Schroders ILS assets up 31%, closes cat bond fund to maintain returns

Global asset management group Schroders saw strong growth across its insurance-linked securities (ILS) investment business in the last year, with assets under management reaching $2.482 billion and high demand causing it to shutter its GAIA cat bond fund.

Schroders has been particularly active in the insurance and reinsurance linked investments market over recent years, with its UCITS GAIA platform helping it to bulk up assets from catastrophe bond investors, while its other strategies which also include collateralised reinsurance and private ILS have also grown.

At the end of 2015 Schroders ILS and reinsurance linked assets under management had reached $1.9 billion, but the investment manager told Artemis that this has grown by 31% ending January 2017 at an impressive $2.482 billion.

But demand for ILS investments can create certain difficulties for investment managers, as it can so often outstrip supply and the ability to access new reinsurance linked assets to add to the portfolio.

As a result of high demand, Schroders is closing access to its Schroder GAIA Cat Bond to new investors, as it seeks to protect and maintain returns in the vehicle.

With global catastrophe bond issuance only providing so much product, there has not really been enough to meet investor demand for some years now. This has resulted in managers having to control the inflows of capital to their strategies in order to protect returns for existing investors and also to prevent flooding the market with too much capital, which could negatively affect returns over the longer-term.

A Schroders spokesperson explained to Artemis; “We have an on-going commitment at Schroders to maintain the integrity of the investment process of our funds. Having seen substantial inflows into Schroder GAIA Cat Bond in recent months, we have closed the fund to new investment effective from 28 February 2017, in order to maintain the flexibility to continue to generate strong performance for fund holders in this strategy. The Schroder IF Flexible Cat Bond fund is still open to new subscriptions.”

Through its stake in Zurich based Secquaero Advisors, the advisory and consulting firm specialising in intermediation of insurance or reinsurance risk to the capital markets and insurance-linked investments, Schroders can get access to an increasing range of private ILS and reinsurance linked assets.

The firm will be hoping the catastrophe bond pipeline starts to grow, to allow it to re-open its UCITS GAIA cat bond fund and increase its AuM even further.