Swedish catastrophe bond and insurance-linked securities (ILS) investment fund manager Entropics Asset Management AB has launched a new unhedged share class for its flagship SEF Entropics Cat Bond Fund, its first offering specifically for institutional investors.
“The new share class will meet demand from institutional investors seeking uncorrelated returns by cat bond investments and that prefer to manage their currency hedging internally,” commented Robert Lindblom, CEO of Entropics.
The cat bond fund, which launched in early 2015, is a Luxembourg domiciled SICAV, UCITS compliant structure, open to investors from institutions and high net worth retail types. This unhedged share class is the first offering from Entropics specifically targeted at more sophisticated investors to be launched.
The new unhedged share class will use the U.S. Dollar as a base currency and will have an annual management fee of 0.65% and a 10% performance fee.
For more sophisticated institutional investors the ability to manage their own currency hedging, or simply to have USD exposure, will help to mitigate the effects of negative interest rates in Sweden, which can affect the performance of hedged share classes in ILS and cat bond funds (as also seen in Switzerland).
Lindblom explained; “I envision that this will be attractive to institutions that manage hedging internally or prefer USD exposure.”
Lindlom continued; “Cat bonds are not only uncorrelated, but an inherently responsible asset class by providing insurance coverage to people and companies exposed to natural hazards. In many cases, cat bonds are a prerequisite for providing this coverage when the normal insurance and reinsurance markets are inadequate. Our policy emphasizes this property and excludes bonds which do not meet this standard.”