Plenum launches UCITS fund with cat bond & insurance debt focus


Plenum Investments AG, the Zurich based specialist insurance-linked securities (ILS) and catastrophe bond investment manager, has launched the Plenum Insurance Capital Fund, a UCITS ILS fund that will allocate to both catastrophe risks and subordinated insurance debt instruments.

plenum-investments-logoThe move follows a recent announcement of senior hires at Plenum Investments with a focus on insurance and reinsurance investing, particularly in subordinated bonds, so debt instruments of re/insurers.

The fund has an objective to manage high-yield insurance risks more efficiently, using an approach Plenum has termed “tail-to-tier.”

With this approach, the fund managers for the Plenum Insurance Capital Fund aim to help mitigate concentration risks in US wind exposures, and to enable investors to capitalise on the yield spread between catastrophe bonds and subordinated bonds issued by European insurers.

Recent hire Daniel Grieger will act as the Lead Portfolio Manager of the new Plenum Insurance Capital Fund.

“Under the motto “tail-to-tier”, we largely alleviate the conflict between high returns and significant tail risk. Our approach provides investors with a new way to invest in the exciting asset class of high-yield CAT bonds,” Grieger said.

The approach focuses on proprietary relative value to set a weighting for the two asset classes within the fund.

Plenum believes that adding subordinated bonds to an ILS fund portfolio can significantly reduce the tail risk of catastrophe bond portfolios that are focused on US wind risks, without sacrificing any of the yield opportunity.

The fund should be attractive to investors looking for relatively uncorrelated, alternative sources of return through an easier to access UCITS investment fund structure that delivers reinsurance market returns.

Plenum says that the new ILS fund will offer “a strong diversifying effect” to multi-asset investment portfolios, while also being a suitable component for fixed income allocations.

“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,” Dirk Schmelzer, member of the management of Plenum Investments AG further explained.

Right now, many investment strategies require a strategic adjustment because of the low-interest rate environment, Plenum notes, so the manager is hoping to attract some interest with this launch.

The Plenum Insurance Capital Fund will be offered in currency-hedged share classes in CHF, EUR and USD to begin and the depository bank is Liechtensteinische Landesbank.

“Despite the difficult communication with investors because of the COVID-19 situation, we have been able to spark great interest in this product. The Plenum Insurance Capital Fund combines the request of many investors for stably deep correlation and an attractive return in Euro or Swiss Franc. It is exactly the right product in times of low interest rates and expected increased capital market volatility,” Grieger added.

In addition, recent increases in rates and as a result returns for catastrophe bonds, as well as the U.S. hurricane season just beginning and so seasonal premiums ready to flow, makes this an opportune time for the launch of this ILS fund strategy.

Management of the Plenum Insurance Capital Fund portfolio will be led by Daniel Grieger. Plenum portfolio managers Dirk Schmelzer and David Strasser will look after the catastrophe bond investments side, while Grieger and recent hire Rötger Franz will focus on the subordinated insurance bond assets.

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