Man Group benefited from its 18.75% stake in the world’s largest insurance-linked securities (ILS) investment manager Nephila Capital in 2016, reporting a slightly higher valuation for its investment at the end of the year and attractive commission income.
Man Group, a global independent alternative investment manager with $80.9 billion of funds under management, acquired a 25% stake in Nephila Capital back in 2008, but subsequently sold a portion of its share in the catastrophe reinsurance and weather risk investment manager to private equity and buyout giant KKR & Co. L.P. (Kohlberg Kravis Roberts) in 2013, leaving Man’s stake at 18.75%.
In its results for the year-end 2016, Man Group reports the value of its investment at the start of the year at $28 million, which was increased by $3 million of profit share over the course of the year, which $1 million of dividends reduced it, leaving the end of year valuation at $30 million.
Additionally, Man Group reported commission income from sales of Nephila Capital ILS and reinsurance linked investment products of $12 million for the year ended 31st December 2016.
That commission figure is down by $2 million on 2015, but then Nephila’s assets under management were on hold for much of that year, meaning new sales of its ILS funds to investors through Man were likely largely on hold as well.
In a year when Nephila Capital actually reduced its insurance and reinsurance linked assets under management for a time, controlling inflows carefully in the softened market environment, the fact that Man Group still generated this attractive profit commission on sales is actually quite impressive.
Nephila Capital benefits from a much expanded reach through stakeholders such as Man Group, enabling it to access new pool’s of capital and a larger investor base. It also positions the manager with the ability to access capital when the market is more attractive, a very important trait for any funds in the ILS space right now.
These relationships flow both ways though, with stakeholders like Man Group benefiting from market-leading access to the insurance-linked asset class, as well as an ability to offer its clients access to a relatively uncorrelated asset class through the largest provider.