Nephila Capital, the largest dedicated manager of insurance-linked securities (ILS) and catastrophe or weather exposed insurance and reinsurance assets, has won a $100 million allocation from the state of New Jersey Division of Investment, a manager of state pension funds.
The New Jersey Division of Investment manages the retirement benefits of over 700,000 current and future retirees across seven public systems, with total pension fund assets managed amounting to around $80 billion.
We believe this is the pension fund managers first allocation to the ILS market, so at an up to $100 million commitment it is a relatively small proportion of its overall assets.
But, as one of the ten largest pension fund managers in the United States, the New Jersey Division of Investment, under the supervision of the State Investment Council, has the potential to become a much larger allocator to ILS and reinsurance if it develops the appetite to do so.
For its first allocation, the New Jersey Division of Investment is putting $100 million into a separate account of the Nephila Catastrophe fund.
The investment is set to be split roughly 50/50 across investments into catastrophe bonds and other collateralized reinsurance assets.
The New Jersey pension fund manager is looking for access to “uncorrelated returns and a differentiated source of return and alpha” which it believes the ILS investment through Nephila Capital will deliver.
The pension clearly sees the lack of correlation to equities as key, saying, “Historically, Nephila has outperformed during equity market dislocations due to uncorrelated returns.”
But timing of the investment is also important to the New Jersey state pension fund manager, given the hardening of the reinsurance market at this time.
“It is currently an attractive entry point due to recent reinsurance market dislocation from high insured losses, less available investor capital, and greater demand for protection,” the pension fund manager said.
Adding that, “Additionally, there are higher reinsurance premiums and improved terms and conditions for privately negotiated trades.”
The mixed deployment of its $100 million of capital across cat bonds and private ILS or reinsurance trades is expected to deliver both a beta like reinsurance market return, from the cat bond side, as well as alpha due to the bespoke selection and structuring of private ILS transactions Nephila will source and underwrite.
The pension investor also notes the attractive terms of the investment with Nephila, citing a 0.85% flat management fee and no performance fee for the separate account ILS fund investment.
The investment was discussed and approved at a New Jersey State Investment Council meeting this week and the allocation is to be made in time for January 1st 2021.