Plenum cat bond funds see record performance, despite significant de-risking

Plenum Investments, the specialist Zurich-based asset manager, has seen its two catastrophe bond funds deliver record performance so far this year, despite a significant de-risking having been undertaken over the last twelve months.

Plenum Investments has been reducing the expected loss of the cat bond fund portfolios, as well as reducing the value at risk at the 99th percentile for each.

The result has been cat bond fund portfolios that are lower-risk, compared to their previous iterations, even while having much higher return potential given the improved spreads and risk-free rate yields available.

The Plenum CAT Bond Fund, which is the investment manager’s long-standing cat bond fund strategy that has a track-record of nearly one decade, has delivered an impressive 11.95% performance to final week of October, which is a 7% return above the money market yield and 3% above target.

Considering this cat bond fund is designed to be one of the most conservative available, it’s a clear reflection of the very high cat bond returns available and the contribution of collateral yields to driving cat bond fund performance.

On the risk level of the Plenum CAT Bond Fund, the asset manager has reduced the expected loss of the fund portfolio by over 15%, while the VaR at the 99th percentile has fallen by more than 12%, all in the last year.

Plenum’s other cat bond fund, the Plenum CAT Bond Dynamic Fund, follows a higher risk and reward strategy in the cat bond sector, so providing a differentiated offering to Plenum’s flagship cat bond strategy.

Launched in 2021, the Dynamic higher-yielding catastrophe bond fund strategy is also reporting record returns year-to-date, with 13.7% performance to the last days of October.

It’s now tracking at 9% above the collateral return and running at 3% above the target for the Dynamic cat bond fund.

During 2023, Plenum again took the opportunity to de-risk the Dynamic CAT Bond Fund, with the expected loss of the portfolio falling by a significant 30.5% in the last twelve months, which also saw VaR at the 99th percentile dropping by almost 25%.

Despite that significant decline in risk level, the Plenum Dynamic CAT Bond Fund is delivering its investors very strong returns, reflecting the way ILS managers like Plenum have been able to optimise to the hard market environment, to really maximise returns while also reducing risk for investors.

Looking ahead to 2024, Plenum Investments expects performance will remain high for its two cat bond fund strategies, with the low volatility Plenum CAT Bond Fund strategy targeting a 10% return for 2024 in USD, while the higher-yielding Plenum Dynamic CAT Bond Fund strategy is forecasted for at least 10%, with 13% or more returns possible.

Plenum has noted though that it will re-risk the Dynamic CAT Bond Fund Strategy a little, to take advantage of market issuance and ensure its portfolio is well set-up for the next year.