Details have emerged about the assets under management at two reinsurance and insurance-linked securities (ILS) funds managed by New York based investment firm Stone Ridge Asset Management. Stone Ridge, launched in 2012 by former Magnatar Capital co-head of portfolio management Ross Stevens, has two reinsurance-linked investment funds with total assets reported at over $766 million.
The $766 million of total assets under management is split between the two ILS funds that were launched by Stone Ridge Asset Management at the end of 2012. The two ILS funds are called the Stone Ridge Reinsurance Risk Premium Fund and the Stone Ridge High Yield Reinsurance Risk Premium Fund. Both invest in a range of reinsurance instruments, including catastrophe bonds, ILS, industry-loss warranties (ILW’s), quota shares, longevity bonds, mortality bonds and other types of reinsurance securities. The High Yield fund offers a higher return and a riskier investment profile than the other fund.
Stone Ridge has published a semi-annual report, covering the period of 1st February 2013, the date the funds officially commenced operation, up to the 30th April 2013. When they began operating, the two funds had $350m of assets between them, after the Stone Ridge Reinsurance Risk Premium Fund raised its target $250m and the Stone Ridge High Yield Reinsurance Risk Premium Fund raised its target $100m. The funds were then closed to investors, but reopened again around the 21st March.
Given that this report is only to the end of April, means that Stone Ridge more than doubled its assets under management in the period between reopening the funds in late March and the end of April. That’s an impressive fund-raising total, likely helped by the high-profile team working on the funds and the open-ended nature of the two ILS funds making them perhaps more easily marketable through investment advisors.
The Stone Ridge Reinsurance Risk Premium Fund had total investment assets at 30th April of just over $546.68 million, and total net assets after liabilities of just over $495.78 million. The Stone Ridge High Yield Reinsurance Risk Premium Fund reported total investment assets of over $219.52 million and total net assets, after liabilities, of over $199.58 million. Combined total investment assets stood at just over $766.20 million and total net assets, after liabilities, were just over $695.37 million.
The semi-annual report gives some interesting insights into the investment mix for both of the ILS funds. Rule 144A catastrophe bond notes make up the majority of both funds reinsurance investments, followed by reinsurance quota share investments, participation and preference shares. However, both of the funds have considerable allocations to short-term investments in the form of money market funds, which suggests that at the 30th April the full deployment of capital assets had not yet occurred. We’d assume that by this point of the year Stone Ridge will have deployed signficantly more of its assets into recent cat bonds and renewal reinsurance contracts.
The Stone Ridge Reinsurance Risk Premium Fund was 51.9% invested in a diversified portfolio of cat bonds at the 30th April, largely U.S. focused as is the catastrophe bond market as a whole. 42.9% was invested in short-term money market fund assets. Another 14.6% of this fund was invested in reinsurance quota shares participation notes, solely in Sector Re V Ltd, while 0.5% was invested in preference shares of quota shares which it lists as an investment in the Lorenz Re sidecar facility from PartnerRe. That adds up to 109.9%, with the 9.9% equating to liabilities which once subtracted leaves you with the $495.78 million.
The Stone Ridge High Yield Reinsurance Risk Premium Fund is again largely invested in cat bonds, with 44.1% put into a diversified (although again U.S. focused) portfolio of cat bond notes. 50.5% of this fund is invested in short-term money market fund investments. 14.5% is in quota share participation notes, again solely in Sector Re V Ltd., while 0.4% is in preference shares in the Lorenz Re sidecar. That equates to 109.5%, which minus the 9.5% of liabilities leaves you with the $199.58 million total net assets.
Looking at the investments in both funds it is clear that Stone Ridge has been busily participating in as many transactions as it can this year, up to the 30th April when the detail in this report ends. As we said, we would expect those percentages invested in money market funds to have come down considerably by now, as Stone Ridge will likely have participated in many of the more recent cat bonds and also in quota shares at the June and July reinsurance renewals.
Stone Ridge discloses the total return of the funds as 0.1% for each of the two share classes in the Stone Ridge Reinsurance Risk Premium Fund and 0.4% for each of the two share classes in the Stone Ridge High Yield Reinsurance Risk Premium Fund. While this may seem low, compared to the performance of other ILS funds, it’s important to bear in mind that this is net of fees recouped (we believe) and is only for a very short three-month period to the 30th April with assets only starting to be invested on the 1st February. We’ll get a better picture of how the portfolios are performing when another report comes out later in the year.
Stone Ridge Asset Management has very quickly become a reasonably large asset manager and investor of third-party capital in the catastrophe bond, ILS and reinsurance space. We’d expect its assets under management to increase further and we’ll update you when next we have any details on its progress and performance.