Alternative risk premia focused mutual fund manager Stone Ridge Asset Management has expanded its investment in a Lloyd’s corporate vehicle in recent months, reflecting an increasing ambition from the manager to access reinsurance linked returns through the key specialty re/insurance hub in London.
Stone Ridge Asset Management continues to display a strong desire to grow its mutual ILS funds, with its ILS and reinsurance linked assets under management rising to a new high of $6.72 billion at the end of January.
One of the areas of the market where Stone Ridge has a chance to expand further would be in the Lloyd’s marketplace, given the majority of its portfolios are currently made up of catastrophe bonds, reinsurance sidecars and other private collateralized ILS instruments.
As a result of the opportunity to work more closely with the Lloyd’s market and its underwriters or syndicates, Stone Ridge now has its own UK registered limited liability partnership, named Point Dume LLP, that has been structured to act as a corporate member of the Lloyd’s of London reinsurance market.
Point Dume LLP was either established especially for Stone Ridge or acquired, with an incorporation date listed as 28th September 2016, with the help of Lloyd’s private capital specialist Argenta Group.
Last year Stone Ridge had an investment in Point Dume LLP amounting to just $25,397, which came from its largest mutual ILS fund strategy, the Stone Ridge Reinsurance Risk Premium Interval Fund.
By October 31st 2017 that investment had nearly doubled in size to $53,136, as Stone Ridge likely ploughed more money into the corporate vehicle, although this was possible just expenses as it’s too small to make any meaningful investments in Lloyd’s underwriting vehicles.
But now, as of January 31st 2018, Stone Ridge Asset Management’s investment in its Lloyd’s corporate vehicle Point Dume LLP has been increased to a size where it’s likely that the manager is now allocating to specific Lloyd’s underwriting entities, as the value of its allocation to the vehicle stood at almost $1.81 million.
The cost of that allocation is cited as much lower, at just over $1.33 million, suggesting that Point Dume may already be benefiting from some premium return from Lloyd’s underwriting business.
Of course, this is still only a very small chunk of Stone Ridge’s overall ILS and reinsurance assets, but it does reflect an increased allocation to a Lloyd’s strategy, which likely heralds more allocations will be made in the future.
For investors targeting returns from the Lloyd’s market, it is often a case of allocations being increased slowly and steadily, as the market gets used to your presence and encourages greater participation.
The ILS funds which have worked directly with syndicates, or set up their own syndicates, have all experienced slow but steady growth of their strategies. We’ll likely see the same with Stone Ridge over time, given the important marketplace Lloyd’s is in reinsurance and how attractive that will be to the managers fund strategies.
The increase in the Point Dume LLP investment is a further signal that Stone Ridge is keen to move beyond just being an investor in cat bonds, quota shares and sidecars, becoming a more active participant in the Lloyd’s market.
It’s also another sign that Lloyd’s remains a very attractive market for alternative capital to tap into, despite the market’s difficulties and suggests that we will continue to see asset managers and ILS funds targeting the market as a source of insurance-linked returns.