The Open Protocol, which is an initiative that suggests standard templates for hedge fund reporting, to aid collection, collation and transmission of hedge fund risk information, and which has been tested by the ILS fund market, has gained support from the Hedge Fund Standards Board (HFSB).
The use of Open Protocol reporting templates in the insurance-linked securities (ILS) and reinsurance linked investment fund market would address differences between managers, helping investors and advisors to both compare ILS funds, and better aggregate performance results where they allocate to more than two.
“We believe investors need to be able to make meaningful comparisons of activities and risks of funds over time, and increasingly need to be able to understand the aggregated risk exposures they may have from a portfolio of insurance funds,” Michael Hamer, a Partner and Senior Analyst at Albourne Partners in Bermuda, which is part of the Insurance Open Protocol Working Group, told Artemis earlier this year in an interview.
The Insurance Open Protocol Working Group includes ILS fund manager Elementum Advisors, reinsurance firm Renaissance Re, fund administrator and service provider SS&C, and end-investor the Utah Retirement System, amongst others.
The Insurance Open Protocol template and related manual has been through a market consultation period, during which a number users provided input and feedback to help make the documentation fit for purpose.
The HFSB has now become the Co-Chair of the Open Protocol Working Group alongside Albourne Partners, adding it to the HFSB Toolbox, which is designed as a set of guides and standards hedge funds could adopt that the HFSB approves of.
Dame Amelia Fawcett, Chairman of the HFSB, commented; “Better risk disclosure by investment funds has been a priority for both investors and regulators in recent years. Investors are looking continuously for better ways to aggregate risk information about their investments in order to improve overall portfolio risk management. Regulators also have started collecting data to assess potential systemic risk concerns. Open Protocol allows investors to harness data with aggregate risk exposures, while managers can streamline their own reporting to investors.”
Simon Ruddick, Founder of Albourne Partners and Trustee of the HFSB, added; “We are delighted that Open Protocol has found a home with the HFSB. The HFSB provides a strong platform to take the work forward and is well-positioned to share the Working Group’s expertise on risk aggregation with the regulatory community, as well as help their efforts in addressing potential broader systemic concerns.”
Bruce Cundick, Chief Investment Officer at Utah Retirement System (URS), a Trustee of the HFSB and an Open Protocol Working Group member, said; “URS uses Open Protocol data to aggregate risk. This allows us to better understand and manage the risks we take in our overall portfolio on behalf of our plan holders.”
Henry Kenner, Founding Partner & CEO, Arrowgrass Capital Partners and a Trustee of the HFSB, also said; “Open Protocol has formed part of Arrowgrass’ comprehensive suite of information offered to investors for a number of years, reinforcing our commitment to transparency. We believe that such a protocol provides a consistent, industry-wide approach to risk and exposure reporting, benefitting both managers and investors alike.”
The Open Protocol is currently used by hedge funds with over $1 trillion in assets under management.
We understand that the next phase in development of the Insurance Open Protocol is to incorporate feedback into the documentation and template before publishing them.
The support of the HFSB will no doubt help to raise the profile of the standardised reporting documents and could result in more end-investors wanting to see them used in ILS and reinsurance funds.
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