A new ILS and reinsurance linked interval fund is launching under the watch of ex-Anchor Risk Advisors and experienced ILS exec Pete Vloedman. The Redmond Reinsurance Investment Interval Fund is being launched with Vloedman as its portfolio manager.
The ownership of this new mutual fund, as an interval fund it comes under the 40’s Act, is interesting, with the adviser to the fund, for whom Vloedman will be working, named as Redmond Capital Management LLC.
The ownership of Redmond Capital Management is convoluted, being a wholly owned subsidiary of Redmond Capital Holdings, LLC, which is in turn a direct subsidiary of GeoVera Investment Group Ltd. GeoVera, interestingly, is a provider of specialty residential property hurricane and earthquake insurance products largely in peak exposure zones.
The ultimate ownership is even more complex; “GeoVera is majority owned by Flexpoint Fund II (Cayman), L.P., an alternative investment vehicle formed as a Cayman Islands exempted limited partnership under the control of its general partner, Flexpoint Management II (Cayman), Ltd., which is under the control of its general partner, Flexpoint Ultimate Management II (Cayman), Ltd., which is, ultimately, under the control of Edwards Capital, LLC d/b/a Flexpoint Ford, LLC (“Flexpoint”), an Illinois limited liability company. Flexpoint is a private equity investment firm based in Chicago, Illinois,” says the funds prospectus.
So ultimately it seems the ownership of Redmond Capital comes back to private equity money investing in insurance and reinsurance risks, which now sees an opportunity to offer mutual fund investors a way to directly access the returns of insurance and reinsurance business.
As of 2015 Pete Vloedman now works as a Managing Director of GeoVera Insurance Holdings, Inc. and President of Redmond Capital. Previously he has been consulting in the ILS and reinsurance space, prior to which he was CEO of ILS investment manager Anchor Risk Advisors, before which he was with Magnetar Capital and AJ Sterge. Vloedman has been in the ILS and catastrophe bond space for many years, so as portfolio manager for a new interval ILS and reinsurance fund is well suited to the role.
Vloedman will be responsible for day-to-day portfolio management and investment decisions for the Redmond Reinsurance Investment Interval Fund. The fund will invest “primarily in reinsurance-related securities commonly known as insurance linked securities (“ILS”). ILS may include event-linked bonds (also known as catastrophe or CAT bonds); structured reinsurance investments, including but not limited to quota share instruments (also known as “reinsurance sidecars”), collateralized reinsurance investments and event-linked swaps; interests in pooled investment vehicles, including registered investment companies, that invest primarily in reinsurance-related securities; securities of companies in the insurance or reinsurance industries; and other insurance- and reinsurance-related securities.”
So the full range of ILS and reinsurance-linked investments will be used to construct the portfolio for the Redmond Reinsurance Investment Interval Fund, meaning both liquid and illiquid ILS assets will be considered.
Hence, we assume, the choice to launch the Redmond Reinsurance Investment Interval Fund as a 40’s Act interval fund. Not only does the 40’s Act classification open the fund up to different types of investors, via sales through registered investment advisers, but the interval fund structure allows liquidity in the fund to be controlled to allow less liquid (and often higher yielding) ILS investments to be made.
An ‘interval’ fund allows the investment manager to target a less-liquid portfolio of assets, while still being able to offer investors liquidity opportunities at regular intervals. In this way the investment manager can retain some control over redemption volumes, while still leveraging less-liquid, and typically the higher returning group of ILS structures and assets.
The Redmond Reinsurance Investment Interval Fund will offer its investors liquidity intervals, with quarterly repurchase offerings typically for 10% of the fund’s shares. These repurchase offers will be for at least 5% and not more than 25% of the fund’s outstanding shares every quarter, the documentation explains.
Also of note is the fact that the Redmond Reinsurance Investment Interval Fund only has to invest 80% of its assets in ILS and reinsurance-linked assets, which will allow it to allocate the rest of the capital to liquid assets such as treasuries or money market funds, that can then be liquidated easily to provide the liquidity necessary to redeem shares at the quarterly intervals.
Redmond Capital has signed a distribution agreement with ALPS Distributors, a well-known mutual fund distribution services company and all sales will take place via ALPS. This should give the Redmond ILS fund a platform to get in front of the investors it is seeking capital from.
The ultimate investors will need to buy into the Redmond Reinsurance interval fund via their registered investment advisors, while a few other types of investors will also be allowed (likely institutional). This means that the Redmond Reinsurance Investment Interval Fund will be accessible to retail investor money.
The minimum investment account size with the fund is to be set at $3m for registered investment advisors (RIA’s), however within that $3m could be many end-investors accessing the ILS and reinsurance space with much smaller allocations, we’d imagine.
We understand that shares in the Redmond Reinsurance Investment Interval Fund will be offered at $10 each, but at this time there is no information on how much capital the fund is targeting. However, being a mutual fund it will have to report to the SEC regularly, so we should get a sight of how successful this launch offering for the fund has been.
Mutual funds investing in ILS and reinsurance-linked assets have been very successful so far. Stone Ridge Asset Management is the best example, which has its own interval ILS fund and has raised over $2.12 billion across three mutual ILS funds, with the interval fund attracting over $1 billion of capital.
Mutual fund manager Pioneer Investments also launched an interval fund, the Pioneer ILS Interval Fund, for which it raised an initial $50m but we understand has grown since (how far we’re unsure at this time).
The interval fund approach is extremely well-suited to the ILS and reinsurance linked asset class, as it allows investments to be made in quota shares, sidecars, private collateralized deals and other less liquid ILS assets, which increasingly make up the bulk of the marketplace.
As a result the returns can be more attractive for investors too, with these types of transaction offering better return possibilities and allowing the investment managers to target returns of 8% and upwards, depending on the risk appetite of the fund and its investors.
Redmond Capital, as the investment advisor, and Pete Vloedman, as the portfolio manager, will no doubt seek to access as diverse a portfolio of transactions as possible once the capital has been raised from this initial offering of shares.
Size will matter, as for a new fund manager and ILS fund entering the space there will be a requirement to prove the platform and concept before counterparties will welcome them to their deals, especially in such a capital rich and competitive marketplace. However Vloedman’s history in the space and in reinsurance in general is sure to gain the Redmond Reinsurance Investment Interval Fund access to enough interesting deals to start constructing a diversified portfolio.
As more ILS mutual funds and interval funds targeting the reinsurance space launch, the sector will increasingly have retail investor money in it. Some remain concerned about this prospect, feeling that ILS is a product for sophisticated institutional investors only.
Whatever your feeling about more retail type investors accessing the ILS space it is destined to continue to grow as a pool of capital, thanks to mutual fund structures and some European UCITS funds. The onus will be on the investment manager and also the RIA’s to advise clients and investors, educate them on the risks and to be transparent in everything they do, particularly when it comes to any losses. As quickly as the more retail type of investor can enter the space they can easily leave it as well.
It will be interesting to watch how Redmond Capital and Vloedman progress this new venture, as this new mutual fund launches in the ILS space. How much capital the Redmond Reinsurance Investment Interval Fund can raise in its first offering will likely be driven by how effectively marketed and distributed it is, as well as how well the RIA’s explain the product offering.