The board of the Blue Capital Global Reinsurance Fund, the London and Bermuda stock exchange listed reinsurance linked investment fund, has engaged Jefferies to effect share buy-backs that are accretive to net asset value on behalf of the company.
The almost £300m listed reinsurance and ILS fund, managed by specialist catastrophe reinsurance-linked investment manager Blue Capital Management (a subsidiary of Endurance), has seen its shares trading at a discount to the reported net asset value (NAV) per share over the past 15 months, according to the announcement from the Blue Capital Global Reinsurance Fund.
Due to this, the board believe that the share price does not fully reflect the historical performance and future prospects of the fund, suggesting that it is currently under-priced. Since the fund launched, the annualised NAV return (adjusted for dividends) has been 8.6%.
One way to help to increase the position where the shares trade is to enter into buy-backs, hence engaging Jefferies International Limited to acquire shares on behalf of the company. Any buy-backs made under the terms of this engagement “will be accretive to NAV per Share” the company explained.
For existing investors in the fund any increase to NAV per share will of course be welcomed, particularly for those investors entering the fund in recent months. The announcement could also encourage other investors to acquire shares at this point in time, with the hope of benefiting from any accretive increase to NAV.
There are restrictions on when Jefferies can enter into these buy-backs, designed to ensure that a reasonable price is paid, not too high or too low, with a maximum price of 105% of the average middle market share price over the five days prior to the buyback.
The engagement with Jefferies is set to last three months, but the fund notes that there is no guarantee that it will buy-back any shares during this period.
The resolution enabling the Blue Capital Global Reinsurance Fund to buy-back its own shares was passed at the annual general meeting in May, allowing it to buy up to 14.99% of the Ordinary shares in issue.
Buying back shares has been a feature of the reinsurance market in recent years, as reinsurers have sought to put excess capital back into their businesses and also to boost their own share price returns.
For Blue Capital this exercise could help to increase investor attraction to the fund, as well as help the manager to boost (or maintain) the NAV in a market environment where returns have been more pressured (due to soft reinsurance pricing).