A mixed catastrophe bond and subordinated insurance debt insurance-linked securities (ILS) fund managed by Plenum Investments AG, the Zurich based specialist insurance-linked securities (ILS) and catastrophe bond investment manager, hit $150 million in assets in its first year and delivered over 10% gross performance.
Plenum Investments launched its Plenum Insurance Capital Fund, a UCITS ILS fund that will allocate to both catastrophe risks and subordinated insurance debt instruments, in June 2020.
The fund reached $100 million in assets within nine months, as Plenum saw strong uptake for the new strategy, having previously beeen better known for its relatively low-risk catastrophe bond fund that has more than a decade of track record behind it.
Plenum’s Insurance Capital Fund seeks to manage high-yield insurance risks more efficiently, using an approach Plenum has termed “tail-to-tier.”
The idea is to help mitigate the concentration risk in US wind exposures, which is typical of cat bond and other ILS or collateralized reinsurance investment strategies. It also seeks to even out the return profile, compared to the more seasonal US wind focused cat bond and private ILS strategies.
At the same time, the Plenum Insurance Capital Fund aims to help investors capitalise on the yield spread between catastrophe bonds and subordinated bonds issued by European insurance and reinsurance companies.
After a year, the fund has now reached $150 million in assets under management.
Daniel Grieger, Lead Portfolio manager of the Plenum Insurance Capital Fund commented, “In many ways, it was a dream start. We were able to increase the assets under management to more than USD 150 million in the first year. The gross performance in the same period was over 10% which is well above the announced target return. I am delighted that the Plenum Insurance Capital Fund has achieved the expected outperformance compared to traditional ILS funds and that the investment approach has worked so well outside the US hurricane season.”
Dirk Schmelzer, Senior Portfolio Manager ILS/CAT Bonds, added, “Adding subordinate bonds significantly reduces the tail risk of CAT bond portfolios concentrated in US wind, without sacrificing returns in event-free periods.”
Rötger Franz, Senior Credit Analyst and Portfolio Manager, also said, “It is not only the deep correlation between the two asset classes that warrants such an approach, but also the special way they interact with each other. Both asset classes are part of the capital structure of an insurer, but there is an attractive complementarity with regard to geographical risk diversification, seasonality and cyclicality.”
Plenum believes the fund continues to deliver on the relatively uncorrelated values of ILS, cat bonds and other reinsurance linked investments, while allowing investors to benefit from a return stream that runs across the entire year.
Greiger added, “It is exactly the right product in times of low interest rates and expected increased capital market volatility.”