LGT expects pipeline of additional investors for Australian cat bond fund

LGT ILS Partners, the specialist dedicated insurance-linked securities (ILS) investment unit of the private bank and asset manager LGT Capital Partners, is anticipating a flow of additional investors for one of its more recent fund launches, an Article 8 catastrophe bond fund offering for Australian institutions.

LGT Capital Partners expanded its insurance-linked strategies (ILS) offering to Australia around the mid-point of last year, by launching the LGT (Lux) Dynamic Cat Bond Fund.

This fund strategy focused on investments into natural catastrophe bonds diversified across key perils in developed regions, targeting a similar level of risk to the broader cat bond market.

Classified as an Article 8 fund under the Sustainable Finance Disclosure Regulation (SFDR), this LGT ILS fund offering seeks to promotes environmental, social and other ESG characteristics.

The cat bond returns are delivered through exposure to the occurrence of peak insurance events, such as hurricanes or earthquakes, and the risks are spread across the US, Europe, Japan and Australia in the main.

Six months after the cat bond fund’s launch, by the end of 2023 this strategy had delivered a return of close to 6% in the AUD hedged share class to its investors, net of management fees and costs.

The LGT cat bond fund is available to qualified or wholesale investors in Australia, while it offers biweekly liquidity in line with UCITS liquidity standards.

LGT launched the new cat bond fund strategy last year with an initial investment from an Australian-based institutional investor.

Looking ahead, LGT anticipates a pipeline of additional Australian investors that is says are “expected to follow in the coming months.”

Michael Stahel, Partner and Portfolio Manager at LGT ILS Partners said, “2023 has been an exceptionally good year for ILS investors, and we are pleased with the performance of the Dynamic Cat Bond Fund in Australia in the first half year since its launch. The fund complements our existing suite of strategies.

“With increasing pressure on primary insurance companies to meet regulatory capital requirements, we continue to see a strong deal flow in the primary cat bond market at very attractive yield levels.”

Nathan Pensabene, Head of Sales Australia at LGT Capital Partners, added, “After a challenging 2022 for traditional investments, and with the outlook for the broader financial markets remaining uncertain, we saw increased interest in liquid investment strategies with the potential to provide real diversification during 2023. ILS are an interesting asset class for investors as they are liquid, have limited correlation to other asset classes and benefit from higher cash rates. Our ILS team is one of the most experienced in the market, as it started investing in the asset class back in 2005. We are pleased to be able to offer this new fund to our Australian clients.”