Stone Ridge’s mutual ILS funds shrink 11% to $3.4bn, interval shrinks 21%

Insurance-linked securities (ILS) assets under management across the two main mutual ILS funds operated by Stone Ridge Asset Management shrank by approximately 11% during the last quarter of record to $3.4 billion.

Stone Ridge’s interval ILS fund strategy, which allocates to reinsurance sidecars and private ILS quota shares in the main, as well as other collateralized reinsurance opportunities, shrank the fastest though, losing over 21% in terms of assets contained in the strategy.

Stone Ridge’s other mutual ILS fund strategy, which allocates more of its capital to catastrophe bonds than any other reinsurance instruments, actually grew again during the last quarter of record, expanding by some 15%, in terms of assets contained in the strategy.

We explained a quarter ago that because of an evident expansion in short-term, more liquid assets held in Stone Ridge’s less liquid Interval ILS fund structure, it suggested a liquidation of some private sidecar and quota share reinsurance positions, likely to service further redemptions for investors.

That appears to have been the case and it does look like Stone Ridge services more investor exits from this strategy, as while there is some evidence of possible losses causing positions to be marked down, that doesn’t account for the decline in assets from the fund.

Together, mutual ILS fund assets held across Stone Ridge’s two reinsurance linked investment funds fell by around 11% to $3.4 billion in the quarter to April 30th 2021.

That’s down from the $3.8 billion of ILS assets reported at the end of January 2021.

At April 30th, Stone Ridge’s higher-risk, less liquid interval style mutual ILS fund, the Stone Ridge Reinsurance Risk Premium Interval Fund (SRRIX), had shrunk by just over 21% to $2.11 billion of assets, down from $2.68 billion at the end of January 2021.

As we said, a quarter ago this interval ILS fund managed by Stone Ridge had a significant component of its assets tied up in more liquid assets like treasuries.

Now, as of the end of April 30th 2021, the amount of short-term assets held has more than halved, suggesting redemptions getting paid, while other assets listed have also shrunk, again suggesting a rush of redemptions may have been serviced through that last quarterly period.

The decline in assets for the interval ILS fund managed by Stone Ridge has been relatively evenly seen across catastrophe bonds, as well as preference shares and participation notes in reinsurance sidecars and private ILS deals.

Meanwhile, Stone Ridge’s other mutual ILS fund strategy, the more catastrophe bond focused Stone Ridge High Yield Reinsurance Risk Premium Fund (SHRIX), has increased further in size, to end April 2021 around 15% larger at $1.29 billion, up on the end of January’s $1.122 billion of ILS assets.

Stone Ridge has been growing this catastrophe bond focused mutual fund strategy for about a year now and as of the end of April 2021 this ILS fund strategy is now at its largest ever.

So it’s a mixed picture across Stone Ridge’s mutual ILS fund investing operations, with the cat bond focused strategy clearly benefiting from ongoing investor demand, as well as the high levels of issuance seen.

At the same time, the higher risk/return ILS interval fund strategy has continued to see investor capital leaving it, but as ever, with Stone Ridge, we can’t be sure whether the manager is shifting assets into its more private ILS strategies.

Stone Ridge has been repositioning its ILS investment management strategy over the couple of years, with an increasing focus on private ILS funds and an expansion into non-catastrophe and longer-tailed lines of business.

Catastrophe bond holdings in the more liquid, High Yield Reinsurance Risk Premium Fund, have continued to increase, with Stone Ridge clearly able to take advantage of cat bond market activity and investor appetite to grow this strategy.