Agecroft Partners, the hedge fund consulting and marketing specialist, has given reinsurance linked investments, through insurance-linked securities (ILS), a positive outlook, saying that large pension funds are increasingly seeking entry points to this market.
Don Steinbrugge, Founder and CEO of Agecroft Partners, explained recently that significant institutional investors, such as pension funds, tend to favour certain asset classes at different times in economic cycles, with motives for accessing asset classes adjusting to suit conditions.
Current conditions are seeing a trend in pensions seeking out less correlated alternatives at the moment, which is where ILS, catastrophe bonds and other investments directly linked to reinsurance risks sit.
Comparing information gleaned from investors attending an October 2020 Cap Intro (capital introductions) event, with one Agecroft is holding next month, Steinbrugge noted changing investor demands.
One point of note for the ILS market from this data, is that ESG and impact investments are seeing a significant uptick in demand, roughly 65%, according to Agecroft.
With catastrophe bonds and other ILS strategies increasingly seeking to be classified as ESG appropriate investments, this growing interest in ESG and impact from major investors around the world is positive for the asset class.
Agecroft expects that standards will emerge to help in ESG classification of investment funds, which would also benefit the ILS market by laying out a clear route to gain accreditation as ESG appropriate.
A significant trend Agecroft sees, is investors narrowing their focus on hedge funds to target strategies with a particular ability to demonstrate low correlation with the broader capital markets.
As a result, Agecroft expects to see positive flows into diversifying hedge fund strategies and away from those that are more correlated like lower yielding fixed income, according to Steinbrugge.
Pensions and other major investors are looking to enhance their risk adjusted returns, Steinbrugge explained, with reinsurance one area of focus.
As a result, Agecroft expects reinsurance funds, so ILS and catastrophe bonds, will see higher inflows than some other non-correlated asset classes.
With reinsurance now seeing increased demand from pensions, due to rising prices across the market and its evident low correlation with broader economic indicators.
Moving through 2021, Agecroft expect increasing flows to the hedge fund sector, as there is pent-up demand to deploy capital and so the less correlated alternatives are likely to take an outsized share, of course held back by market size which has always been a constraint for the ILS fund market.