Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Schroders closes GAIA cat bond fund to new investors


Reflecting the success experienced with its UCITS catastrophe bond fund strategy, investment management group Schroders has closed the GAIA UCITS cat bond fund to new investor subscriptions, as it seeks to protect the strategy’s performance for existing investors.

Back in March we wrote that Schroders was actively managing the capacity of the Schroders GAIA cat bond fund, as it had increased the assets under management in the strategy from just over $100m on the 21st October 2013 to $430m by the 24th January 2014.

The rapid growth, despite the brisk ILS and cat bond market issuance, led to Schroders actively managing the flow of new capital into the fund to ensure the size of the fund does not hinder an optimal portfolio construction.

By the end of April Schroders UCITS compliant GAIA cat bond fund had reached GBP£470m under management, which is around $800m, in less than one year since the fund officially launched as part of GAIA. That strong growth led to the decision to close the fund in order to maintain the strategies targets and integrity.

With rapid growth come issues of deployment, even in times of cat bond issuance there is often insufficient opportunities for all managers to be able to support all investor interest they receive. As a result managers often close funds to new investor allocations in order to be able to control the performance and ensure capital can be put to work properly. Funds are also often closed to prevent any dilution of returns for existing investors, particularly if deploying capital is more difficult at that time.

Schroders has reached that point with GAIA cat bond it seems. Schroders said that the fund may reopen when the managers believe that new inflows will not affect its performance. “This closure reflects Schroders’ commitment to maintain the integrity our funds, to aim to protect performance for existing investors and deliver the fund’s objectives,” Tim van Duren, Product Manager Insurance-Linked Securities, said.

Schroders other ILS offerings, the Schroder IF Core ILS fund and the Secquaero ILS Fund, remain open to institutional clients it is understood.

It can be hard for managers to accept all investor capital in recent years, given the groundswell of interest in the sector. Schroders is not the first and will not be the last to close funds to manage inflows and ensure capital deployment targets can be met, while maintaining performance.

The timing is also good for Schroders, as there will likely not be significant catastrophe bond issuance again until later in the year, at least once the hurricane season is past its peak. So once issuance picks up and deployment opportunities emerge in greater volume again, no doubt Schroders will reopen the fund to new money and new investors.

Schroders now manages $1.4 billion in its insurance-linked securities strategies, as at 31st May. Schroders acquired 30% of ILS and reinsurance investment manager Secquaero Advisors Limited in 2013. Secquaero provide the investment advice, risk modelling and selection, with Schroders managing the portfolio and taking care of marketing and distribution. This partnership has enabled the insurance-linked assets under management to grow impressively in the last year.

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