Blackstone multi-strat fund increases PIMCO ILS allocation

Blackstone Alternative Asset Management, the hedge fund solutions unit of Blackstone, upsized its investment into an insurance-linked securities (ILS) strategy managed by asset management giant PIMCO before the end of last year.

The Blackstone Alternative Multi-Strategy Fund, a multi-fund manager focused strategy that has incorporated insurance-linked securities (ILS) and reinsurance for a number of years, has added around $15 million to its allocation to the PIMCO ILS Fund SP II strategy.

Blackstone has been bringing elements of ILS returns to investors in its multi-strategy funds for a long time now, with Nephila Capital a sub-advisor to this Blackstone multi-strat alternatives fund since at least 2013, while Aeolus Capital Management has an allocation from the fund.

Blackstone also has a liking for reinsurance as an asset class and was an anchor investor in ILS asset manager Hudson Structured Capital Management’s funds, as well as the asset manager behind AXIS Capital’s Harrington Re total-return reinsurance vehicle.

In addition, Blackstone sees ILS capital and structures as risk transfer solutions for other asset classes it manages, with real estate a particular focus, as we’d reported before.

When we last covered this Blackstone multi-strategy fund, at March 31st 2022 its allocation to the PIMCO ILS fund strategy was reported as almost $14.3 million, while the cost of the investment was cited as roughly $17 million.

By September 30th 2022, the allocation to the PIMCO ILS Fund SP II strategy was reported as having cost just over $23 million, but was valued at the time as worth $18.37 million.

We believe hurricane Ian and spread widening related price effects in the catastrophe bond market may be the cause of that valuation being lower than the cost.

But Blackstone has clearly decided to increase this PIMCO ILS allocations, as it was reported to be valued at $35.4 million at the end of 2022, based on a cost of just over $37.8 million.

So clearly Blackstone continued to allocate small amounts to this strategy over the remainder of 2022.

Blackstone’s other ILS allocation within its Blackstone Alternative Multi-Strategy Fund, is to Aeolus Capital Management.

At March 31st 2022, the fund reported its allocation to the Aeolus Property Catastrophe Keystone fund strategy at just over $51.7 million, based on a cost of almost $53.5 million.

By September 30th 2022, the allocation to the Aeolus Property Catastrophe Keystone strategy was reported to be valued at $38.6 million, based on a cost of almost $47.4 million.

But by the end of last year, the Aeolus allocation is reported to have increased to a valuation of almost $42.54 million, which is perhaps related to recoveries in valuations of certain positions in the Aeolus portfolio since hurricane Ian.

The fund still has no allocation to Nephila Capital, but the manager remains listed as a sub-advisor, so it will be interesting to see how Blackstone manages the opportunity through 2023, given the evident hardening of reinsurance pricing may be viewed as an attractive point in the cycle to bring more reinsurance and ILS to its multi-strategy fund clients.