The New Zealand Superannuation Fund (NZ Super Fund), one of the government pension investment providers, has increased its allocations to insurance-linked securities (ILS) and reinsurance linked investments by almost 60% in the last year.
The NZ Super Fund has increased its allocations to the two leading ILS fund managers that it works with, Elementum Advisors and Leadenhall Capital Partners.
At June 30th 2019, the NZ Super Fund has NZ $351 million allocated across the two ILS fund managers, with the majority invested in strategies under the management of Leadenhall Capital Partners.
The fund actually began allocating to ILS as far back as 2010, when it launched its first allocation to Elementum. The fund then allocated to Leadenhall for the first time in 2013.
In the year to June 30th 2020, the NZ Super Fund has allocated more to both managers, bringing the total almost 60% higher to NZ $559 million, so around US $371 million.
The pension and retirement investors allocations to Elementum Advisors increased significantly during the year, from NZ $94 million at June 30th 2019, to NZ $222 million at June 30th 2020.
In the same period, the NZ Super Fund’s allocation to Leadenhall Capital Partners also increased, from NZ $257 million at mid-2019, to NZ $337 million at mid-2020.
The fund is clearly trying to more equally weight its allocation to the ILS asset class and natural catastrophe reinsurance linked returns across the two ILS fund managers.
The NZ Super Fund places its ILS investments, which include catastrophe bonds and also collateralised reinsurance, in a “structural” investments bucket within its portfolio.
As we explained recently, the fund has shunned wildfire risks, after the last seasons destruction, saying that because of climate change it feels the risk is mispriced.
It’s clear that the NZ Super Fund’s appetite for catastrophe bonds has increased significantly over the last year, as its holdings in cat bonds carrying value rose from just under NZ $84 million at the end of June 2019, to almost $222 million at the end of June 2020.
It’s possible the investor is focusing on the named peril aspect of cat bonds as a positive place to allocate to at this time, given its previous comments related to wildfires.