Stone Ridge ILS fund redemptions slow, cat bond holdings increase

Stone Ridge Asset Management’s mutual insurance-linked securities (ILS) fund assets under management remained relatively flat through the last quarter of record, as redemptions appear to have slowed significantly, while the investor increased its holdings in catastrophe bonds.

Stone Ridge’s higher-risk, less liquid interval style mutual ILS fund, the Stone Ridge Reinsurance Risk Premium Interval Fund (SRRIX), had been seeing significant outflows of capital through recent quarters, shrinking 24% in the quarter to April 30th 2020.

That, combined with a slight shrinking of the investment managers more catastrophe bond focused, Stone Ridge High Yield Reinsurance Risk Premium Fund (SHRIX), resulted in the managers mutual insurance-linked securities (ILS) fund assets  falling to just under $4.1 billion at April 30th, a roughly 18% decline in that quarter.

But redemptions, as well as the recognition of additional loss impacts and loss creep, appear to have slowed considerably in the last quarter to July 31st 2020, with Stone Ridge’s total mutual ILS fund assets ending the quarter down less than 1% at roughly $4.05 billion.

The figure remains significantly down on the $5.13 billion of assets under management reported across the two mutual ILS and reinsurance linked funds at the end of January 2020.

But the fact assets haven’t slipped so far in the last quarter does suggest that Stone Ridge may be stabilising its investor base in the two mutual ILS funds and perhaps adding some new capital as well, particularly as it has managed to increase its holding sin catastrophe bonds during the period.

Part of the reason for the slowing of redemptions is that Stone Ridge sensibly opened up its fund to much greater amounts of redemptions, to allow investors to exit if they wanted to, earlier this year.

One of the repurchase intervals offered to let as much as 22.5% of the funds shares be redeemed, should investors want to exit and investors took that opportunity to recognise liquidity in their investments.

That will have helped to satisfy investors wanting to leave the strategy, while those wanting to remain could do so as well and some likely transitioned from the riskier, more reinsurance focused Interval fund to the cat bond focused High Yield fund.

Which may be reflected in the relative stability of the overall assets under management in the two Stone Ridge mutual ILS funds.

Stone Ridge’s more catastrophe bond focused mutual fund strategy, the Stone Ridge High Yield Reinsurance Risk Premium Fund (SHRIX), actually returned to growth in the quarter to July 31st 2020, growing to$966 million of assets.

That’s an increase of of roughly 7.5% in the period and this new capital seems to have been put to work in picking up new cat bond positions, with the cat bond holdings of the portfolio having increased a little.

Meanwhile, the higher risk and more reinsurance sidecar and collateralised re focused Stone Ridge ILS Interval Fund ended uly 2020 with a further decline of its total net assets, which fell roughly 3.5% to around $3.08 billion.

That was a much slower rate of decline than seen in the previous quarter, when the ILS Interval Fund shrank 24%, dropping from $4.17 billion at the end of January to just under $3.2 billion.

It suggests the strategy of allowing a rush of redemptions worked and greater stability has now been achieved.

This is important for Stone Ridge, as it now looks to rebuild into a hardening reinsurance market where cedants and counterparties will be looking for continuity and capital from quota share and private ILS deal partners.

Stone Ridge looks much better positioned now to provide this continuity going forwards and this will be seen as positive by the kinds of counterparties it enters into deals with.

The focus on catastrophe bond investments at this time is no surprise, as the liquidity of these assets makes for much easier management of a mutual fund strategy.

It will be interesting to watch how this stability plays out over the coming quarters and whether growth can return to the Interval ILS fund strategy that Stone Ridge manages as well.

Stone Ridge remains in the top cohort of ILS fund managers in our Insurance Linked Securities (ILS) Investment Managers & Funds Directory at this time.