Plenum Investments AG, the Zurich based specialist insurance-linked securities (ILS) and catastrophe bond investment manager, has grown the assets under management of its mixed catastrophe bond and subordinated insurance debt ILS investment fund to over US $400 million.
The Plenum Insurance Capital Fund, a UCITS ILS fund that allocates to both catastrophe risks and subordinated insurance debt instruments, was first launched in June 2020.
The Insurance Capital Fund reached $100 million in assets within nine months, then reaching $150 million in assets after its first-year, as Plenum saw strong uptake for the new strategy, having previously been better known for its relatively low-risk catastrophe bond fund that has more than a decade of track-record behind it.
Plenum’s Insurance Capital Fund seeks to manage high-yield insurance risks more efficiently, using an approach Plenum has termed “tail-to-tier.”
It seeks to achieve this by mitigating the concentration risk in US wind exposures, which is typical of cat bond and other ILS or collateralized reinsurance investment strategies, while targeting a more even return profile, compared to the more seasonal US wind focused cat bond and private ILS strategies.
The fund is invested mainly in cat bonds and seeks to manage insurance risks more efficiently than conventional CAT bond funds.
Reaching US $400 million in assets after just over three years has helped deliver a significant boost to Plenum’s firm-wide AUM. Artemis’ ILS fund manager directory shows this reached $1 billion at the mid-point of this year.
“The Plenum Insurance Capital Fund has been well received by the market as our approach offers investors a new way to achieve attractive returns in the CAT bond market with reduced tail risk.” Daniel Grieger, Lead Portfolio Manager of the fund and CIO of Plenum Investments Ltd. explained. “We also take advantage of the unique relative valuation of the two asset classes of CAT bonds and insurance bonds in order to actively manage the seasonality of US hurricane risks.”
Dirk Schmelzer, who manages the cat bond allocation, added, “The capital employed is more efficiently deployed as we actively reduce hurricane positions after the hurricane season. This active approach means that our tail-to-tier investment approach currently has a capacity limit of USD 1 billion.”
Rötger Franz, who is responsible for managing the portfolio of subordinated insurance bonds, also said, “In many respects, subordinated bonds of European insurers are complementary to CAT bonds. The subordinated debt issuers have usually manageable natural catastrophe exposures in the USA. Just like CAT bonds, subordinated insurance bonds enable insurers to write more business, but unlike CAT bonds, there is no direct catastrophe risk transfer to the capital market.”
Plenum Investments notes that, in a time when high-yield bonds are seeing rising default rates, investors are turning to instruments such as catastrophe bonds and what the manager sees as attractive corporate bonds with the lowest default rates as an investment alternative, in the spirit of “high yielding but not high yield”.
By the end of October 2023, the Plenum Insurance Capital Fund had delivered a return to investors of 11.11%, while the return for the last 12 months had reached 16.59%.