Australian sovereign wealth investment fund, the Future Fund, continues to target an expansion of its insurance-linked securities allocation, through reinsurance linked investment exposure gained through ILS fund managers it already invests in.
The Future Fund allocates to reinsurance as part of its alternative risk premia strategy, making an initial $100 million allocation to ILS fund manager Elementum Advisors in 2015, and then adding insurance and reinsurance-linked investment manager Hiscox Re & ILS in early 2016.
The investor sees reinsurance and ILS as a largely uncorrelated asset class, and with two ILS fund managers onboard as access points to the market the Future Fund aims to grow this portion of its portfolio.
So far the Future Fund has not opted to grow its ILS allocation with either manager, maintaining a $100 million investment in the Elementum Tranquillus Fund Ltd. which it first made in 2015, and a $100 million allocation to the Hiscox managed Blue Jay Fund Ltd. that it made in 2016.
The plan remains to grow this reinsurance investment strategy, which has now shrunk as part of the Future Fund’s overall alternative risk premia allocation.
The alternatives portion of the Future Fund’s portfolio now accounts for almost 15% of its total assets of $133.5 billion, having grown from 13.7% a year earlier.
Within this alternatives bucket the alternative risk premia target allocation has increased from 10% to 15% of the overall Future Fund alternative investments portfolio.
“Our goal is to identify and capture scalable risks where there is a clear economic rationale to expect a return for bearing such risks, be they within traditional asset markets (for example, various ‘style premia’ within equity markets) or non-traditional markets (such as reinsurance premia or royalty streams),” the Future Fund explained.
ILS and reinsurance looks set to benefit from the continued focus on alternatives at the Future Fund, with the investors saying that, “We have now established an initial exposure to a reinsurance manager, part of the alternative risk premia sub-sector that will be expanded in the coming year.”
The Future Fund may have been holding its ILS allocations steady, waiting for any shift in market conditions. Following recent catastrophe loss events the investor may now have the opportunity to upsize on its investments to the ILS space.