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Rational Funds wants to bring ILS to the (mutual) masses


Rational Funds said that the launch of the open-ended mutual Context Insurance Linked Income Fund in partnership with Context Capital Partners sees it bringing an ILS strategy with a difference to all investors able to access mutual funds.

As we explained earlier this month, mutual fund product provider Rational Funds has teamed up with Context Capital Partners new Context Insurance Strategies unit which is run by Andrew Sterge and Pete Vloedman, who are both well-known in the ILS and collateralized reinsurance space.

Sterge and Vloedman will act as portfolio managers for the new Context Insurance Linked Income Fund, while Rational Funds will handle distribution through its network to mutual fund investors.

Mutual funds are much more broadly available than typical insurance-linked securities (ILS) fund strategies, which are aimed at institutional investors only and have high minimum levels of investment.

Mutual ILS funds tend to target smaller institutions, family offices and high-net worth retail investors, but can also leverage other investment networks that aggregate up retail investments from smaller investors as well.

Hence any ILS strategy that sits in the mutual fund market is much more accessible for investors who cannot access the majority of the ILS market, something Rational Funds aims to capitalise on it seems.

The new fund is designed to “bring a traditionally institutional-focused investment approach to all investors,” Rational Funds said in announcing the launch of the Context Insurance Linked Income Fund yesterday.

But the strategy is not your typical ILS fund, focused on catastrophe bonds and collateralized reinsurance instruments only.

The Context Insurance Linked Income Fund strategy will invest across the ILS spectrum, but with a particular focus on liquid assets.

Hence, catastrophe bonds will be a particular focus for the Context ILS fund, but it will also allocate investor capital to other types of insurance-linked assets, including corporate debt and preferred stock issued by insurance or reinsurance companies.

In this way, the Context ILS fund will seek to provide returns across the insurance and reinsurance risk-return spectrum, but in a portfolio that has greater liquidity than your average ILS fund, something that will prove useful when catastrophes hit we’d imagine.

A more liquid ILS portfolio strategy may be more appealing to mutual fund investors as well, who can be more demanding when it comes to redemptions and generally individual mutual fund investors can prove a little less sticky than large institutions when losses threaten.

Commenting on the launch of the new fund, Jerry Szilagyi, CEO of Rational Funds said, “The Context Insurance Linked Income Fund brings the benefits of insurance-linked securities (“ILS”) to the mutual fund market with a strategy offering unlike any currently available to all investors.

“The launch of ILSIX is part of our continued commitment at Rational Funds to sponsor rationally-driven, disciplined and systematic investment approaches.”

The Context ILS fund will invest across geographies and perils in order to create a diversified portfolio of insurance-linked assets, while investing roughly 80% of its assets in insurance-related investments at any one time.

That suggests the other 20% may also be given over to more liquid investment classes as well, raising the availability of capital for the funds portfolio managers which can be useful in deployment and taking advantage of opportunities that arise in the ILS market.

Vloedman and Sterge have significant combined experience across the reinsurance and ILS sector, having worked together in the past at CooperNeff and Magnetar Capital.

Sterge commented on the launch, “Compared to other non-traditional fixed income products, our strategy will aim to provide returns that are minimally correlated to interest rates and bond and equity markets, while providing investors access to an asset class currently dominated by large institutions and hedge funds.”

ILS investors became acutely aware of the benefits of liquidity over the last two years, given the heavy catastrophe losses and the resulting issues surrounding trapped collateral. Hence timing may be key for Rational Funds and Context, as they seek to market this new strategy to investors that may be searching for ILS investment strategies offering a higher level of liquidity.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

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