According to documents filed with the SEC yesterday, Stone Ridge Asset Management has set a proposed maximum aggregate offering price of $1.1 billion for its new insurance-linked securities (ILS) fund, the Stone Ridge Reinsurance Risk Premium Interval Fund.
The documents show that the initial public offering (IPO) of shares in the Stone Ridge Reinsurance Risk Premium Interval Fund will allow up to 110m shares to be offered at a proposed maximum price per share of $10.
If Stone Ridge is successful and the offering attracts as much demand as it clearly believes is possible then that would raise the fund $1.1 billion, which would be a huge launch for a new ILS fund. Of course these are just maximum amounts allowable, partly for the purpose of setting registration fees for the resulting shares, but we can’t imagine Stone Ridge would aim too much higher than it believes demand will actually stretch to.
The structure of the Stone Ridge Reinsurance Risk Premium Interval Fund is such that it will be able to invest in more illiquid investments, while still offering investors access to regular liquidity opportunities. This means it can target collateralized reinsurance and private ILS more than the other two Stone Ridge funds, which tend to target catastrophe bonds and assets with more transferability. In this way the Interval fund is unique in the ILS market we believe (please let us know if you have heard of others).
Stone Ridge Asset Management offers its existing funds in the closed-end mutual fund format, making them available to certain investors via registered investment advisers and also with the ability to go direct to specific types of institutional investors. Its two existing funds, the Stone Ridge Reinsurance Risk Premium Fund and the Stone Ridge High Yield Reinsurance Risk Premium Fund are listed on an exchange.
The Stone Ridge Reinsurance Risk Premium Interval Fund however will be an unlisted closed-end fund, so with all the normal features of a mutual fund but no stock exchange listing.
An interval fund offers periodic share repurchases, for a portion of its share capital, to provide liquidity to its investors. The reason for this, we understand, is so that the new fund can invest in more illiquid investments, perhaps fully-collateralized reinsurance contracts, which Stone Ridge needs to ensure collateral is held for.
By offering an interval fund structure, investors will be able to access more illiquid reinsurance investments which can provide much higher levels of return. Investors will still be able to move out of the fund should they choose to, but on a schedule that Stone Ridge defines and investors will need to give notice if they wish to exit.
If Stone Ridge were to raise $1 billion for this new fund it will attract a lot of attention in the ILS marketplace as many asset managers have been turning down new capital this year due to what some see as a lack of attractive opportunities for deployment. However, having $1.1 billion to deploy at the January renewals, of new funds to the global catastrophe reinsurance market, would mean that Stone Ridge could become a much more meaningful player in ILS very quickly.
Again, we must stress that these are maximum proposed amounts, and they also could change. Stone Ridge has submitted a number of amended prospectus documents so far for the Interval fund.
We will update you if or when we hear more on the launch of this unique ILS fund.
Note: Stone Ridge’s prospectus for the interval fund does contain language for an ‘initial cap’ of $600m. However this language has been in place as a target since the first iteration of the documents, having begun as a target of $500m, so with the maximum aggregate placing limit now extended it will be interesting to see whether Stone Ridge can stretch its target upwards.