Pioneer ILS Interval mutual fund grows another 20% to $810m

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In the quarter of record ending April 30th 2018, the Pioneer ILS Interval Fund, a U.S. mutual insurance-linked securities and reinsurance linked investment fund managed by Amundi Pioneer Investment Management, increased its assets under management by 20% to reach $810 million.

Three months earlier, at the end of January 2018, the Pioneer ILS Interval fund had reached $676.4 million of assets, after a period of rapid growth that lifted it 88% from just over $359 million at the end of October 2017.

That rate of growth had to slow down, especially as all of that growth had been in the wake of the 2017 catastrophe losses and in preparation for January reinsurance renewal transactions, but still the 20% increase in assets to just over $810 million over the February to April period is impressive and reflects the strong demand that mutual ILS funds have been experiencing.

The fund continues to invest across the range of ILS instruments, from catastrophe bonds, through collateralized reinsurance sidecars, private quota share arrangements and other private ILS deals.

There is an element of recovery evident in certain positions that had been impaired by the 2017 catastrophe events, but also an element of deterioration in the value of others which have been affected by rising loss estimates.

However, the portfolio managers of the fund at Pioneer noted that after the turbulent 2017 the market did achieve greater stability through the last few months.

They explained, “After the difficult start, the full six-month period ended up with relatively few major natural disasters in total, leading to limited insurance losses and allowing the ILS market to stabilize and recover from its poor performance of mid-to-late 2017. Performance of ILS improved with the turn of the calendar into 2018, as the Atlantic hurricane season ended and we entered a seasonally quiet time for global weather. With the exception of two windstorms in Europe that combined to cause approximately two to four billion euro worth of damage, meteorological events played a limited role in the ILS market over the final four months of the period, and there was little or no major earthquake activity.

“In the improved environment, the Fund, after turning in negative performance in November and December 2017, posted a gain of 2.34% in the interval between January and April 2018, and finished the six-month period with a positive return of 1.65%.”

The Pioneer ILS Interval funds largest investment positions are: $45.2 million in a Merion Re 2018-2 transaction; almost $44 million in a Gullane Re 2018 transaction; $41 million in a Woburn Re 2018 transaction; a $35.5 million slice of Brit’s Versutus Re 2018 sidecar; a $33.8 million slice of Argo’s Harambee Re 2018 sidecar; $28.7 million in MS Amlin’s Viribus Re 2018 sidecar; almost $26.4 million in TransRe’s Pangaea Re 2017-3 sidecar; over $29 million across a number of tranches of Munich Re’s Eden Re II sidecar; $24.6 million in Chaucer’s Thopas Re 2018 sidecar; and almost $24 million in PartnerRe’s Lorenz Re vehicle.

A number of those positions have been increased in size over recent months, as Pioneer put newly raised capital to work in reinsurance sidecars, which offer one of the best ways to take an aligned slice of a reinsurer book.

The portfolio managers of the Pioneer ILS Fund explained the importance of risk selection to the strategy.

“We believe it is important to keep in mind that the factors influencing the ILS market are unpredictable and therefore cannot be assessed using traditional methods of securities analysis. With that said, we believe our investment strategies of attempting to keep the portfolio well diversified across different regions and perils, focusing on sponsor quality and deal structure, and seeking to avoid the riskiest parts of the ILS market helped limit the impact of last year’s insurance losses on Fund performance. We continue striving to add value to the Fund through our security selection process and rigorous attention to sourcing investments with attractive yields, while prudently managing the portfolio’s risk profile,” they explained.

The ILS assets under management at Amundi Pioneer continue to grow, with expansion across a number of other mutual funds that include ILS experienced as well.

The firm will look to continue growing this strategy and recently applied to add new share classes to the Pioneer ILS Interval Fund, a way to broaden the appeal to more investors.

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