White Mountains is anticipating “measured growth” in 2021 from the insurance-linked securities (ILS) fund manager Elementum Advisors in which it holds a significant interest, according to its CEO Manning Rountree.
White Mountains acquired a stake in ILS fund manager Elementum Advisors in May 2019.
The company paid $55 million for its 30% stake in Elementum, which valued the ILS fund manager at roughly $183 million.
White Mountains then followed up its investment in the manager itself, by allocating $40 million to Elementum ILS funds and then topping that up with another $10 million in time for the January 2020 reinsurance renewals, taking its total investment in the funds to $50 million.
During a recent investor presentation, CEO of White Mountains Manning Rountree explained that Elementum’s results were relatively flat through 2020.
“Elementum had okay results in 2020. The key metrics for the business are AuM, net revenues and EBITDA. All of these metrics were more or less flat year-on-year,” he explained.
Adding that, “The business is producing a nice distributable stream of cash flow and we had a 7% yield on our equity in 2020.
“Our investments in the funds produced a positive return, but fell short of expectations driven by a whole range of factors.”
The ILS manager achieved 4% growth in assets under management during the year, reaching $4.4 billion, while its adjusted EBITDA shrank 4% to $13 million for the year.
White Mountains received $4 million of cash dividends from its investment in Elementum, which implies a 7% yield on its investment in the ILS manager for 2020.
While the investments into the Elementum ILS funds delivered a 0.7% blended return for the year.
“We think those investments have an attractive risk-return profile and are a nice diversifier. We think of them as a non-correlated high-yield bond substitute in our fixed income portfolio,” Rountree said.
Elementum is off to a steady start in 2021, Rountree said, explaining that ILS investment market conditions are the best for some years now and that Elementum’s trailing twelve month EBITDA is up 2% after Q1.
“2021 is off to a good start. Conditions are favourable for ILS investing, the best we’ve seen in a decade and Elementum seems pretty well-positioned.
“We expect measured growth in the business in 2021,” Rountree said.