Investment management group Schroders has announced the launch of its second insurance-linked securities (ILS) fund this morning. The new fund launched on its UCITS hedge fund platform, the Schroder GAIA Cat Bond fund, will invest predominantly in catastrophe bonds.
Two weeks ago Schroders launched its first ILS fund since the firm acquired 30% of specialist Switzerland based ILS and reinsurance investment manager Secquaero Advisors Limited earlier this year. The Core Insurance Linked Securities fund invests across the spectrum of ILS, cat bonds and reinsurance-linked investment opportunities, where as today’s launch has a more narrow focus.
The GAIA Cat Bond fund has a mandate to invest at least 80% of its assets in catastrophe bonds, with the rest in other tradable ILS assets. The mandate allows for the fund to invest globally but it will focus on regions where there is a high concentration of insured wealth, such as the U.S., Europe and Japan.
The GAIA Cat Bond fund is the result of merging the Secquaero Advisors NGAR Secquaero ILS fund into Schroders Global Alternative Investor Access (GAIA) UCITS regulated hedge fund platform, creating the new GAIA Cat Bond fund which will seek to give investors access to the low-correlated returns from catastrophe reinsurance risks.
The new cat bond fund will target a return to investors of 6% above three-month USD Libor, net of fees. The Schroder GAIA Cat Bond fund will be managed by Daniel Ineichen, who had managed the NGAR Secquaero ILS Fund since its inception in May 2011. The NGAR fund has returned an annualised 7.27% since it launched, according to Schroders.
Portfolio manager Ineichen commented; “We are very pleased to be merging the fund onto the GAIA platform, which has grown to become one of the leading UCITS distribution platforms in alternatives investment. This is an exciting asset class with a strong investment case, combining attractive returns with a low correlation to other asset classes. The floating rate structure of cat bonds provides protection against rising interest rates, which is a widely acknowledged investor concern.”
Dr Hans-Peter Boller, Managing Partner and co-founder, Secquaero Advisors, added; “We have an excellent team with a wealth of experience and a strong performance record, particularly in managing tail risks so we are well positioned to offer this fund to a wider audience in the UCITS space. Beyond our experience in the insurance industry, one of our key differentiators is our proprietary portfolio management tool SPOT, with which we can analyse the impact of a new security on the overall fund and manage the risk profile of the portfolio. Given the nature of ILS, tail risk management is a key skill.”
Director of the Schroder GAIA platform Eric Bertrand said; “We are constantly on the look out for high-quality managers to join Schroder GAIA as part of our due diligence process. This is an exciting partnership with a unique offering because of the combination of Schroders’ distribution framework and extensive resources in client servicing, investment support and risk management, combined with state of the art portfolio construction skills as well as Secquaero’s profound insurance knowledge and proven underwriting experience in each segment of the insurance market.”
As with the CORE ILS fund, the GAIA Cat Bond fund will benefit from Secquaero Advisors long track record in the ILS and cat bond investment market, with Secquaero providing investment advice, research, analytical capabilities and risk modelling to aid portfolio selection. The fund will also benefit from active management by the Schroders ILS team in Zurich while cat bond trading is handled by Schroders fixed income team in London.