A recently launched US mutual investment fund with a core focus on catastrophe bonds, is expanding its investment scope to include more types of insurance or reinsurance assets prior to its full launch, with the Ambassador Fund adding to its prospectus so it can take opportunities to begin gaining traction.
Given there are strict rules regarding the sophistication and size of investments into catastrophe bonds and many ILS structures, the Ambassador cat bond focused mutual fund will now also have some allocation options available, should it take a while to gain sufficient scale in assets to be counted as a “qualified institutional buyer” or QIB.
As we reported back in September, the Ambassador Fund launch continues a trend of bringing ILS investment opportunities to a wider range of investors in the United States, being registered as a non-diversified mutual fund structure under the Investment Company Act of 1940.
Similar to European UCITS investment funds, a 1940’s Act mutual fund can be marketed more broadly, through registered investment advisers and the like, opening up a universe of high-net worth and smaller institutional investors.
The Ambassador Fund is set to have a primary focus on catastrophe bonds, but can also invest in other insurance-linked assets, such as collateralized reinsurance, quota shares, excess-of-loss deals and industry loss warranties (ILW’s).
As we also reported in December, we learned that Tangency Capital Ltd., an insurance-linked securities (ILS) investment manager that originally had a focus solely on quota share reinsurance business, is set to take on the portfolio manager role for the Ambassador Fund.
Now, the latest news on this new mutual catastrophe bond and related ILS fund, is that the Ambassador Fund will have a slightly broader remit, to be able to allocate capital to certain other insurance and reinsurance-linked assets, for which it would not have to reach “qualified institutional buyer” or QIB status.
In order to qualify as a QIB, an investment fund must have at least $100 million in assets.
So the Ambassador Fund can deploy capital even when not at QIB level, in terms of assets, the prospectus has been amended to state that, “In such circumstances when the Fund does not qualify as a QIB, it may invest in other securities, including common or preferred equity in insurance or reinsurance company issuers, and fully-collateralized, investment grade notes linked to insurance or reinsurance or other securities.”
By expanding the prospectus to include these other insurance-linked asset types, the Ambassador Fund will have that extra level of flexibility to be able to deploy capital into the market, even when it cannot buy cat bonds.
That will help the fund and manager should it take longer than anticipated to gain QIB scale, but also should its assets decline at any stage in future.
More fundamentally though, this is a sensible extension of the investment remit of the fund at a time when there are attractive opportunities in these other types of assets linked to the insurance or reinsurance sector.
It’s pretty standard practice perhaps, to have some fall-back options to ensure you can deploy capital, so this move isn’t that surprising. It reflects an evolving strategy as this new mutual ILS fund heads towards becoming active.
But, in the past, we’ve seen funds buying treasury notes in volume, just to put capital to work, when actually this prospectus change means the Ambassador Fund can begin earning insurance-linked returns from the off.
Which is a much better use of investor capital and also portfolio manager sector expertise, we’d suggest.
At this stage the fund is still raising capital, being recently launched and in the market to investors through a range of RIA’s and platforms.
It’s going to be interesting to see whether a new mutual ILS fund can generate the kind of traction we’ve seen in the past from such strategies.