J.P. Morgan / Coutts liquid alts fund adds catastrophe bonds, with up to 10% permitted

A multi-manager liquid alternatives investment fund strategy managed by J.P. Morgan and offered to clients through a partnership with British private bank and wealth manager Coutts & Co. has updated its investment policy to allow up to 10% of the strategies assets to be allocated to catastrophe bonds.

This liquid alternatives fund, the JPMorgan Investment Funds – Coutts Diversifying Alternatives Multi-Manager Fund, has been exclusively available to Coutts clients since August 2024.

The fund has almost $628 million in assets under management, allocated across sub-investment managers into selected strategies that fit the liquid alternatives mandate.

The investment objective is to, “To provide long-term capital appreciation by investing in multiple eligible asset classes globally, employing a variety of non-traditional or alternative strategies and techniques, using derivatives where appropriate,” the fund’s factsheet states.

Currently this is achieved through allocations to non-affiliated managers of long/short equity funds, relative value funds, merger arbitrage and event driven funds, macro or opportunistic funds and credit funds.

In a letter to investors in the fund from its Board that we’ve seen, an investment policy update has been announced, that will “permit up to 10% of assets to be invested in catastrophe bonds,” the document states.

The Board explained, “The Investment Manager believes that permitting up to 10% of assets to be invested in catastrophe bonds would be in the best interests of investors as the asset class presents a growing opportunity for better risk-adjusted returns.

“Moreover it offers investors a return that is generally uncorrelated with the rest of the Sub-Fund’s portfolio and acts as a unique source of diversification within the context of a portfolio of other traditional asset classes and alternative strategies.”

The change to the investment policy and the potential inclusion of catastrophe bonds as a sub-strategy allocated to, is not expected to result in any material increase in risk profile to the overall multi-manager strategy, the document says.

Being added to the description of the fund is the following text, “The Sub-Fund may invest up to 10% of its assets in
catastrophe bonds. The Investment Manager will aim to control the exposure to a single catastrophe event through diversification across perils, regions and issuers.”

Investors in the Coutts Diversifying Alternatives Multi-Manager Fund are told that they have an option to switch out of this fund to another, or to redeem their investment, if they are not comfortable with the change to include catastrophe bond exposure in the strategy.

The change is effective as of January 14th 2025, after which this multi-manager liquid alternatives fund could quickly allocate up to 10% of its assets to a cat bond strategy, it seems.

No information is given on which sub-investment fund or manager of it may be chosen.

As we’ve said before, moves like this are indicative of a broader trend, of catastrophe bonds and insurance-linked securities (ILS) being added as an allowed asset class to a growing number of multi-strat funds.

A wide and expanding range of investment managers are gaining an appreciation for cat bonds and ILS, especially for the way the return-stream from this asset class can complement broader fixed income and alternatives portfolios.