Swiss Re Insurance-Linked Fund Management

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Stone Ridge reports returns, reinsurance-linked assets over $1.3 billion


New York based Stone Ridge Asset Management, which specialises in investments in insurance-linked securities (ILS) such as catastrophe bonds, investments in sidecars and quota shares, has grown its reinsurance-linked assets to over $1.3 billion in just over one year.

Stone Ridge which was launched in 2012 by former Magnatar Capital co-head of portfolio management Ross Stevens, recently reported its performance for its first two reinsurance-linked ILS funds, the Stone Ridge Reinsurance Risk Premium Fund  and the Stone Ridge High Yield Reinsurance Risk Premium Fund.

Stone Ridge reports the performance of these two reinsurance funds, for the period since their launch in February 2013 to the end of October 2013, as being 4.53% and 4.48% for the Class I and M shares of the Stone Ridge Reinsurance Risk Premium Fund and 5.58% and 5.43% for the Class I and M shares of the higher risk strategy Stone Ridge High Yield Reinsurance Risk Premium Fund.

For the Stone Ridge Reinsurance Risk Premium Fund the total assets under management are reported as $510,850,692 at October 31st. The split of investments for this fund is 82% invested in catastrophe bonds (event-linked securities as Stone Ridge terms them), 16% invested in quota shares with just under 2% in cash at the time of reporting.

The Stone Ridge High Yield Reinsurance Risk Premium Fund had total assets under management of $207,228,720 at October 31st. It’s investment portfolio is similarly split, 83% invested in catastrophe bonds and 16% invested in quota shares, with the rest held in cash.

Between these two funds Stone Ridge holds approximately $718.08m of ILS and reinsurance-linked assets. Add in the investment managers new interval fund, the Stone Ridge Reinsurance Risk Premium Interval Fund, for which it capped its initial asset raise at $600m and which launched in early December and it takes Stone Ridge Asset Management ILS and reinsurance-linked assets under management to over $1.3 billion.

This is impressive growth for a start-up asset manager which was launched in late 2012 and only began operating its first reinsurance-linked funds in February 2013. Stone Ridge has an interesting strategy as a manager of mutual funds and by sourcing its investors through strong links with investment advisors and this seems to have given it access to a large pool of capital very quickly. Perhaps helping it to access capital which is not available to most other ILS managers and funds.

CEO Ross Stevens put the firms success, in a letter to its investors, down to its willingness to focus on sectors like reinsurance and its desire not to be distracted by trying to take on too many new opportunities. More specifically, on its reinsurance-linked investment strategies, Stevens acknowledged in the investor letter that the quiet catastrophe loss year has helped Stone Ridge in 2013.

“We got lucky. In our portfolio, there were no hurricanes. There were no earthquakes. There were no equity market crashes. That collective calmness drove the unusually strong risk-adjusted performance of our Reinsurance and Variance Risk Premium funds since launch,” Stevens explains in the letter.

However Stevens rightly points out in the letter that investors cannot expect to be loss free in every year, as is the nature with this type of investment, writing; “In future years, there will be tragic, terrible natural disasters and financial market shocks. The risk premiums we access will not deliver positive returns every year.”

The interval fund, which is structured to allow Stone Ridge to offer a reinsurance-linked investment strategy that invests in more illiquid investments, such as collateralized reinsurance contracts with less transferability, while still offering investors access to regular liquidity opportunities, has only recently launched.

The interval fund had an initial asset cap of $600m but can grow to $1.1 billion if the demand is there, so we could see Stone Ridge’s reinsurance-linked assets under management increase even further over 2014.

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