Stone Ridge ILS assets shrink 11% to $6.15bn

Insurance and reinsurance linked assets under management at alternative risk premia focused mutual fund manager Stone Ridge Asset Management shrank by roughly 11% in the last quarter of record, to $6.15 billion across its two dedicated ILS fund strategies.

Stone Ridge’s ILS assets under management (AuM) had reached as high as $7 billion at the end of April 2018, but the impacts from realising the losses of both 2017 and 2018, as well as any investor redemptions that may have occurred, now see the managers ILS assets down almost one billion dollars from their high.

Given the broad-based portfolios of reinsurance and retrocession that Stone Ridge has created over the years since its launch, its mutual ILS funds exposure to catastrophe loss events that have occurred was always going to be meaningful.

It’s taken a few quarters for the real shrinking of the portfolio and AuM to begin though, which is no doubt due to the last quarter of record coinciding with the end of the calendar year when a number of positions in the Stone Ridge ILS portfolios will have come off-risk and matured, allowing losses to be full-realised for them.

We’re told there were some redemptions in the period as well, but in looking at Stone Ridge’s ILS portfolios it seems the main cause of shrinkage could have been the realisation of losses rather than investors pulling out.

At January 31st 2019 Stone Ridge Asset Management’s total net assets across its two dedicated ILS mutual fund strategies had shrunk by the 11% to $6.15 billion, down from $6.91 billion at the end of October 2018.

There could be some further shrinkage to come as well, as there are a number of positions booked at a lower value than their cost, especially among the private ILS sidecars and collateralized reinsurance quota shares that the investment manager has allocated to.

The Stone Ridge Reinsurance Risk Premium Interval Fund ended January 2019 with total net assets reported as $5.26 billion, down almost 12% from the $5.98 billion of ILS assets reported at the end of October 2018 for this strategy.

The portfolio has shrunk a little as a result, but there are also positions which have realised a decline in value due to losses that could still hold some room for further loss creep in quarters to come, we’d imagine.

The entire ILS market continues to deal with loss creep and in the case of Stone Ridge it will be relying on reporting from its cedant counterparties to mark private ILS sidecars and quota shares down as accurately as possible. We’ll have to wait and see how the portfolio changes in months to come to see whether further loss creep has occurred.

The original cost of the ILS and reinsurance linked assets in the Stone Ridge Interval ILS fund portfolio is reported as $5.82 billion, while their value is currently reported as almost $5.1 billion, reflecting mark to market losses and lower valuations due to the impacts of the catastrophe events.

The Stone Ridge High Yield Reinsurance Risk Premium Fund, which is much more focused on catastrophe bond investments as a major component of its portfolio, ended January 2019 with $884 million of total net assets, down 5% from the $932 million reported at the end of October 2018.

Again, impacts from catastrophe losses appears to be the major reason for the decline during the period, alongside some small redemptions.

The cost of the ILS and collateralized reinsurance assets in the portfolio of this smaller Stone Ridge reinsurance fund is reported as $944 million, while their value is reported as $878.5 million.

Given the amount of losses that Stone Ridge will have had to realise at the end of 2018, as certain positions matured and came off-risk, as well as the impact of any redemptions, it’s perhaps a little surprising the size of the funds under its management haven’t declined further.

It’s testament to the managers portfolio management, communication to its investors and ability to raise fresh capital, as it does seem likely that some small inflows were achieved to counterbalance any redemptions longer-term investors opted to take.

The Stone Ridge ILS portfolios remain some of the largest in the market, despite the 11% shrinkage in overall net assets across these two ILS funds.

Leaving the investment manager still at number 6 in terms of size in our directory of ILS Investment Managers & Funds.

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