Nephila gets allocation from Blackstone multi-strategy fund

Nephila Capital, the largest dedicated manager of insurance and reinsurance linked securities, has been given an allocation for its sub-advisory role on one of giant asset manager Blackstone Group’s multi-strategy investment funds.

Nephila Capital has been a sub-advisor to the Blackstone Alternative Multi-Strategy Fund for a number of years, but hasn’t actually managed an allocation from the fund for some time.

Blackstone Alternative Asset Management, the hedge fund solutions group of Blackstone which has around $78 billion of investor assets under management, first added Nephila Capital as a sub-advisor to one of its multi-manager alternative investment funds back in 2013.

However, Blackstone reduced its allocation to reinsurance in its multi-manager portfolio’s back in late 2014, as it said that the risk/reward profile of the reinsurance and insurance-linked securities (ILS) space had been ‘significantly altered’ due to the strong capital inflows into the market.

For a number of years now, Nephila Capital has been listed as an inactive sub-advisor to the Blackstone multi-strategy and alternative focused investment fund, with no allocation mentioned in the fund filings as recently as in November.

But now, in a new filing made yesterday, the Blackstone Alternative Multi-Strategy Fund prospectus states that, “The Fund’s adviser, Blackstone Alternative Investment Advisors LLC, has allocated a portion of the Fund’s assets to an existing sub-adviser, Nephila Capital Ltd.”

This allocation has been made very recently as the fund’s November investment report still listed Nephila Capital as an inactive sub-advisor.

We presume that the reason for the allocation to an insurance-linked securities (ILS) fund strategy at this time is party due to the improving economics of the reinsurance market and the higher returns available in insurance and reinsurance linked assets including catastrophe bonds and collateralized reinsurance at this time.

But, in addition, we suspect that Blackstone has also increased allocations across a range of alternatives at this time due to the lower for longer rate environment, and the fact the desire to find relatively uncorrelated sources of investment yield has been heightened for many managers and investors following the pandemic.

Reinsurance and insurance-linked securities (ILS) look particularly attractive right now, especially in areas such as catastrophe bonds and diversified, lower-volatility ILS strategies where return potential is up considerably in some cases.

No information is given as to how large the allocation is, but the Blackstone Alternative Multi-Strategy Fund counts over $5.4 billion of assets in the strategy at this time, so managers can benefit from considerable allocations through participation as sub-advisors.

Interestingly, the fund does have access to a further source of reinsurance market exposure it seems.

It’s become clear that Blackstone Alternative Investment Advisors LLC, another Blackstone investment unit, manages a portion of this multi-strategy alternative investment fund’s assets.

At times (we can’t be certain whether it’s current or not), this portion of the fund’s assets can include exposure to a reinsurance focused investment strategy operated by Aeolus Capital Management as well.

Blackstone’s move to activate its allocation to Nephila Capital at this time is testament to the opportunity seen in ILS funds and reinsurance linked investments at this time.