Ambassador Fund invests in first cat bonds, renews Consulate ILW deal

The Ambassador Fund, a US mutual investment fund that was launched with a promise to have a core focus on catastrophe bonds, has finally allocated some capital to them in the quarter to April 30th, while also renewing a private ILW arrangement for 2023.

Last September we reported on the launch of the Ambassador Fund, which counts its investment advisor as Embassy Asset Management LP and sits as a series under the Investment Managers Series Trust II, while we also reported in December that Tangency Capital Ltd., an insurance-linked securities (ILS) investment manager that originally had a focus solely on quota share reinsurance business, is the portfolio manager to the Ambassador Fund.

The Ambassador Fund was designed as a cat bond specific strategy, but later last year it adopted a broader investment remit, to allow it to allocate capital to other insurance and reinsurance-linked assets, for which it would not have to reach “qualified institutional buyer” or QIB status.

In order to qualify as a QIB, an investment fund must have at least $100 million in assets and you need to achieve QIB status to invest directly in cat bond notes, hence the Ambassador Fund still doesn’t hold any at this stage.

However, we can now report that the Ambassador Fund began investing into catastrophe bonds earlier this year, despite its net assets still falling short of the $100 million mark, suggesting the manager had found another way to achieve its goal and start to grow the strategy, which is a positive sign.

As of October 31st 2022, the Ambassador Fund had $27.4 million of net assets under management, up very slightly from the $27.13 million it reported for July 31st.

At the time, the only ILS investment the Ambassador Fund was holding was an industry loss warranty (ILW), the Consulate Re 2022-1A preferred notes.

By January 31st 2023, the Ambassador Fund reported $38.5 million of net assets under management, but still hadn’t allocated to any other ILS assets at the time.

It’s now clear the fund began to allocate to cat bonds after that date, with the latest total net assets figure having reached just over $82.1 million at April 30th 2023, and total assets reported as $98.8 million.

Within the portfolio is a renewal of the Consulate Re preferred note, with a 2023-1 issuance invested in, presumably another ILW given the name, which is valued at almost $3 million.

But now there are numerous catastrophe bonds also in the portfolio, across a range of both industry-loss and indemnity trigger deals, including some recent 2023 issuance.

In total, the Ambassador Fund now holds over $72.4 million of catastrophe bonds, so the Tangency Capital team has been busy investing in cat bonds through the February to April.

We’d assume that’s continued since then, given the strength of the cat bond market.

Looking at some fund data services we have access to, the Ambassador Fund appears to now have total net assets of $93.2 million, suggesting the managers have been able to continue deploying through the latest quarter to-date and investing in cat bonds.

It’s an encouraging sign and shows that the Ambassador Funds managers and marketers have got to the stage where they could begin building out the cat bond portfolio, which given market conditions and the fact spreads have already peaked, is particularly timely and will allow them to start building momentum with investors.