Stone Ridge mutual ILS fund AuM rises for first time since 2018

Stone Ridge Asset Management’s mutual insurance-linked securities (ILS) fund assets under management (AuM) rose in the last quarter of record, seemingly driven in the main by improvements in catastrophe bond values and returns.

In fact, it was Stone Ridge Asset Management’s largely catastrophe bond focused mutual ILS fund strategy that saw the increase in assets during the period, while the manager’s Interval ILS fund, that invests more in collateralized sidecars and reinsurance deals, reported flat assets by the end of January.

Stone Ridge’s more catastrophe bond focused mutual ILS fund, which is not structured in an interval-style, the Stone Ridge High Yield Reinsurance Risk Premium Fund, has reported that its total net assets increased by roughly 9% during just the last quarter of record, to January 31st 2023.

A number of factors appear to have driven the asset growth.

While some flows of capital are evident, it appears the recovery in values of cat bond positions that had experienced spread widening, or been knocked by hurricane Ian, as well as the stronger returns are also contributing to the uplift in assets that Stone Ridge’s most cat bond focused strategy experienced.

At the end of January 2023, the Stone Ridge High Yield Reinsurance Risk Premium Fund counted almost $1.69 billion of total net assets, up from $1.55 billion a quarter earlier.

It’s nearly a 13% increase in AuM for the cat bond focused investment strategy over the last twelve month period as well.

In fact, by now we suspect that the assets under management of this strategy may have reached a new high on the back of further increase in value of the positions invested in, as the rest of the cat bond market has experienced. The previous high reported was $1.71 billion at the end of April 2022, a level that this strategy certainly looks set to surpass by that stage of 2023.

Meanwhile, Stone Ridge Asset Management’s Reinsurance Risk Premium Interval Fund, that invests across the spectrum of ILS assets with a portfolio including collateralized reinsurance instruments and quota shares, reinsurance sidecar investments and also catastrophe bonds, reported its total net assets as flat at $1.01 billion at the end of January 2023.

This was the first quarter where the total net assets of Stone Ridge’s Interval ILS fund have not shrunk for a long time, suggesting a stabilisation of the flows and loss positions, while some of the effects seen in the cat bond market may also have helped to drive this stabilisation in assets under management.

All of which puts Stone Ridge Asset Management’s mutual ILS fund assets at $2.7 billion as of the end of January 2023, up from $2.56 billion a quarter earlier and representing the first quarterly increase in total net assets across these two ILS funds since 2018 when they reached at one stage $7 billion, a notable turning point perhaps.

Finally, the forward return potential of the Stone Ridge ILS fund’s has been dramatically lifted by the hardened reinsurance market and higher cat bond pricing, which should help the manager to encourage new funds into its strategies over time.

So it will be interesting to see whether we’ve now seen the bottom, in terms of net assets across Stone Ridge’s ILS funds and whether a period of growth could be ahead for the manager’s mutual funds.

The investment manager does have additional reinsurance linked assets under management in private funds and its Longtail strategies, although these are harder to track and we do not know how they have developed since Stone Ridge raised $1.5 billion for its private ILS funds in late 2019.