling the re/insurer to profit from off-balance sheet underwriting and a share of third-party capital management fee income.

No changes will be made to the existing management team of Aeolus, with Andrew Bernstein, Chris Grasso, Trevor Jones and Frank Fischer, all remaining in their current roles and retaining their entire equity ownership interest in the ILS manager after the transaction with Elliott closes.

Appel commented on the announcement; “This transaction has been months in the making, and we have worked carefully to ensure that this new partnership will serve the best interests of our investors. Elliott is one of the world’s most highly respected hedge funds, having compiled an extraordinary record of outstanding and consistent performance over nearly forty years.

“More importantly for us, though, Elliott shares our analytical and disciplined approach to generating exceptional risk-adjusted returns for our investors, and will provide us with access to additional resources, insights and relationships to help us broaden our product offerings and further establish Aeolus as an enduring and growing franchise.”

Mark Cicirelli, a Portfolio Manager at Elliott, added; “Elliott is pleased to become a full partner in the ownership and stewardship of ACM. We have been investing in Aeolus since 2012 and are also very familiar with the company as a core reinsurance provider to Asta’s Syndicate 4242 at Lloyd’s in which we are invested.

“Over the years we have developed a strong relationship with the Aeolus management team and have long recognized their ingenuity and skill in managing capital on behalf of their investors and structuring reinsurance and retro protection for their cedants. We believe Aeolus is the pre-eminent asset manager in the industry and we look forward to working closely with our new partners.”

The transaction is further evidence of the continued attraction to ILS business from a wide range of investors. With a hedge fund of Elliott’s pedigree taking a controlling stake, Aeolus will be able to benefit from the hedge fund managers’ scale, access to investors and expertise in both marketing and managing alternative asset classes.

Elliott meanwhile will benefit from a highly experienced and specialist team of ILS portfolio management professionals, which will provide the hedge fund with a new asset class to work with on its investors behalf.

It will be interesting to see whether any other ILS manager related M&A type transactions come to light, as it’s clear that scale and access to a broader, more diverse investor base are becoming increasingly key as the market matures. Working with established asset managers, such as Elliott, is one way ILS fund managers can achieve this.