Stone Ridge nears $5 billion of ILS & reinsurance linked assets

Beta and alternative risk focused mutual fund manager Stone Ridge Asset Management has further increased its insurance and reinsurance linked assets under management, coming very close to the $5 billion mark, reporting $4.95 billion of ILS assets at July 31st 2016.

Interestingly, this is the slowest growth we’ve seen from a quarterly filing reported by Stone Ridge Asset Management, with the total ILS and reinsurance linked assets under management only growing by around 4%, from the $4.76 billion reported at 30th April.

Stone Ridge Asset Management has experienced rapid growth of its ILS mutual fund strategies, demonstrating that the mutual fund investor-base has a strong liking for alternatives and investment strategies which offer a degree of uncorrelation.

Growth has slowed over recent quarters as the manager has reached a level of ILS assets where securing profitable opportunities likely becomes a bit more challenging, purely due to the resources required and the increased competition in the marketplace at that size.

But still, in the last quarter to 31st July, Stone Ridge added $181m to its total net assets across the three mutual ILS funds, which is just over half the level of assets added in the prior quarter.

Stone Ridge launched in late 2012 with initial assets raised of $350m in two funds, the Stone Ridge Reinsurance Risk Premium Fund and Stone Ridge High Yield Reinsurance Risk Premium Fund.

The managers ILS and reinsurance linked assets grew to $766m by July 2013, then to $1.4 billion by January 2014 with the help of the launch of the Stone Ridge Reinsurance Risk Premium Interval Fund, then to $1.8 billion by the end of April 2014, then $2.03 billion at July 31st 2014 followed by another leap to $2.124 billion at the 31st October, then up another 42% reaching $3.006 billion at the 31st January 2015, then up 9.4% to $3.288 billion as at the 30th April 2015, to $3.713 billion at 31st July 2015, up another 13% or $425m, a further 4% to $3.86 billion by 31st October 2015, by  15% to $4.44 billion by the end of January 2016 and finally by 7% to $4.76 billion at April 30th 2016.

So it’s clear that Stone Ridge has been prudent in slowing down investor inflows as it gained scale, ensuring that assets can always be effectively deployed into the available ILS market opportunities.

The latest report shows that the ILS Interval Fund is again the source of most of the growth, as this strategy has grown dramatically since its launch and is largely the reason for Stone Ridge’s strong growth in reinsurance.

The Stone Ridge Reinsurance Risk Premium Interval Fund hit $3.14 billion at the 30th April 2016, but has now grown to $3.318 billion, an increase of $178m or 6%.

Meanwhile the other two ILS funds managed by Stone Ridge have remained almost static during the last reported quarter.

The lowest risk mutual ILS fund strategy, the Stone Ridge Reinsurance Risk Premium Fund, has actually shrunk very slightly, from $1.13 billion at 30th April 2016 down to $1.128 billion at 31st July, a negligible change in total net assets during the period.

The higher risk and return, although only slightly, Stone Ridge High Yield Reinsurance Risk Premium Fund, grew its total net assets slightly from $494 million at the 30th April 2016 to $499m at the 31st July.

As a reminder, these two funds, the Stone Ridge Reinsurance Risk Premium Fund and Stone Ridge High Yield Reinsurance Risk Premium are to be merged and consolidated into one fund, as their strategies and target returns are very similar. The board of the Trust responsible for the funds approved the consolidation recently and it will be effected in December.

As a merged fund, with total net assets of around $1.63 billion, Stone Ridge will likely have greater flexibility to maintain returns for its investors and more clout at renewals with just the two larger pools of capital to wield.

Stone Ridge’s ILS Interval Fund portfolio continues to read like a who’s who of collateralised reinsurance sidecars, private ILS quota shares and other segregated cell transactions. The largest positions in the portfolio at this time is a $237m stake in an Artex segregated account named Emerald Lake, followed by a $169m stake in Munich Re’s Eden Re II 2016 sidecar.

Interestingly, the disclosure also shows that Stone Ridge invested in the Operational Re, operational risk linked catastrophe bond, from Credit Suisse, having around CHF 14.4m across the three funds invested in the transaction, with the largest slice in the Interval fund.

You can find the full Interval ILS fund filing from Stone Ridge here, if you want to explore the transactions and see which ones you can identify.

So growth continues at Stone Ridge Asset Management, in the managers ILS and reinsurance investment strategies. Nearing $5 billion is quite a milestone in the relatively short time Stone Ridge has been in the marketplace.

Stone Ridge now sits as the fourth largest manager of ILS and reinsurance assets in our ILS Fund Managers Directory.