A new US mutual investment fund with a focus on catastrophe bonds and insurance-linked securities (ILS) is set to launch, with the Ambassador Fund, as it is named, set to continue a trend of bringing ILS investment opportunities to a wider range of investors.
The Ambassador Fund will be an exchange traded fund (ETF), like the other main mutual ILS funds that are managed by investment firms such as Stone Ridge Asset Management, Amundi Pioneer and City National Rochdale.
At this time, the Ambassador Fund’s prospectus does not name an investment advisor or sub-advisor, but we suspect this will be an individual or team that is well-known in the ILS market and we’re told it could be one of the market’s more recognisable ILS fund managers launching its first listed fund strategy.
The Ambassador Fund is set to be launched under a mutual fund platform and will be a series under the Investment Managers Series Trust II.
It will be a mutual fund that is registered as “non-diversified” under the Investment Company Act of 1940 (the 1940 Act), meaning it can invest more of its assets in a smaller number of issuers than a “diversified” mutual fund, which could be particularly important while building an ILS portfolio.
Investment Managers Series Trust II is sponsored by UMB Bank’s fund arm, UMB Fund Services, Inc., alongside Mutual Fund Administration, LLC.
These Trust’s (of which there are a number) are designed as managed platforms that can enable an alternative investment manager to more easily bring a mutual fund to market, with many of the admin and operational aspects taken care of for them.
So, for an existing specialist investment manager that wants to expand its fund offering to include a mutual fund, using a managed platform like the Investment Managers Series Trust II makes a lot of sense, as activities as varied as fund oversight, post-trade compliance, board and chief compliance officer matters or communication, corporate secretarial services, regulatory compliance, Securities and Exchange Commission registration, reporting, and budgeting, are all taken care of.
Which is one reason why there’s a good chance the Ambassador Fund, with its focus on catastrophe bonds and certain other insurance or reinsurance linked assets, could well be an initiative of an existing ILS fund manager.
Cat bonds are set to be the principal investment strategy for the Ambassador Fund, prospectus documents seen by Artemis state.
However, it can also invest in direct collateralized reinsurance contracts, including quota shares, excess-of loss, stop-loss and other non-proportional reinsurance, as well as industry loss warranty (ILW) arrangements.
Investments can be made in primary issuance of insurance-linked securities (ILS), or through the secondary market.
The as yet unnamed sub-advisor looks like it will be the entity with the specific ILS market expertise.
The sub-advisor will employ a “research-driven process that evaluates the insurance-linked securities market,” the prospectus states, assessing every ILS contracts loss-distribution to calculate metrics such as expected loss, while also analysing sponsors, triggers, collateral arrangements and more, using catastrophe models and other qualitative or quantitative tools.
The Ambassador Fund will be able to invest across the ILS yield spectrum, as well as across a varied group of available perils and geographic regions, while balancing its portfolio by other factors of cat bond and ILS deals, such as trigger, exposure to insurance or reinsurance carrier sponsors, etc.
A portfolio manager is also mentioned in the prospectus, but not named as yet. The investment advisor, sub-advisor and PM are all likely to be named in updates to the prospectus as marketing of this new mutual cat bond fund progresses.
The investment advisor may turn out to be an investment fund with mutual fund and ETF marketing and distribution capabilities, while the sub-advisor is more likely to be the cat bond and ILS specialist and the portfolio manager an employee of the ILS specialist.
The Ambassador cat bond fund’s shares will be available to clients of registered investment advisers (RIA’s), which is the typical route for marketing mutual funds, as well as institutional investors, including professional investment management firms, registered investment advisers (RIAs), family offices, pensions, endowments and foundations, plus those related to the parties involved and certain other approved investor classes.
No minimum investment size is currently documented in the prospectus.
It’s perhaps a sign of just how buoyant the catastrophe bond market has been of late that we see another mutual ILS fund preparing to launch and raise capital.
At this stage we can’t ascertain whether the Ambassador Fund will be another interval fund structure, which has turned out to be the more favoured structure for less-liquid ILS investments, given it is easier to gate capital and redemptions.
But, as the Ambassador Fund is going to have catastrophe bonds as its main asset, it’s possible the interval fund structure is not warranted and the manager is confident that normal mutual fund redemption rules will suffice.
It will be interesting to find out who is going to be the investment sub-advisor and who takes on the portfolio manager role, as that will provide clarity on whether this is an established ILS market player branching out into the mutual investment fund space, or some other type of investment entity branching out into catastrophe bonds.
We will, of course, update you should that become clear.