Schroders is the latest institutional player to strengthen its involvement into the insurance-linked securities (ILS) space with a 30 percent acquisition of Swiss-based Secquaero Advisors.
Commenting on the move, Stephen Mills, head of Switzerland at Schroders said, “insurance linked securities is an exciting and growing investment category offering attractive risk-adjusted returns, while at the same time genuinely diversifying the portfolio. We are delighted to be able to offer this new asset class to our institutional clients.”
Schroders spoke with Bermuda:Re about its plans in the ILS space.
What has attracted Schroders into the ILS space?
Besides broadening our product offering for institutional clients, we were attracted by ILS as an asset class because of its excellent diversification benefits and attractive risk-return profile. Also the track record of the Secquaero funds, the team’s experience (>180 years amongst the team) and risk management capabilities have been important considerations for Schroders.
How do you see ILS fitting into the wider Schroders portfolio?
This depends on the type of client and their objectives. For some clients such as fund-of-funds and discretionary managers it would be allocated to the alternatives ‘bucket’ as a low volatility absolute return strategy, whereas for institutional investors such as pension funds the diversification benefit is quite important. We have been using ILS for some time now within some of the multi-asset portfolios that we manage and expect it will become a more common element within multi-asset portfolios over time as the asset class matures and deepens.
ILS could also be part as clients’ fixed income portfolios if they would be concerned about the current levels of yield and spreads and would be looking to diversify their bond allocation. For these investors the short duration and low correlation with credits would be a key attraction.
Do you see this being a long-term venture into the ILS space?
Yes, this is very much a long-term partnership. We have carefully examined the two organisations’ cultures and skill sets and are convinced that the combination will make us one of the leading managers in this sector.
Considering the level of investor interest do you expect the greatest challenge facing ILS investors being supply?
While there presently appears to be a short term overhang of demand in the more liquid cat bond segment we believe that this will ease over time as sponsor insurance companies and (quasi-) governmental bodies (such as the Turkish Catastrophe Insurance Pool presently in the market with the new Bosphorus Re transaction) gain additional comfort in working with institutional investors as capacity providers.
In addition, there is plenty of scope for growth in the less liquid private OTC transactions both in the cat and non-cat space. This is one of the reasons why we chose to align ourselves with Secquaero. Their founders have been amongst the pioneers in developing new products in this asset class since the mid 1990’s and we are convinced that the combination of Schroders and Secquaero will many new investing opportunities for our clients.
Schroders, Secquaero Advisors, ILS, asset management