ORIGINAL PUBLICATION HERE
A new investment management firm, formed this year and headquartered in New York, is launching two reinsurance-linked investment funds targeting investors looking for either a medium yield or high yield approach to reinsurance investing. Stone Ridge Asset Management is led by CEO Ross Stevens, a former Magnatar Capital co-head of portfolio management. We understand that these reinsurance strategy funds are the first to be launched by the firm.
From the information we’ve seen in SEC filings, after we noticed the report on FINalternatives here, Stone Ridge Asset Management are actively fund-raising for two reinsurance-linked investment hedge funds, both of which will invest in instruments across the insurance-linked security and reinsurance spectrum. The SEC documents show that one fund will target a median return for investors while the other will make investments in riskier reinsurance-linked assets to provide a higher yield to its investors.
The two funds are called the Stone Ridge Reinsurance Risk Premium Fund and the Stone Ridge High Yield Reinsurance Risk Premium Fund. Both will invest in a range of reinsurance opportunities from catastrophe bonds, ILS, industry-loss warranties (ILW’s), quota shares, longevity bonds, mortality bonds and other types of reinsurance securities.
Both funds generally aim to capture a reinsurance risk premium, the circular says, with the first aiming to invest across the reinsurance yield range to offer a median return while the high yield fund will aim for a higher return by making riskier investments.
The circular cites the attraction of the sector as being the generally uncorrelated nature of reinsurance when compared to traditional assets and says this presents a meaningful opportunity to investors. The filing says about both funds; ” Stone Ridge Asset Management LLC (“SRAM” or the “Adviser”) will manage the Fund to accumulate a broad range of event-linked risk exposures with defined expected loss by systematically selecting from a wide universe of eligible instruments.”
The launch of another hedge fund manager looking to capitalise on the reinsurance space at this time will help more capital flow to the alternative reinsurance space and into alternative reinsurance instruments. Interestingly the Stone Ridge website shows an office based in China so it is possible that they intend to try to attract capital from Asia into the space which would be an interesting strategy. Also it looks like Stone Ridge will be targeting a broader range of alternative investments outside of reinsurance as well, likely by launching other hedge funds. We assume Stone Ridge will be targeting to begin deploying capital at the upcoming renewal season.