Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Cat bond fund performance rises in 2016, highlighted by Oppenheimer


The Oppenheimer Master Event-Linked Bond Fund, LLC, a catastrophe bond focused investment strategy managed by Caleb Wong at OppenheimerFunds, has beaten its 2015 performance according to its latest annual report, returning 5.5% for the year to September 30th 2016.

The majority of catastrophe bond investment funds have performed more strongly over the last year, after 2015 saw a dip in performance. Demand from investors through 2016 and a general trend towards higher yielding (also higher risk) new cat bond issues, has helped investment managers to better their prior year performance.

For the year-ending September 30th 2015 the Oppenheimer Master Event-Linked Bond Fund reported a return of 4.93%, while this year to September 30th 2016 the performance was stronger at 5.5%.

This is despite a hit to the fund’s performance after the MultiCat Mexico 2012-1 Class C notes saw a 50% loss after hurricane Patricia struck Mexico, which Oppenheimer called the “most significant detractor from the Fund’s performance this reporting period.”

Other factors that contributed to the performance of the Oppenheimer cat bond fund during the last year were Japanese yen-denominated bonds, thanks to the rally of the yen versus the dollar, multi-peril cat bonds, and cat bonds covering Florida wind storms, Oppenheimer explained.

During the last year the total net assets held in the Oppenheimer Master Event-Linked Bond Fund fell slightly to $294.6 million, down from $307.8 million a year earlier.

Interestingly, while the cat bond fund beat its own performance from a year earlier, the gap between its performance and the overall catastrophe bond market as measured by the Swiss Re index widened.

In the year to September 30th 2015 the Oppenheimer cat bond fund returned 4.93% and the Swiss Re cat bond total return index just slightly higher at 4.96%.

However in the next year, to September 30th 2016, while the Oppenheimer cat bond fund recorded performance of 5.5%, the Swiss Re cat bond total return index recorded performance of 6.29%.

It’s reflective of the higher total return of the catastrophe bond market in 2016, as factors affecting secondary pricing were impacted by demand pushing prices higher and the average coupon of catastrophe bonds issued during the year rose over 2015, as evidenced by Artemis’ data in this chart.

This has helped the majority of catastrophe bond investment funds to a better year in 2016, which has assisted again in raising the profile of the ILS asset class with global institutional investors.

Of course the news that investors in the Gator Re cat bond are now likely to face a loss of principal will dent some returns, however with that bond set to be extended into 2018 the hit will come next year. It’s also unlikely that Gator Re will cause a particularly large hit for any single fund or investor, as the bond will be spread around the market.

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