Plenum Investments in UK cat bond fund push
Catastrophe bond returns uncorrelated to other asset classes, managers say
A Swiss asset manager is the latest to make a push into the UK market with its catastrophe bond fund, saying it offers investors returns that are not linked to equity markets.
Zurich-based Plenum Investments is seeking to gain traction among retail investors with its $22m Plenum CAT Bond Fund, currently available in Swiss franc, US dollar and euro share classes. Chief executive Rainer Grunig said a sterling share class will be launched if there is strong UK interest.
Domiciled in Liechtenstein, the fund has a UCITS II structure and a minimum investment of 100 dollars, euros or swiss francs. Grunig said Liechtenstein is a more attractive domicile than Luxembourg because it is cheaper for smaller funds to operate there.
Funds investing in catastrophe bonds have gained the most interest among institutional investors and pension funds, which are seeking alternative assets with little or no correlation to traditional markets during a time of stagnant growth and low interest rates.
Catastrophe bonds are issued by large insurance groups to access capital markets as an alternative to traditional forms of reinsurance.
And while the idea of insurance-linked securities might make some people think of life settlement funds, Grunig said this is not the case.
“When people understand what we are doing here, they will understand that it has nothing to do with life settlements,” Grunig said.
Stephen Peters, analyst at Charles Stanley, said the advantage with cat bonds is their low correlation to other asset classes. “They offer the potential for very high returns if there are no events during the life of the bond,” he said, but added that major natural disasters and accidents could result in instances of reduced performance for these funds.
Peters said they can be a tough sell in the retail market because they can be confusing and often have high fees. “A pretty good rule of thumb when investing is don’t invest in anything you don’t understand,” he said, although he added that these funds offer income yield as well as capital growth.
Plenum’s fund can invest across a range of risk asset classes, such as natural catastrophes, aviation and aerospace, marine and energy infrastructure.
Earlier this year, GAM had to limit new investments into its $180m Star Catastrophe Bond fund due to a lack of new issues in the market.