Stone Ridge registers fund to support Longtail reinsurance platform

New York based investment manager Stone Ridge Asset Management has registered a new fund to support its capital raising activities around its new Longtail reinsurance platform that we recently revealed the manager to be preparing.

We were first to report around a fortnight ago that Stone Ridge Asset Management, a manager of reinsurance focused insurance-linked securities (ILS) mutual fund strategies, had established Longtail Insurance Holdings Ltd. and reinsurer Longtail Re Ltd. in Bermuda and begun the process of raising up to $500 million to capitalise the reinsurance platform.

Now we can also report that Stone Ridge has set up a fund vehicle in the Cayman Islands, to support its developing Longtail reinsurance platform ambitions.

Longtail Fund I LP has been registered as an investment company in the Cayman Islands for Stone Ridge this year and has now begun a private placement offering of securities.

The Longtail Fund I LP has been registered as a private equity fund, but we suspect that it will effectively operate as a feeder vehicle for capital commitments from investors or Stone Ridge’s existing ILS and reinsurance funds in support of the overall Longtail reinsurance platform.

We still aren’t entirely sure of Stone Ridge’s strategy behind the launch of Longtail Re, whether it’s just another fund vehicle, something entirely different in terms of targeting longer-tailed risks (as the name suggests), or more likely a new reinsurance vehicle platform to give the asset manager more control of its access to underwriting risks.

The latter still feels more likely, a new reinsurance vehicle that will underwrite on behalf of the existing Stone Ridge mutual ILS funds and that has been named after the Bermuda Longtail, a type of bird commonly found on the island.

Having its own reinsurance platform will add efficiency to the Stone Ridge investment processes and help to secure returns for investors, with less in fee income being paid to service providers and quota share partners.

Whether such a move could see Stone Ridge becoming more market-facing, in its underwriting, remains to be seen. But it would be an interesting shift in the asset manager’s strategy.

It’s also worth noting that a new Class B insurance vehicle structured as a segregated portfolio company named Longtail Re (Cayman) SPC Ltd. has been registered in the Cayman Islands in August as well.

We can’t confirm whether this is connected, but it seems possible given the date of recognition for the new Longtail Re (Cayman) SPC Ltd. insurance vehicle is given as August 20th, which would seem to align with the timing of the launched capital raises for the Bermuda vehicle Longtail Insurance Holdings Ltd. and the Cayman fund Longtail Fund I LP.

Given the challenges ILS asset managers can face due to trapped collateral, as well as the multiple layers of fees that can be paid through privately negotiated quota shares and sidecars, for Stone Ridge it would make a lot of sense to create its own market access reinsurance platform.

By ramping up its ambitions to own a reinsurance vehicle, perhaps a rated entity, Stone Ridge can lower the drag on its returns from collateral issues, as well as gain more efficient access to risk.

As a piece of investment management infrastructure, to help Stone Ridge access the market more efficiently and deliver enhanced returns, the launch of these pieces of a Longtail reinsurance platform are a sensible next step for the asset manager.

We will update you should any more information come to light.