Twelve Capital launches UCITS cat bond / corporate bond fund with $100m

Twelve Capital, the Zurich headquartered insurance-linked securities (ILS) and reinsurance investment manager, has launched a new UCITS fund strategy that will be largely invested in catastrophe bonds, but also have a corporate bond component to offer investors a different risk-return profile, Artemis can reveal.

The Twelve Alliance Dynamic ILS Fund has been launched with $100 million of capital, but has a capacity to grow to $1 billion in size, so has the potential to become a meaningful strategy for the investment manager.

The UCITS investment fund will allocate the majority of its capital to direct catastrophe bond investments, while the corporate bond component will be focused on short-term instruments.

In terms of weighting, in response to our enquiry, Twelve Capital told us that the catastrophe bond component will always be the largest, with the corporate bond component able to make up as much as 30%.

The cat bond investments will be made directly, so this will not operate as a feeder to Twelve’s main UCITS cat bond strategy.

The goal is to offer this strategy as an extension to Twelve Capital’s cat bond fund offering, but incorporating the use of short-term corporate bonds to improve its liquidity and diversification.

As a result, it expands the Twelve Capital offering with a new fund that offers a different risk-return profile to investors and could appeal to multi-strat focused investors that are less confident allocating to a strategy 100% focused on catastrophe reinsurance risks.

Twelve Capital told us that, “The fund strategy is following the heritage of our long-standing Multi-Asset flagship product, which invests in ILS as well as insurance equity and credit.

“Adding the corporate bonds asset class adds further diversification in response to investor demand.”

Twelve Capital noted that it has been seeing a lot of activity in insurance-linked securities (ILS), with the market growing in recent years and new investors entering the space.

Recent ILS market performance has been a big draw for investors, but now there are allocators with desires for a differentiated offering, as well as for more diversification to be embedded within an ILS or cat bond strategy, it seems.

It appears the new Twelve Alliance Dynamic ILS Fund could become a significant contributor to the investment managers overall assets under management, with the strategy having a capacity of US $1 billion.

Having the ability to invest up to 30% of the fund’s assets into short-term corporate bonds will also provide the manager with more flexibility during times when the catastrophe bond market may be slower, or experience shifts in spread dynamics, providing optionality to add different assets to the portfolio to enhance returns for investors.