Arkansas Teacher pension fund ILS allocation drops to $220m

The Arkansas Teacher Retirement System, a state pension fund that provides retirement solutions to Arkansas education professionals, has seen its allocation to insurance-linked securities (ILS) shrink to roughly 1% of the fund, falling to $220 million.

That’s down from a high of almost $290 million at the end of 2019 and $267 million at the middle of June 2021, as the pension investor continues to deal with erosion of positions due to losses and a reshuffling of the managers it invests with.

In the past, the Arkansas Teacher pension fund has always maintained a target for a roughly 1.25% allocation to the ILS asset class.

This had been split between ILS investment managers Aeolus Capital Management and Nephila Capital, but on the advice of Aon Hewitt the pension elected to shift allegiance from Nephila to Bermuda-based ILS manager Pillar Capital Management in 2021, the effect of which is now visible in its latest portfolio disclosure.

As well as the shift away from Nephila as a manager of ILS assets for the pension, the Arkansas Teacher Retirement System also elected to wind-down its allocation to an Aeolus Capital Management fund, again on the advice of Aon Hewitt.

There is some evidence in the portfolio disclosure of this as well, with the upshot being a decline in overall ILS assets as the Nephila and Aeolus investments shrink.

The allocation to Nephila Rubik Holdings, Ltd. has now shrunk to just $9.4 million as the redemption falls in size with the position being wound-down. At one stage it had been closer to a $50 million allocation, so still relatively small in terms of the Arkansas Teacher portfolio and also for Nephila as a manager.

The Nephila investment is reported as having experienced a negative -5% return in the last month, but we assume this will be related to the winding down of the allocation and possible realisation of loss of value as that occurs and was down -13.4% for the last year.

The allocation to Aeolus Capital Management’s Property Catastrophe Keystone Fund has shrunk to $114.6 million, down from a high of around $286 million as of late 2019.

The Aeolus allocation recorded a positive 1.1% return for the last month, but is down almost -12% for the last year.

Finally, the new allocation to Pillar Capital Management has been made at December 2021, with it valued at $95.7 million as of the end of February 2022.

The Pillar Opportunity fund allocation returned 0.3% for the last month of record and 0.7% since its inception on December 1st, the pension reports.

So, overall the changes in allocation to ILS managers has resulted in the Arkansas Teachers pension shrinking its ILS allocation to just 1% of its assets.

It will be interesting to see whether this pension seeks to rebuild its ILS allocation in time, or whether it takes a wait and see approach on the asset class for a while.

The Arkansas Teacher Retirement System is just one of the numerous pension fund and major ILS investors we track in our directories here.