Lombard Odier Investment Managers (LOIM), an institutional asset management arm of Swiss private bank group Lombard Odier, has hired ex-Dynapartners ILS manager Gregor Gawron and a team to launch catastrophe bond and insurance-linked investment strategies for its clients.
Lombard Odier, a private bank since 1796 that specialised in asset and wealth management, has seen an opportunity to bring the low-correlated ILS asset class as an alternative investment opportunity to its client base.
The LOIM asset management arm of the private bank managed $49 billion in assets at December 2014 and now sees ILS and cat bonds as a complementary asset class to add to offer to its institutional client base. It’s a further demonstration that ILS is increasingly becoming recognised as an opportunity for asset managers to bring in-house as a new product range with low-correlation to the broader investment universe.
Gregor Gawron, who previously ran ILS and catastrophe bond investment strategies at Dynapartners, Falcon Private Bank and before that RMF/Man Investments, has been hired to lead the ILS and cat bond offering a Lombard Odier.
Gawron will be joined in the Lombard Odier ILS and cat bond team by Simon Vuille and Marc Brogli. Vuille was previously with Aeris Partners where he was a Vice President working across global credit and U.S. equities before which he worked at both Man Investments and RMF. Brogli also comes from Dynapartners where he was Investment and Operations manager, before which he worked for Northern Star Partners in Zurich and Brummer & Partners in Sweden.
The Lombard Odier ILS and cat bond investment management team will be based in Zurich and will report directly to LOIM’s Chief Investment Officer, Jan Straatman.
Straatman commented; “Cat bonds are uncorrelated to other risks, including economic and capital market events, while the 4%-6% returns on offer remain attractive. The overall ILS universe size is close to $60bn and growing steadily.”
“Investors face multiple challenges that are tough to reconcile: low growth, zero interest rates and valuations getting stretched. Institutions can find themselves lured into taking more risk without getting the returns expected. We need to help clients increase returns while safeguarding capital and that means better building blocks for portfolios. Cat bonds possess those qualities,” he continued.
The Lombard Odier ILS and cat bond investment team will look to differentiate their offering through the adoption of a proprietary asset management approach. The team will aim to optimise portfolios of insurance-linked securities, likely to include private ILS or collateralized reinsurance as well as cat bonds, while aiming to achieve maximum diversification across different perils and regions.
The LOIM ILS team will also systematically underweight U.S. hurricane risk. This will likely result in a moderate return strategy, greatly diversified and so seeking to minimise the maximum losses possible from any one peril contributor to the portfolios.
Tail risk will be minimised across the strategies, as the LOIM ILS team seek to reduce this maximum possible loss, thereby creating portfolios that provide compelling returns but with less chance of major impacts from single catastrophe events.
The LOIM strategy views cat bonds and ILS as fixed income instruments and will seek to actively manage its ILS and cat bond portfolios. In particular, the LOIM ILS team will seek to take advantage of cases where events provide an opportunity arbitrage the actual probability of loss versus the perception of a risk. They will also seek to take advantage of any opportunities with distressed bonds that could be mis-priced post-event.
The first strategy to be launched by the Lombard Odier ILS team will be a UCITS compliant catastrophe bond fund. The asset manager aims to open this strategy later this year. It’s likely the private bank will also offer private mandates, or funds of one, to its institutional clients as well.
“We are excited to bring our ILS offering to LOIM, whose values we share and where we can leverage the firm’s sophisticated infrastructure to benefit investors,” commented Gregor Gawron.
The ILS and cat bond investment management team will expand LOIM’s high conviction fixed income product range for its existing and future clients.
“In the next couple of years, fixed income will be more volatile and subject to rising rates,” Jan Straatman explained. “It will be crucial to add active and high conviction strategies which protect clients better against rising rates, instead of the traditional market cap based strategies. Cat bonds can meet these criteria with a higher starting yield and floating rate coupon.”
It’s encouraging for the ILS market to see another Swiss private banking group enter the space. It will broaden the investor base, bring additional capital into the insurance and reinsurance market and also help to educate institutional investors.
Private banks find ILS and cat bonds a useful diversifier for their alternative asset strategies and funds, or fixed income funds, bringing a source of investment returns which are low-correlated to other asset classes to their client base.