The DCG Iris insurance-linked securities (ILS) fund, marketed, run and operated by Dexion Capital with the Credit Suisse ILS unit providing ILS asset management and listed on the London Stock Exchange, returned 2.2% from 1st June to 30th November 2013.
DCG Iris has published its latest interim report today, looking at the six month period to the 30th November 2013. During that period the ILS fund grew its assets under management by £8.9m from two equity issues, taking it to over £68.8m in total size. Investors in the fund received dividends amounting to 2.5 pence per share during the period.
The investment manager Credit Suisse, which manages the CS Iris low Volatility Plus master fund into which DCG Iris is fully invested, said that it moved out of many catastrophe bond positions during the period due to the reduction in spreads impacting returns.
Instead of cat bonds, Credit Suisse has been moving its assets into private transactions (collateralized reinsurance) and industry loss warranties (ILW’s) as pricing on these assets is more attractive currently. This should help to lift DCG Iris’ returns over the coming months.
As at the 30th November the split of investments in the master fund was 62% private collateralised transactions, 14% insurance-linked securities and 24% free cash. That is a large cash component, but Credit Suisse will likely have deployed this into new investments at the January reinsurance renewals.
At one point the master fund was as much as 20% invested in cat bonds, but Credit Suisse has been cleverly moving out of these positions, taking advantage of secondary price inflation due to demand. This has likely allowed it to sell some positions for more than it bought them for.
No catastrophe events during the period had any material impact on any of the investments underlying the DCG Iris ILS fund, according to the report. A number of event reports were issued but none are thought to have been severe enough to impact any positions held in the master fund.
Since DCG Iris launched in June 2012 it has seen an annualised NAV total return to 29 November 2013 of 5.07% and dividends of 6 pence per Share.
DCG Iris has perhaps not raised capital as rapidly as some of the other stock exchange listed ILS funds, but it provides a good low-volatility investment in catastrophe exposure so should continue to see growth, particularly if its returns pick up with a greater contribution from collateralised reinsurance investments.
Talmai Morgan, Chairman of DCG Iris, said; “The Directors and Investment Manager are aware that the majority of investors wish to see the Company continue to grow in size and continue to keep the opportunity to raise further capital under review.”
The funds stated targets are to return Libor +5% to 7% to investors, as well as around 5p per share in dividends per year. So at the moment it is just about on track over the 18 months it has been in existence.
The investment manager Credit Suisse said it will continue to focus on private collateralised reinsurance transactions for new investments for the master fund, as it sees too much capital competing for cat bond positions resulting in depressed pricing.