Stone Ridge hits $10bn of assets across cat bonds, ILS and reinsurance

Stone Ridge Asset Management, the New York based alternative risk premia focused investment manager, has reached a significant milestone in the development of its reinsurance investment franchise, hitting the $10 billion mark in assets under management (AUM), Artemis has learned.

This significant figure is testament to the smart approach to partnerships that Stone Ridge has adopted in rolling out its suite of alternative investment strategies.

Stone Ridge aims to partner with the range of sectors it allocates capital to, as well as with the investors that provide the funding, looking to identify opportunities where its capital efficiency and innovative approach can generate alpha for its investor clients.

Stone Ridge began its reinsurance investing back in 2013, when it launched its first in a range of mutual ILS and reinsurance focused fund strategies.

Since then, the investment manager has broadened the scope of reinsurance and ILS investing considerably, while building out a platform for originating and structuring opportunities.

The now more than $10 billion in assets under management is spread across Stone Ridge’s three-pronged reinsurance investment offering, catastrophe bonds, quota shares and the Longtail Re casualty reinsurance strategy.

In an investor letter seen by Artemis, Stone Ridge explains that the partnership-driven business model it follows allows it to succeed at scale, when often AUM is seen as the “enemy of performance” in many asset classes.

The catastrophe bond strategy has invested more than $8 billion in assets since its inception. It’s always challenging to understand the exact size given the strategies and mandates Stone Ridge operates are not public, but the latest AUM for the most catastrophe bond focused mutual ILS fund strategy, the Stone Ridge High Yield Reinsurance Risk Premium Fund, is above $3.2 billion at this time, we understand and added over $350 million since the end of April.

Stone Ridge also notes that the cat bond strategy has outperformed the market by >125 basis points/year since full investment in 2013, which it believes to be industry leading.

The catastrophe reinsurance quota share strategy, just part of which sits in the interval style mutual fund, the Stone Ridge Reinsurance Risk Premium Interval Fund, has returned an impressive returned 40% annualised since market dislocation began in 2023, what the asset manager calls an “unsustainable 5.7 Sharpe Ratio.”

This kind of performance would not be possible without “consistent, scaled partnership – through thick and thin – with the leading reinsurers in the world,” the investor letter explains.

Meanwhile, the casualty focused Longtail Re operating company “has produced the highest ROE amongst leading reinsurers since its inception almost five years ago,” Stone Ridge states.

The Longtail Re performance is notable both for its magnitude, the manager says, but also as it occurred during a period of balance-sheet turmoil across the industry.

“Longtail Re represents a fundamentally different, and the results suggest fundamentally better, business model for casualty reinsurance,” the company said.

Now with over $10 billion of assets, which given the business model, the kinds of transactions entered into and the platform it has created likely goes a lot further in underwriting and investment terms, Stone Ridge highlights some of the reasons it feels the firm’s history and scale benefits its investors.

Writing in the letter to investors, Yan Zhao, Co-Founder and President of Stone Ridge Holdings Group, explained why the over $10 billion AUM scale of the firm provides it an edge when it comes to accessing attractive risks.

“Our reinsurance franchise recently hit a milestone – it reached and now exceeds $10B – and we believe our scale will continue to positively impact future performance.

“Our scale means we are meaningful to the businesses of major reinsurers, leading to decade-long treasured personal relationships with C-suite and board-level leadership at those reinsurers. Stone Ridge is often major reinsurers’ first call, providing us unprecedented access to the most attractive risks,” she explained. “Our differentiated access is always valuable, but especially so in the current “hard market” for catastrophe risk when the risk/reward opportunity is exceptionally attractive given significant capital supply-demand imbalance.”

The more than 12 year longevity of the firm and its strategies, as well as the active management of elements like the quota share reinsurance it provides, “makes our capital reliably more valuable to our partners as they seek to most efficiently capitalize their balance sheets, benefiting Stone Ridge investors through valuable access and favorable terms reflective of the strategic nature of our capital,” Zhao continued.

The scale means Stone Ridge can develop its expertise across catastrophe, specialty and casualty lines, on a global basis, Zhao wrote, giving maximum choice for capital deployment and “cements our connectivity with counterparties and provides the opportunity to improve expected return in all vehicles via more efficient use of capital, more diversification, and better terms – a true virtuous cycle.”

Stone Ridge is data-focused and the significant breadth of its activities means proprietary insights gained allow it a deep understanding of historical and future performance of counterparties and lines, while also allowing the firm to select and structure the best opportunities for its clients on both sides of the trade.

In catastrophe bond investments, Stone Ridge has an advantage in its scale, but also its consistency, meaning “preferential allocations” to new issuances can be secured, but while remaining selective and turning down opportunities it sees as poorly priced or structured, Zhao further explained.

On the cat bond trading side, Stone Ridge feels unconstrained, Zhao said, “we can buy or sell any bond at any time if we think the price is attractive, and our size, and related access to a wide variety of liquidity sources, enables us to opportunistically buy well-priced cat bonds whenever available.”

Importantly, Zhao also highlighted the firm’s optionality across the operations and strategies it runs, plus how this benefits clients.

“As one simple, but important, example, we have the operational technology and scale to ensure daily valuation of our registered funds (accounting for reporting, seasonality, and past and ongoing events), which facilitates daily subscriptions, easing the operational burden on our investors without sacrificing performance,” she wrote.

With an increasingly larger reinsurance franchise, Stone Ridge can offer liquidity, helping it to ensure that new investor commitments, or redemptions, do not affect the ongoing returns of its strategies.

Overall, Stone Ridge is a more than $30 billion asset manager across all of its alternative strategies, and offers a range of entry points and structures to suit all investor types.

Finally, Zhao explained that the Stone Ridge culture remains the same as when it was first founded, “Humility (along with kindness and focus) has been a foundational principle of our firm since before we had employees or AUM. Humility is how we learn. Humility also hones our awareness to opportunities. When combined with our scale, experience, and growing expertise, humility facilitates our readiness to act profitably when unknowable, unprecedented future scenarios occur.”

“We are proud of what we have collectively accomplished over the past 12 years: a) industry-leading returns for our investors and ourselves, b) valuable and flexible capital support for reinsurers, improving insurance affordability around the world, and c) financial support for rebuilding efforts after disasters, when those impacted need it most,” the letter closes.

The Stone Ridge story to-date has been impressive. The asset manager has built-out a significant cat bond, ILS and reinsurance franchise and continues to innovate on investment strategies, while building out a platform that allows for efficient capital deployment.

The role it has carved out in insurance and reinsurance markets makes it a significant player today and with more than $10 billion in assets, it looks like the scale will continue to increase, making its partnership increasingly meaningful to both its cedent and investor clients.

At over $10 billion, Stone Ridge is now the largest ILS asset manager, in AUM terms, featured in Artemis’ directory of insurance-linked securities (ILS) fund managers.

We recognise the way AUM is counted and accounted for differs across asset managers and reinsurers, so we simply use best-efforts to provide a directory of the AUM data we have visibility of. Please reach out and contact us to keep yours up to date, or to be included.