Stone Ridge grows mutual ILS funds 24%, cat bond strategy hits $2.1bn

Stone Ridge Asset Management, the New York based asset manager an alternative risk premia focus, has clearly demonstrated a strong return to growth for its mutual insurance-linked securities (ILS) fund strategies, adding 24% in ILS assets in the last quarter of record and with its cat bond focused strategy reaching a new high of $2.1 billion in AUM.

Back in 2018, Stone Ridge had almost $7 billion in assets under management (AUM) across its two dedicated mutual ILS fund strategies.

Losses and changes in investor preferences saw its interval ILS fund, that mainly invested across reinsurance sidecars, private collateralized reinsurance and private quota share arrangements, shrink significantly over the following years, but in the last quarter of record even that strategy has reported a slight return to growth.

When we last reported, on the quarter to April 30th 2023, Stone Ridge’s two dedicated mutual ILS funds counted $2.63 billion of assets across them, while the investment manager had also begun to build out the cat bond and ILS component of another mutual diversified alternative investment fund strategy, with some $250 million of ILS assets housed there as well.

For a total of roughly $2.83 billion over the two dedicated mutual ILS strategies and the diversified alternative fund, at April 30th this year.

One quarter later, the total across these three strategies has increased by almost 24%, to reach just over $3.5 billion, a particularly strong growth quarter for the Stone Ridge ILS fund strategies in a mutual investment fund format.

Looking into the funds, there has been significant new flows and investments made into catastrophe bonds, reinsurance quota shares and sidecars, as well as some other collateralized reinsurance instruments.

Starting with Stone Ridge’s more catastrophe bond focused mutual ILS fund, the Stone Ridge High Yield Reinsurance Risk Premium Fund, which is not an interval structure, this fund had $1.67 billion in assets at April 30th, but this had increased by roughly 26% to almost $2.11 billion at July 31st 2023.

That is another new high for the Stone Ridge cat bond focused investment strategy, surpassing $2 billion for the first time in its history as well.

Next, the Stone Ridge Asset Management Reinsurance Risk Premium Interval Fund, that invests across the spectrum of ILS and reinsurance-linked assets, which had seen its assets under management fall to roughly $960 million at April 30th, but has now recovered to put in its first quarter of growth for a number of years to reach $1.07 billion at July 31st 2023.

This interval ILS fund strategy had been stabilising over recent quarters, as the outflow of investor assets was slowing and losses increasingly being realised and settled on positions.

It will be interesting to see if this fund is now better positioned to return to a stable growth path, especially given the much improved returns available in reinsurance assets such as sidecars and private quota shares.

Finally, the Stone Ridge Diversified Alternatives Fund, which counted zero catastrophe bonds or ILS assets in its portfolio as recently as last October.

This fund had roughly $250 million of ILS assets, led by cat bonds, at the end of April 2023, but by the end of July this year the ILS component had increased to $330 million.

Stone Ridge’s commitment to sourcing insurance and reinsurance linked returns for its mutual fund clients has been clearly demonstrated in the last quarter of record.

Remember that the investment manager also has a number of billions of dollars in private ILS funds and via its Long Tail Re structure as well, so Stone Ridge remains an important provider of reinsurance capital to the market and it looks like that role may be set to increase further, given the attractive ILS investment environment.