Stone Ridge seeks to grow Interval ILS fund to $1.5 billion

New York firm Stone Ridge Asset Management, provider of mutual fund strategies in alternative risk exposures including reinsurance and insurance-linked securities (ILS), wants to raise the assets under management of its Interval ILS fund to near $1.5 billion.

Stone Ridge has published a registration statement with the SEC which will allow it to increase the number of common shares on offer in its Stone Ridge Reinsurance Risk Premium Interval Fund, effectively giving it the additional capacity to raise more capital at a key time of year, likely to be put to work for the January reinsurance renewals. If it elects to use all of this additional capacity to raise new funds it would take its total ILS assets under management to over $2.5 billion.

Stone Ridge launched its first ILS funds in late 2012 and has seen strong growth of its ILS and reinsurance assets since then, having grown them from around $350m at launch, to $766m by July 2013, to $1.4 billion by January 2014 with the help of its newest Interval fund, then again to $1.8 billion by the end of April and to $2.03 billion at July 31st.

The Stone Ridge Reinsurance Risk Premium Interval Fund is the firms newest strategy, which follows the interval fund approach of offering staggered liquidity opportunities to investors enabling it to invest in less liquid assets. The Interval ILS fund has grown to be the largest of the three Stone Ridge reinsurance and ILS funds, having reached $948.8m of net assets at the end of July 2014.

At that point Stone Ridge passed $2 billion of total reinsurance-linked assets across its three ILS funds for the first time. With the registration statement that it has filed with the SEC, Stone Ridge would be able to raise the size of its Interval fund to $1.489 billion, by adding additional shares which it will be able for sale through registered investment advisors and brokers to new and existing investors.

In fact, looking at the prospectus attached to this new registration statement, it appears that the Interval fund is over $1 billion already. With 91,249,582 shares outstanding at 18th November 2014, at the $11.03 per share offering price set on 25th November, that would put the Stone Ridge Reinsurance Risk Premium Interval Fund total assets under management at just over $1.006 billion already.

The addition of just under $500m will take Stone Ridge’s total reinsurance and ILS linked assets under management, across its three funds, to over $2.5 billion for the first time. The fact that it is the Interval ILS fund that it is seeking to grow is not surprising, given where returns sit on various ILS instruments.

The Interval fund, due to its managed approach to liquidity opportunities, is able to invest in less liquid reinsurance assets such as reinsurance sidecars and reinsurance quota-shares, as well as other privately transacted ILS deals. That can open up better rate- on-line to Stone Ridge, enabling it to provide a more attractive return to its investors, so in the currently soft reinsurance market it is not surprising to see that fund growing.

It’s not clear exactly where Stone Ridge’s total assets under management sit across all three reinsurance and ILS funds right now, as the firm has not reported since the end of July when it managed just over $2.03 billion of ILS assets. That number is likely higher by now anyway as it has some room to increase the size of the other two funds as well, the Reinsurance Risk Premium Fund and the High Yield Reinsurance Risk Premium Fund.

If Stone Ridge Asset Management seeks to max out all of its funds available capacity in order to raise new capital for the January reinsurance renewals it could actually get reasonably close to $3 billion of assets under management. However, given the soft reinsurance market and low coupons on recent catastrophe bonds it may only choose to boost the Interval fund with this new extension, putting the manager closer to the $2.5 billion mark at year-end. We’ll update you when Stone Ridge next reports its total assets.