UCITS disaster mutual fund as a group have increased their assets considerably over the in 2015, with sped up growth of the cat bond market and rising interest in ILS investments helping to move the UCITS cat bond funds we track to possession development of roughly 58% in just one year.Over that period, top place position for the largest UCITS feline bond fund has actually likewise altered, as Schroders has actually now overtaken GAM, after Schroders GAIA Cat Bond Fund overtook the GAM Star CAT Bond Fund (which is portfolio managed by Fermat Capital Management) in regards to properties held in the method.
At the end of May 2020, a group of 15 main UCITS cat mutual fund had accumulated catastrophe bond assets of just over US $5.1 billion.
By the end of May 2021, just one year later, that figure had actually grown substantially, with the very same 15 UCITS cat mutual fund counting some United States $8.05 billion of cat bond properties under their management.
Thats almost 58% development in a single year, reflecting the growing importance of UCITS funds in the catastrophe bond market.
Over the same duration the outstanding market for catastrophe bonds had actually grown, however by a far smaller portion, suggesting the UCITS fund strategies have actually also taken market share of cat bonds.
Over that period, May 31st 2020 to May 31st 2021, the biggest UCITS feline bond funds have all increased in size.
Growth is similarly outstanding over 2021 to-date, as the 15 UCITS cat bonds have actually increased their aggregate asset volume by 19% over the duration, from just over $6.75 billion at the end of December 2020, to the over $8 billion recorded at the end of May 2021.
Schroders GAIA Cat Bond Fund method has experienced particularly strong growth, with its properties increasing from simply under $1.2 billion at the end of May 2020 (according to the date weve sourced) to an excellent $2.37 billion since completion of last month, representing around 98% development.
Twelve Capitals UCITS feline bond fund really grew by a greater proportion over the last year, increasing in size by a huge 151% to just under $1.5 billion by the end of May this year.
Likewise, Leadenhall Capital Partners Leadenhall UCITS ILS Fund grew by 92% throughout the years, to end May 2021 at around $511 million, fund data shows.
The GAM Star Cat Bond Fund, managed by Fermat, grew more slowly, only by 31%, to $2.26 billion over the very same one-year duration.
A year ago, the GAM UCITS cat bond fund was the biggest by some $524 million or two, now it has actually fallen back Schroders offering by just over $100 million.
The development achieved by some UCITS cat mutual fund managers is a clear indication of investor demand for the feline bond property class, along with the raised issuance in the market that has enabled this growth.
There is one essential truth to consider though.
The catastrophe bond market is only so big, constraining the investment opportunity somewhat.
Managers of feline bond funds do have to be a little mindful not to grow too rapidly, or release of capital can end up being more challenging and of course inflows to funds that require to be released can affect execution prices.
Its not a surprise then that feline bond prices has actually softened somewhat over the in 2015, as clearly there has actually been adequate capital and demand from these funds to support strong execution for sponsors.
This can become a concern for feline bond funds with specific threat and return targets, specifically for those targeting greater returns, as these opportunities can be restricted in main issuance and raising excessive capital can therefore make maintaining targets more of a challenge, particularly if you need to deploy it and no new higher-yielding chances emerge.
Which can also drive secondary market value pressure, as investors want to source their targeted return profile through secondary market trades.
The larger UCITS funds tend to target a more comprehensive spread of the market for their financiers, so that can be less of a concern.
In a constrained market, such as feline bonds, being bigger does not always make managing the portfolio any simpler.
In reality it can often add layers of difficulty around choice of dangers, that the smaller sized to mid-sized cat bond funds might not face in the very same method.
However with issuance of brand-new disaster bonds still speeding up and records set to be broken at the half-year, currently there is most likely sufficient brand-new paper to satisfy the bulk of UCITS and other feline bond funds, although this constrained market still suggests that portfolio management is key in order to sustain target return profiles of funds.