Swiss Re Insurance-Linked Fund Management

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DCG IRIS directors propose liquidation of fund, return of capital


The DCG Iris London-listed insurance-linked securities (ILS) fund, marketed and operated by Dexion Capital with Credit Suisse providing ILS asset management services, may come to a close, with its Directors proposing its liquidation.

The DCG Iris ILS fund was launched in June 2012 when it raised £40.1m in its initial share offering. It subsequently added £11m in December 2012just over £9m in a share offering which closed in May 2013 and just under £1.18m in July 2013. The fund last raised capital in November 2013, when it added another £7.7m.

As of the 30th April 2014, the DCG Iris ILS fund stood at £67.89m in assets, which is relatively small for the ILS space.

The Directors of DCG Iris released an announcement yesterday, in which they propose the winding up the fund, liquidation of its investments and return of capital to its shareholders. The Directors said that the fund has not attracted the investor demand that was predicted before its launch.

Due to the funds small size and the now softer reinsurance market, which makes maintaining its returns a more difficult task without taking on a riskier strategy, the Directors have decided to put a proposal to shareholders for the funds winding up. A circular will be published detailing the proposal and an extraordinary general meeting held in due course.

DCG Iris has submitted a full redemption request to the CS IRIS Low Volatility Plus Fund Limited, its Credit Suisse managed master fund, for redemption on the next available dealing date.

If the proposal is approved and once the redemption proceeds are received, DCG Iris will be put into voluntary liquidation and capital returned to its shareholders.

So the DCG Iris London stock exchange listed ILS fund is coming to an end. With the fund having faced difficulties raising capital, which many found surprising given the unique aspect of its listing, and returns down in the softer reinsurance market DCG Iris may have found maintaining its targets difficult.

It remains surprising that DCG Iris didn’t attract more interest. With investor interest in the ILS and reinsurance asset class seemingly at an all time high during the near two years of the funds existence, many would have expected it to raise significantly more capital.

Other exchange listed ILS funds have raised much more capital and in fact the master fund itself has grown significantly in the time DCG Iris has existed, with inflows to many ILS funds helping them double in size over the last two years.

Maybe it wasn’t marketed as well as it could have been? Maybe the strategy wasn’t explained to its target investors in language they could easily understand? It looks like we’ll never know.

The DCG Iris story appears to be coming to a close. It will be the first full liquidation of a listed ILS fund that we are aware of and only one of a handful of insurance-linked securities (ILS) funds that have ever failed.

Surviving in the current market environment cannot be easy for a smaller ILS fund like this. Maintaining target returns without making the strategy much riskier is a difficult task in the soft catastrophe reinsurance market. DCG Iris is the first ILS fund to suffer in the current climate, but it may not be the last as other smaller funds may struggle to keep to stated targets.

That also makes consolidation a real possibility between ILS funds, as scale could be a better route to survival and growth, as it may be to reinsurers right now. For DCG Iris the consolidaton angle is likely not an option, or at least not as simple, due to its listed nature.

We’ll update you if any more comes to light.

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