Wednesday, 18 August 2010 1:15pm
Ipac Asset Management plans to have as much as a 25 per cent allocation within its alternatives growth portfolio devoted to insurance-related investments, and backs the strategy with a $50 million seed investment into a newly-launched catastrophe insurance fund.
Ipac has invested the funds into the Palmetto Australian Unit Trust, which is managed by Nephila Capital, one of the global leaders in the insurance-linked securities market.
Nephila, which is 25 per cent owned by listed alternative investment manager Man, invests in catastrophe bonds, industry loss warranties and reinsurance contracts.
Daphne van der Oord, who works within Man Australia's institutional team, said the unit trust had been established to give Australian institutions access to Nephila through a locally available product.
"Nephila offers performance that is uncorrelated to traditional forms of investment," she said.
"After the Global Financial Crisis, investors are seeking independent return streams. Catastrophe reinsurance certainly provides that portfolio benefit."
The trust acts as a feeder fund into the Palmetto Catastrophe Fund, which in the 12 months to end of June gained 18.3 per cent, net of fees (in US dollars). This contrasts with world stocks, which returned a lower 9.4 per cent (based on the MSCI World index) and world bonds, up 5.4 per cent (based on the Citigroup World bond index).
The fund's correlation to world stocks and world bonds are at a low 0.06 and 0.02 respectively based on the fund's performance over the period January 2001 to December 2009.
Jeff Rogers, chief investment officer at ipac, said the group currently has a portfolio of $12 billion, of which 3 per cent is invested into alternatives, split two ways into ‘defensive' and ‘growth'.
Within the alternatives growth portfolio, the $50 million investment into Nephila already makes up around 15 per cent of total investment. But ipac is looking to boost the group's insurance-related investments to as much as 25 per cent.
"We are probably looking to have up to 25 per cent of the alternatives growth portfolio in insurance related investments. We could look at life settlements as well, and the reason they're attractive is that the driver of their pay off profile is clearly not linked to macro economic and corporate developments," he said.
While the Palmetto fund has returned better than stocks and bonds over the past 10 years and even in the last year, it's the risk diversification that matters most, said Rogers.
"It's important not to be buying the performance. You start off by buying the idea and the idea here is very much a diversified source of return."
Meanwhile, van der Oord said Man introduced the fund to the Australian market out of growing investor demand.
"There are a number of investors that wanted to benefit from the performance attributes that the style of Nephila represents - but they may not necessarily have a large sum of money to put to work," she said, which is why the fund has a minimum subscription of US$500,000 in Australia.
Michelle Baltazar
From Financial Standard, published on Wednesday, 18 August 2010 1:15pm
