Tangency Capital Ltd., an insurance-linked securities (ILS) investment fund manager whose first strategy was focused on quota share reinsurance business, will be the portfolio manager of a new US mutual investment fund with a focus on catastrophe bonds and insurance-linked securities (ILS).
As we were first to report back in September, the Ambassador Fund continues the trend of bringing ILS investment opportunities to a wider range of investors in the United States, being registered as a non-diversified mutual fund structure under the Investment Company Act of 1940.
The Ambassador Fund is set to have a primary focus on catastrophe bonds, but will also be able to invest in other insurance-linked assets, such as collateralized reinsurance, quota shares, excess-of-loss deals and industry loss warranties (ILW’s).
The new fund has been launched on a mutual fund platform and will be a series under the Investment Managers Series Trust II.
Investment Managers Series Trust II is sponsored by the fund arm of UMB Bank, UMB Fund Services, Inc., alongside Mutual Fund Administration, LLC.
These Trust’s (of which there are a number) are designed to provide a managed platform, enabling an alternative investment manager to more easily bring a mutual fund to market, with most admin and operational aspects taken care of for them.
The Ambassador Fund will be an exchange traded fund (ETF), similar to the other main mutual ILS funds that are managed by investment firms such as Stone Ridge Asset Management, Amundi Pioneer and City National Rochdale.
For Tangency Capital, this marks an expansion of its appetite and operational reach, while the catastrophe bond focus has been expected since the company hired a portfolio manager for that role earlier this year.
Tangency Capital was launched in late 2017 by experienced reinsurance and ILS investment executives Dominik Hagedorn, previously at Deutsche Bank, Kai Morgenstern, formerly of RenaissanceRe and Michael Jedraszak who was most recently the Chief Investment Officer for ILS at re/insurer Hiscox.
When we first wrote about the Ambassador Fund, we explained that there was a strong chance this could be an initiative of an existing ILS fund manager, or that a known ILS investment firm would turn out to be the sub-advisor for the cat bond focused investment strategy.
Earlier this year Tangency hired former Nephila Capital catastrophe bond focused manager Niall MacGillivray, who is now named as the portfolio manager for the Ambassador Fund, under Tangency Capital which is named as the sub-advisor.
The investment advisor for the fund is named as Embassy Asset Management LP, which is not a firm we know and has a number of LP and GP members that it is challenging to trace the owners of.
Embassy Asset Management focuses on generating income potential for its investor clients, through exposure to asset classes with low credit, duration, or liquidity risk, so insurance-linked securities (ILS) and reinsurance fits in well with its thesis.
It’s not immediately clear where the original direction and stimulus to launch this new mutual catastrophe bond fund strategy has come from.
Whether it’s driven by the investment adviser, or the trust related parties, with Tangency Capital selected as a sub-advisor partner.
Or whether the ILS fund manager (Tangency) may have driven this initiative itself, working with the rent-a-trust providers and Embassy Asset Management to launch a cat bond fund with broad access to a wide range of investors in the United States.
But, there may be a bit of a giveaway on this, as we understand the investment advisor and trust related parties are set to apply for the right to hire and fire sub-advisors should they need to, which suggests this strategy is likely to have been driven by one or both of them, with Tangency selected as an investment manager for the Ambassador Fund portfolio of ILS instruments.
Of course some of the names involved, Embassy and Ambassador, may also be a bit of a giveaway.
Either way, it could be an important initiative for Tangency Capital, helping it to diversify towards catastrophe bonds, having been quota share focused with its original aligned ILS fund strategy and also providing a chance to raise assets under management and earn more fees.
To follow its largely catastrophe bond focused strategy, the Ambassador Fund needs to get to $100 million of assets pretty quickly, given the need to reach the qualified institutional buyer level to access the entire market.
Tangency Capital will be responsible for the day-to-day management of the Ambassador Fund’s portfolio of cat bonds and other ILS instruments, taking control of investment selection and supervision of portfolio transactions, subject to oversight from the Board and investment advisor Embassy Asset Management.
The Ambassador Fund will be listed on the New York Stock Exchange (NYSE) and will generally be sold via registered investment advisors (RIA’s), with a minimum investment at the RIA level of $250,000.
Under an RIA, the actual end-investors can be quite “retail” in nature with mutual funds, although normally at the higher-net worth end, so expect there to be many more holders via RIA accounts and even 401k’s.
It will be interesting to see how successful this latest mutual cat bond fund launch will be, as others have managed to raise significant assets in the past, such as Stone Ridge Asset Management’s.
With the catastrophe bond market flying in 2021 and set for record issuance, while appetite among investors for alternatives and diversifying asset classes continues to grow, this could be a particularly well-timed launch.