Stone Ridge increases ILS & reinsurance-linked assets to $1.8 billion

New York based Stone Ridge Asset Management, which offers mutual fund investments in alternative risk exposures including reinsurance and insurance-linked securities (ILS), has increased its assets under management to almost $1.8 billion.

Stone Ridge has found considerable success in its strategy, of offering mutual funds and sourcing most of its investment capital through strong links with registered investment advisory and management firms. This gives Stone Ridge access to investors who often cannot access ILS funds, due to many of the investors being more retail in nature.

The strategy is clearly working as Stone Ridge has been growing its assets under management strongly since its launch, having reported reinsurance-linked assets of approximately $766m in July 2013, which had grown to $1.3 billion by January 2014 and grew again to a reported $1.46 billion by the end of Q1 2014.

Now, in the mutual fund investment managers latest semi-annual report it discloses reinsurance-linked assets, consisting of catastrophe bonds, sidecar quota share investments and some private cat bond or ILS deals, to have reached just under $1.8 billion ($1.795 billion) at the end of April 2014.

That means Stone Ridge grew its ILS and reinsurance linked assets under management by over 23% in just one month, quite a serious growth rate for any ILS fund. The growth is likely linked to opportunity, to a degree, with the rapid rate of new catastrophe bond issuance helping Stone Ridge to take on more capital to be deployed in the period in question.

Stone Ridge manages three insurance linked securities funds, investing across a range of assets from cat bonds to sidecars. The first two to launch were the Stone Ridge Reinsurance Risk Premium Fund and the higher risk/return Stone Ridge High Yield Reinsurance Risk Premium Fund, which launched at the end of 2012.

Next the mutual fund manager launched the Stone Ridge Reinsurance Risk Premium Interval Fund, which has a mandate to invest in more illiquid investments while still offering investors access to regular interval liquidity opportunities, towards the end of 2013.

When we last covered the Stone Ridge ILS funds the Stone Ridge Reinsurance Risk Premium Fund had assets amounting to just over $611.4m at the end of Q1. Now, in the latest report, the Reinsurance Risk Premium Fund is listed as having net assets of just over $722.4m at the end of April 2014, that’s up by approximately 18%.

Stone Ridge’s High Yield Reinsurance Risk Premium Fund, which has a higher risk and return target, had assets totaling $242.9m at the end of the first-quarter. According to the latest report that has been increased by 28% to now stand at just over $311.1m at April 30th.

Finally, the Interval fund, which at the end of the first-quarter had assets of just over $606m has now grown as well, by 26%, to now have total net assets of $761.5m at the end of April.

The split of cat bonds, to side car quote shares and preference shares remains fairly similar to the split reported previously. Stone Ridge remains very diverse across many cat bond positions, sidecars we know by name and many quota shares with segregated account vehicles we do not know so well, which likely represent private collateralized ILS deals that Stone Ridge invests in.

Of particular note is the fact that the interval fund now has over $612m of preference shares of quota shares with a large range of segregated account vehicles. This fits the mandate to invest on more illiquid investments, as these private collateralized reinsurance transactions do not have the secondary liquidity of a cat bond or even a sidecar participation note.

Stone Ridge is clearly sticking to the strategy, with the Risk Premium and High Yield funds both largely invested in catastrophe bonds, but the Interval fund largely invested in sidecars and segregated accounts. Stone Ridge offers investors an interesting range of ways to access the returns of the reinsurance market, something which it appears to be attracting significant sums of capital to the firms funds.

You can see the split of assets in each of the Stone Ridge ILS funds in the graphics below. It clearly shows that the Risk Premium fund contains the greatest concentration of catastrophe bonds, while the High Yield Risk Premium fund contains a greater proportion of sidecars but the Interval fund is largely exposed to quota share risks. Also interesting to compare with the asset allocations seen and reported for the end of Q1 2014 to see how this has changed.

Stone Ridge has very quickly become one of the largest managers of ILS assets globally, now featuring in the top ten fund managers by size in our Insurance Linked Securities Investment Managers & Funds Directory.

Stone Ridge ILS funds and their asset allocations to catastrophe bonds, sidecar and segregated cell quota shares and other assets