First ILS-based fund-of-funds launched
The world’s first fund-of-funds dedicated solely to investing in insurance-linked securities (ILS) has been launched by ILS Advisers, an Asia-based investment consultant focused exclusively on ILS deals.
The fund, called ILS Diversified, will invest in an actively selected set of ILS funds to achieve what it describes as the best possible returns across the market.
The launch comes two years after the launch of Eurekahedge ILS Advisers Index, an equally weighted index of 33 dedicated ILS funds that tracks their performance and provides a benchmark for how the ILS market is performing.
Stefan Kräuchi, founder of ILS Advisers and the ILS Diversified fund, said: “I am very pleased to announce that two years after the official start of the Eurekahedge ILS Advisers Index we are now launching the first ILS fund-of-funds that allows investors to achieve similar returns as the index with slightly less volatility. We manage the fund by leveraging off the know-how that we have built up over time by establishing and maintaining the Eurekahedge ILS Advisers Index.”
ILS Advisers has derived a scoring strategy, both qualitative and quantitative, with which it has assessed and scored the majority of the ILS funds available in the market. It selects the top funds with the strongest performance and lowest volatility and invests across them all.
“ILS Diversified is a high quality, attractively priced ILS fund product based on our rigorous fund selection process combined with our state of the art proprietary portfolio construction approach that combines traditional portfolio optimisation with risk management techniques from the reinsurance industry,” said Kräuchi.
“At first we were a bit sceptical ourselves about a fund-of-funds approach. However, given the nature of the asset class it makes a lot of sense since the performances of the different funds in the index tend to show wide dispersions in the case of risk events and therefore diversification benefits are evident. By limiting ourselves to a selection of 8 to 10 funds we avoid the risk of over-diversification, meaning the risk of diversifying away performance.”
Kräuchi said that feedback about the fund-of-funds has been positive: “Not only from potential investors but also from ILS managers our fund has received very positive feedback. We are convinced that our fund will bring new investors to the asset class who either do not have the resources to do their own analysis and due diligence on the different ILS funds or for investors who want to take a diversified approach to the asset class.”
