Factorial Funds adds ILS & reinsurance investing to its strategies

Factorial Funds, a Los Angeles headquartered global asset manager, historically better known for investment strategies with a technology, venture capital and growth equity focus, is entering the insurance-linked securities (ILS) space, while also looking at other reinsurance opportunities as well.

It’s always interesting to see different kinds of asset managers looking to enter the ILS market, as it shows an expanding awareness and interest of the asset class, as well as a recognition of the diversification benefits and return-potential of ILS and reinsurance.

Factorial Funds has investment holdings across the technology, financial services, media, and consumer sectors and typically allocates capital across a range of asset classes, including bonds, structured credit, private equity, and venture capital.

While the focus at Factorial Funds has always been on those market sectors, the manager also looks to identify trends, irregularities, and market dislocations in areas like demographics, supply and demand, and changing regulations, as a way to identify new investment opportunities and for its portfolio companies.

ILS and more broadly reinsurance are seen as one new investment opportunity for Factorial Funds and the asset manager plans to launch its own ILS fund strategy, Artemis has learned.

We spoke with founding partner Sol Bier to find out a little more about the motivation to enter the ILS asset class, as well as where the initial focus will be.

Bier explained that market conditions are conducive to leveraging the firm’s expertise in growth stage investing, as well as in identifying new asset class opportunities.

“We see the current hardening market as an opportune time to invest across multiple areas within the re/insurance landscape,” he explained.

Two specific opportunities are in focus for Factorial Funds.

First, the growth equity type strategy, on which Bier said, “First, by seeding new or acquiring existing (re)insurers in lines of business that we are excited about. Our goal is to find adequately priced, longer-tail, low-volatility reinsurance business to generate float, and investing for higher risk-adjusted asset returns.

“We are in discussions with a few targets, and welcome any companies interested in expanding to reach out.”

The other opportunity for Factorial Funds, is to launch its own insurance-linked securities (ILS) fund strategy.

“Second, by investing in appropriately priced property-cat risk via ILS, sidecars and other alternative vehicles,” Bier said.

The plans are well-formed, with Bier telling us that, “We will invest our own capital into seeding or acquiring insurance carriers, and raise from our our existing investor base for our ILS fund.”

Factorial Funds’ own investor base is aware of the opportunity truly diversifying alternative asset classes present, Bier explained.

Saying, “Our investor base is constantly searching for non-correlated, alternative investments.”

Adding, “We believe the current market is one of the most attractive since 2001 and 2005, and we see many parallels between the private equity firms who entered then and our strategy now.”

The insurance, reinsurance and ILS markets have been undergoing a period of flux and change, with dramatic improvements in pricing and terms, while technology is delivering new ways to analyse and underwrite risks, all of which plays into experience of the Factorial Funds founders and team.

“Our firm’s partners were prior founders and operators, and values its entrepreneurial roots. We are just as comfortable growing our businesses through internal growth as through acquisitions,” Bier commented.

Right now, Factorial Funds is building out specific ILS and reinsurance expertise within its business, currently hiring for a VP of Insurance Linked Securities role, which is listed on the Artemis Job Board.

It’s encouraging to see more interest among asset managers to add ILS to their strategies, as it signals a continued maturation of the asset class, as well as the attractive investment opportunity.