Nephila Capital added as sub-advisor to second Blackstone fund

Nephila Capital, the largest fund manager in the insurance-linked securities (ILS) and reinsurance-linked investment space, has been selected as a sub-advisor for a second multi-asset class mutual fund operated by Blackstone Alternative Asset Management.

Nephila Capital first received a mandate from Blackstone Alternative Asset Management (BAAM), the hedge fund solutions group of Blackstone, when it launched its first alternative investments focused mutual fund back in 2013.

BAAM, which has around $66 billion under management and advisory, added Nephila Capital to its Blackstone Alternative Multi-Manager Fund in 2013, but has now added Nephila Capital as an opportunistic trading strategy manager within another of its mutual funds, the Blackstone Alternative Multi-Strategy Fund, according to SEC filings.

This fund has a similar strategy, in that it invests across a range of alternative strategies, largely through sub-advisors  contracted to manage an allocation from the fund. Nephila has been selected and designated as an opportunistic trading strategy, meaning the manager is tasked with identifying short or long-term trading opportunities.

That seems ideal both for the ILS manager and for Blackstone, in the current reinsurance market environment, as it should allow Nephila to take advantage of any opportunity, market dislocation, or rebound in catastrophe risk pricing for Blackstone and the fund investors.

Blackstone dialed down its allocation to ILS through its Multi-Manager fund in 2014, saying that the risk/reward profile of reinsurance had changed, causing it to reduce the weighting to reinsurance and ILS within the portfolio.

However, sensibly, Blackstone has always kept ILS through Nephila Capital on its list of sub-advisors for that fund, demonstrating that it has identified that it is better to be in the space than out of it in order to take advantage of any opportunities that arise.

This is increasingly a realisation for many large investors, that while ILS and reinsurance returns are not as high as two years ago, the asset class still deserves a place as part of a diversified alternatives approach.

Adding Nephila Capital to a second mutual fund, the Multi-Strategy fund, allows Blackstone to do the same there, likely giving the manager a small allocation to gain the benefits of diversification it will provide to a multi-asset class strategy, while positioning Blackstone to upsize its allocation to ILS should it see the market become conducive to do so.

Of course for Nephila it’s another win, placing the ILS manager at the heart of now two Blackstone mutual investment funds, which could result in more significant capital inflows further down the line. Being a mutual fund it also allows Nephila to diversify its capital sources a little more away from pure institutions.