Responses to a recent survey of investors in the insurance-linked securities (ILS) sector highlight the importance of track record and manager performance when selecting an alternative investment manager, although size and AuM are not deemed as important as you might think.
A recent survey that canvassed mostly asset managers, foundations/endowments and pensions funds, but also funds of funds and insurers that do currently, or could potentially allocate to the ILS market highlights the importance of track record when choosing an ILS manager.
Produced by Clear Path Analysis, results from the survey were published in a report, and shows that when selecting an ILS manager investors value track record and top quartile returns as the most important factors.
Specifically, the survey asked those canvassed what are the main characteristics sought when deciding on an alternative investment manager.
Asking to score on a scale of 1 – 5, with 1 being the lowest interest and 5 being the highest, the following characteristics were put forward to survey participants; Industry top quartile investment returns, large risk management and research team, track record of investments, large client service team, regulatory jurisdiction/regulator oversight, brand name recognition, and consultant recommendation.
At 3.82 and 3.44 track record and top quartile returns received the highest averages, respectively. Following this regulator jurisdiction/oversight scored the highest (3.4), and then large risk management and research team (3.12), brand name recognition (2.64), with large client service team (2.22) scoring the lowest average.
“Track record was the clear winner among factors recommending a manager to the respondents, with the highest average score and the majority share of every type of investor rating it as a “fairly high” or “very high” impact characteristic.
“Along similar lines, managers that deliver top quartile returns were also likely to be highly favored by respondents of all kinds,” explains the report.
Pensions funds and other institutional investors in the ILS space clearly value the track record of a manager when selecting how to allocate to the asset class. Furthermore, managers that consistently perform in the top quarter are seen as more desirable to investors when looking to make an allocation to the space.
For the third highest scoring characteristic, being regulatory jurisdiction/oversight, the report highlights and interesting finding. Asset managers and pension funds, which are the most dominant players in the ILS investor community, actually rated it as high as performance and track record, but the other classes of investors appeared far less concerned.
“As an example, none of the insurers responding to the survey rated it above a ‘moderate impact’ characteristic,” says the report.
Regarding size and reputation, the survey reveals that factors such as brand name and large client service team scored towards the lower end, but fund/manager scale is an interesting element. For some it’s of fairly high importance, but on the other hand some of the very large pension funds that invest in the ILS sector allocate via the smaller funds/managers, suggesting that size might not matter so much to them.
So perhaps this suggests that regardless of an ILS manager’s reputation and size, so long as they perform in the top quarter consistently and have a solid, proven track record of investments, institutional investors will be willing to make an allocation.
It’s no surprise that track record and returns drive allocations, but many assume that size also matters almost as much, so for the smaller, or more niche ILS funds, this will be encouraging to hear.
To provide some context 41% of survey respondents were asset managers, 33% pension funds, 15% foundations or endowments, 7% insurers, and 4% funds of funds.
You can purchase a copy of the Insurance Linked Securities – Asset Owner Insights survey report over at the Clear Path Analysis website (free for asset owners such as pensions, family offices, endowments etc).