PGGM / PFZW ILS portfolio returns 5.5% for H1, AUM slightly down

The broadly diversified portfolio of insurance-linked securities (ILS) and reinsurance investments managed by pension investment firm PGGM on behalf of end-client the Dutch pension PFZW, has returned 5.5% over the first-half of 2024.

The 5.5% ILS portfolio return for the first-half of 2024 is slightly down on the prior year’s 6.3%.

We suspect that the spread developments seen in the catastrophe bond market during the second-quarter may have been a partial driver of the slight decline.

But it’s also important to note that the return of all ILS market benchmark indices are tracking slightly behind 2023 this year, which is perhaps no surprise given last year saw records broken, but that the first-half of 2023 also saw ILS investors and ILS funds benefiting from recovery of values of certain ILS assets after hurricane Ian.

It’s also worth noting that the 5.50% half-year return for H1 2024 from the ILS portfolio is still far higher than the portfolio had achieved for H1 of years 2017 through 2022.

By the end of June there had been a slight decline in the value of assets in the PGGM managed PFZW ILS portfolio, in US dollar terms.

To recap, at December 31st 2023 the PFZW ILS portfolio consisted of EUR 8.219 billion of ILS assets, which was just slightly over US $9 billion at that time.

By the end of the first-quarter of this year, at March 31st 2024, the ILS portfolio had shrunk to EUR 7.724 billion in size, which at that date was equivalent to roughly US $8.35 billion.

Now, in the latest quarterly disclosure made by PFZW, the pension fund’s ILS portfolio is reported at EUR 7.693 billion, which at June 30th was equivalent to just under US $8.24 billion.

So, in Euro terms the PGGM managed PFZW ILS investment portfolio was down just -0.4%, while in USD terms it was valued down by -1.38%.

Not significant by any means and this could just be largely valuation based, especially given the cat bond spread developments.

It’s also worth noting that the ILS portfolio remains on-target at 3.2% of PFZW’s assets at the mid-year, which is the same percentage as a quarter earlier, so suggests a good deal of stability in the main, aside from possible valuation effects.

As we’ve stated before as well, given how PGGM allocates and invests the capital across ILS opportunities for PFZW, changes in valuation do not necessarily mean changes in exposure to the market, or return potential either.

PGGM has worked hard to establish numerous efficient access points to the reinsurance market, which mean it can adjust allocations across them and still maintain its targets for the pension client PFZW.

Finally, it’s worth mentioning that PGGM’s ILS investment team has been working over the last couple of years to keep the portfolio of ILS assets closer to the allocation target it has been set, so stability in that respects suggests the investment manager has perhaps neared a level where the portfolio will remain more balanced for a time.

PGGM remains the largest single investor listed in our directory of pension funds and sovereign wealth funds investing in ILS and reinsurance.