Fermat launches & grows own-brand UCITS cat bond fund above $530m in 2024

Fermat Capital Management, one of the largest specialist investment managers of catastrophe bonds and insurance-linked securities (ILS) assets, launched a new UCITS cat bond fund strategy earlier this year in February, which we’ve learned has already grown above $530 million in assets.

Interestingly, the Fermat UCITS Cat Bond Fund strategy has been growing over a period that the GAM Star Cat Bond Fund has shrunk somewhat, with it believed that some investors may have opted to move their allocations across to the Fermat-branded UCITS cat bond fund.

Fermat Capital Management launched this first UCITS cat bond fund strategy that takes its own brand name in February 2024, Artemis understand.

The cat bond manager actually established an Irish Collective Asset-management Vehicle (ICAV), which was authorised by the regulator in Ireland as an Undertakings for Collective Investment in Transferrable Securities (UCITS), back in 2016.

In late 2023, Fermat registered its first UCITS sub-fund under this ICAV, which is this Fermat UCITS Cat Bond Fund.

Here, it’s worth looking back at what could be a driver for Fermat’s first own-brand UCITS cat bond fund launch.

For years now, Fermat has worked closely with asset manager GAM Investments, acting as portfolio manager and investment advisor to the extremely successful GAM Star Cat Bond Fund, a UCITS strategy, as well as some other strategies distributed by GAM.

In fact, the Fermat Capital Management managed GAM Star Cat Bond Fund was at one stage the largest UCITS cat bond fund strategy, at around $2.85 billion at the mid-point of 2023.

However, demonstrating the importance of the Fermat relationship to the investment firm, GAM has counted as much as CHF 5 billion of assets that were managed by Fermat under its branded funds, at one stage and repeatedly cited the growth of the cat bond funds as a key area of strategic success in recent times.

GAM Investments has undergone some upheaval in the last year or so, due to questions over its ownership and a failed takeover bid, then an insider buy-in to its equity and more recently a need to shore up the balance-sheet capital through a rights issue.

GAM lost around 17% of its assets under management through 2023, coming out the other side of this turbulent period not unscathed but with a new purpose and strategy.

But, the decline in assets under management was to be expected, as some investors are not fans of witnessing volatility in the operations of the institutions holding their assets.

All of which goes some way towards providing an explanation, of sorts, for why Fermat has chosen to launch its first own-brand UCITS cat bond fund in 2024.

As we said, the Fermat UCITS Cat Bond Fund was launched in February and we understand began its life with a significant first investment and counted $316 million of assets as early as February 26th 2024.

Interestingly, the GAM Star Cat Bond Fund, shown to the right in this Bloomberg terminal screenshot, reported a drop in assets of just over $250 million in the same month.

The GAM Star Cat Bond still has assets in the strategy of almost $2.5 billion, so is by no means a small fund and remains one of the largest in the marketplace.

But, it looks apparent that Fermat Capital Management has provided optionality for investors that might have wanted to exit the GAM strategy, due to the volatility and uncertainty that hung over that company.

Of course, it also makes a good deal of sense for Fermat to also have its own branded cat bond UCITS fund strategy anyway, as the manager is among the best known asset managers in insurance-linked securities (ILS) and its name will stand-out when investors search for UCITS strategies to allocate to.

The investment manager does have a range of funds using its own name, but none of those were structured as UCITS before this new fund launch in 2024, we believe.

Since the launch of the Fermat UCITS Cat Bond Fund in February, the investment manager has steadily grown the strategy and, as of the beginning of this week, its assets under management stood at almost $537 million.

That’s a very rapidly growing fund, which given the well-capitalised nature of the catastrophe bond market and even despite the market’s growth, it would have been hard to see a manager being able to deploy that amount of freshly raised capital over such a short period, without some of it at least having been transferred from another strategy in the market.

We suspect this new Fermat-branded UCITS catastrophe bond fund will keep growing over time, but there is every chance that the GAM one stabilises, perhaps grows further as well, as that asset manager continues to out the business back on more stable footing.

Either way, having its own-brand UCITS cat bond fund makes perfect sense for Fermat Capital Management, as one of the leading managers of ILS assets, can now capitalise on its brand recognition among investors as well.

With close to $10 billion in catastrophe bond and ILS Assets under management, Fermat Capital Management is currently the largest ILS investment manager listed in the Artemis ILS Investment Manager Directory.