Pioneer ILS Interval fund shrinks again, but gap between cost & value narrows

Amundi Pioneer Investment Management’s dedicated insurance-linked securities (ILS) mutual investment fund strategy, the Pioneer ILS Interval Fund, saw its net assets shrink by over 6% in the last quarter of record, but encouragingly the gap between the cost of its investments and their value narrowed again.

The Pioneer ILS Interval Fund has broad exposure to major catastrophe events around the globe, given its allocation to reinsurance and retrocession, largely through sidecars (64.5%), private collateralized reinsurance or ILS deals (23%) and some catastrophe bonds (10.6%).

As a result the ILS fund picked up its share of losses from the catastrophes around the world through 2017 and 2018, since which the investment manager Amundi Pioneer has been dealing with the handling and paying of claims and losses for cedants and counterparties.

As catastrophe loss events result in value fluctuations to many ILS positions, which then can recover over time as the picture of ultimate losses gets clearer, its natural to see valuations increase over time as events move further into the past and is indicative of a continuing recovery as impairments are dealt with.

As a result, like so many other ILS funds invested across the range of reinsurance linked assets, the Pioneer ILS Interval Fund has faced some shrinkage over recent quarters.

Amundi Pioneer grew the funds total net assets to $992 million by October 31st 2018, based on ILS investments reported to have cost the asset manager almost $990 million. The fund then shrank in the following quarter resulting in $904 million of net assets as of January 31st 2019, based on assets in the portfolio costing almost $1.004 billion. Before shriking again to $876.3 million at April 30th 2019, based on ILS, cat bond and reinsurance positions in the portfolio that cost the investment manager almost $938 million.

As of July 31st 2019 the Pioneer ILS Interval Fund has reported its total net assets as being $819.9 million, another just over 6% decline in the quarter, but this time based on ILS and reinsurance linked investments with a cost of $861 million.

So this is now the smallest gap between cost of assets and their current valuations, which reflects the fact positions that were not loss affected are accumulating value as you’d expect them to over time, while Amundi Pioneer continues to reconcile and pay out losses on other loss impacted ILS assets in the portfolio.

For investors in the fund this is a good sign, as it suggests a continuing recovery is underway, with some positions maturing and rolling out of the portfolio, while at the same time some fresh investments are added in their stead.

As this process continues the gap between the cost of assets and their valuation should narrow, fresh catastrophe events aside, resulting in a portfolio that begins to deliver a less loss impaired performance once again.

It’s not clear at this time whether the fund has suffered any reduction in value of certain positions due to recent catastrophes such as hurricane Dorian and typhoon Faxai.

Given the focus on sidecars and quota shares though, should Faxai in particular result in an industry loss approaching US $7 billion or higher it would be expected that some quota share and private ILS deals may face at least attritional losses from the event.

It will become clear as the year proceeds just how much this recent catastrophe event and any others may affect the ILS mutual funds such as Amundi Pioneer’s.

Amundi Pioneer’s overall ILS assets under management, which includes assets managed in multi-asset fund strategies as well as its interval fund, fell to $1.9 billion at the middle of the year, having previously been as high as $2.3 billion.

View details of ILS investment managers and their assets under management in our Directory here.