Arkansas Teacher pension fund ILS pot falls to $139m, Ian effect evident

The Arkansas Teacher Retirement System, a state pension fund that provides retirement solutions to Arkansas education professionals, saw its insurance-linked securities (ILS) allocation shrink further in the last year, while the impacts of hurricane Ian also appear evident in the performance of its ILS portfolio.

Earlier this year, the Arkansas Teacher pension fund saw its ILS allocation shrink to roughly 1% of the overall fund, falling to $220 million as of February 2022.

That was a reduction from a high of roughly $290 million at the end of 2019 and $267 million at the middle of June 2021.

The pension investor appeared to be dealing with some erosion of its ILS positions, due to losses and also a reshuffling of the ILS managers it invests with.

In the past, the Arkansas Teacher pension fund had always maintained a target for a roughly 1.25% allocation to the ILS asset class.

The Arkansas Teachers pension fund had been split its ILS investments between managers Aeolus Capital Management and Nephila Capital.

But, on the advice of consultant Aon Hewitt, the pension elected to shift allegiance from Nephila to Bermuda-based ILS manager Pillar Capital Management in 2021.

Later, as we had previously reported, the Arkansas Teacher Retirement System also elected to wind-down its allocation to an Aeolus Capital Management fund, again on the advice of Aon Hewitt.

The latest portfolio holdings disclosure in board meeting documents seen by Artemis, shows that the ILS allocations to Nephila and Aeolus are considerably smaller now, the key reason for the overall decline in ILS assets to roughly $139 million at the end of October 2022.

The Arkansas Teachers pension funds allocation to Nephila Rubik Holdings, Ltd., a vehicle from the manager Nephila Capital, has now shrunk to $9.01 million. At one stage, the Nephila allocation had been nearer $50 million, but is now in the process of being wound-down.

The Nephila Rubik allocation has recorded a -1.2% return for the third-quarter and -8.2% year-to-date, but given it is being wound down, it is hard to tell how much of that is from this, or prior years catastrophe loss impacts, or just a function of the shuttering of the position.

An allocation to Aeolus Capital Management’s Property Catastrophe Keystone Fund has fallen in size to $40.1 million, down from a high of around $286 million as of late 2019.

Impressively, this Aeolus allocation has recorded a positive 10.3% return year-to-date and 4.3% for the third-quarter, despite hurricane Ian.

The newest ILS allocation, to Pillar Capital Management, was made at December 2021, with it valued at $95.7 million as of the end of February 2022.

The Pillar Opportunity fund allocation was recorded as down to $89.87 million, as of October 31st 2022 and was down -8.1% for Q3 2022, likely due to hurricane Ian’s impacts, but for the year to the end of October stood at -7.7%.

It will be interesting to see how the Pillar ILS allocation performs over the coming months, as some ILS funds are recovering a little of their initial hurricane Ian loss declines, as estimates come in lower than anticipated in some cases.

The Arkansas Teacher Retirement System is just one of the numerous pension fund and major ILS investors we track in our directories here.