Stone Ridge cat bond fund grows, ILS interval fund sees outflows

Stone Ridge Asset Management, the New York based asset manager with a focus on alternative risk premia strategies including reinsurance and insurance-linked securities (ILS), saw its overall assets across its mutual ILS funds shrink slightly in the last quarter of record.

But, once again, it’s a mixed picture, with positive flows to Stone Ridge’s more catastrophe bond focused mutual investment fund, while the interval style reinsurance and ILS fund that focuses more on quota shares shrank more quickly than in recent periods.

This follows the pattern of recent quarters, with some investors exiting the more loss affected interval style mutual ILS fund strategy, but some of those allocating to Stone Ridge’s cat bond fund instead.

In fact, Stone Ridge’s cat bond focused mutual fund strategy is now almost one-third larger than it was a year ago.

But, over the same period, Stone Ridge’s interval style ILS fund, with the collateralized reinsurance and quota share focus, has shrunk by roughly 42% over the same period.

When we last reported on the Stone Ridge mutual ILS funds, their assets under management had shrunk slightly by just 1% to $3.04 billion at January 31st 2022.

As of April 30th, overall mutual ILS fund assets under management across the two funds reported by Stone Ridge had fallen by another 3%, to $2.94 billion.

It’s the first time Stone Ridge Asset Management’s mutual ILS and reinsurance fund AuM has fallen below $3 billion since 2015, and the figure reached a high-point of almost $7 billion in late 2018.

Since then, Stone Ridge has significantly expanded its ILS and reinsurance investment offering, to include its Longtail Re platform, as well as other private ILS fund strategies.

As a result, its overall ILS assets under management are much higher than just the two remaining mutual ILS funds.

But, over the last year, the mutual ILS funds have lost roughly 15% in AuM, alongside the shift towards cat bonds as the more suitable asset for a more liquid mutual 1940’s Act investment fund opportunity.

The Stone Ridge High Yield Reinsurance Risk Premium Fund, which is the more catastrophe bond focused strategy, grew in the quarter to April 30th 2022, to reach $1.71 billion in assets, up 14% from the end of January.

Meanwhile, the higher-risk and reward, but less liquid, Stone Ridge Reinsurance Risk Premium Interval Fund (SRRIX) ended April 2022 with $1.23 billion of assets, down around 20% from January 31st.

In terms of investor flows, to the two Stone Ridge Asset Management mutual ILS funds, the more cat bond focused Stone Ridge High Yield Reinsurance Risk Premium Fund added around $250 million of new commitments in the last quarter of record, while the Stone Ridge Reinsurance Risk Premium Interval Fund lost around $350 million due to investor redemptions and outflows.

Investor churn has affected Stone Ridge in recent years, while catastrophes have hurt its less-liquid interval fund strategy due to trapped positions and realised losses, like so much of the collateralized reinsurance fund marketplace.

But the investment manager remains constructive on reinsurance and ILS and the firm’s CEO said in his last annual report letter that Stone Ridge has the highest forward conviction on the reinsurance sector since its launch in 2013.