For investors seeking Ucits funds with exposure to regions with a high concentration of insured wealth, Schroders has launched a cat bond fund on the global alternative investor access (Gaia) platform.
The main objective of the Schroder Gaia Cat Bond fund is to generate a positive performance over the medium to long-term by investing globally in catastrophe bonds (minimum 80 per cent) and other tradable insurance-linked securities. Its primary exposure will be in areas such as the United States, Western Europe and Japan.
The fund’s outperformance target is three-month USD Libor plus 6 per cent per annum net of fees. Managers will seek to generate total returns with a low correlation to traditional assets.
From launch, the fund will be merged into the existing NGAR Secquaero ILS fund, which has been managed by Daniel Ineichen, who will manage the new Schroders cat bond fund.
It has an initial minimum investment of $100,000 or local currency equivalent, and an annual management charge of 1.5 per cent.
Comment
Cat bonds are doing well at the moment, with each major global catastrophe like Hurricane Katrina and the Japanese earthquake and tsunami only adding to the desire for them.
The premise of cat bonds is that they are usually insurance-linked high-yield debt instruments that are used to raise money in the event of a catastrophe. They have special conditions that stipulate if the issuer suffers a loss from a specific and pre-defined event, then the issuer’s obligation to pay interest or repay the principal is either erased or deferred.
Demand from investors is strong (according to Artemis, investors are buying cat bonds at the fastest pace in six years) so it comes as no surprise Schroders is making a new offering.
The initial investment of $100,000 is extremely high for a retail fund. This means for all but the wealthiest investors, the Schroder Gaia Cat Bond fund will be out of reach. However, putting the fund on the firm’s platform for Ucits funds is designed to give investors easier access to hedge funds.
Taking an approach with low correlation to traditional assets can only be a good thing, but investing $100,000 or the local currency equivalent in what’s essentially a bet against huge natural disasters will always be a big commitment for investors.
