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AIFAM to grow cat bond fund to USD150million via Japanese pension funds

November 18, 2010
- 6:36 pm

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Further evidence that Japan’s pension funds are attracting the overtures of fund managers looking to attract new assets comes from the news this week that New York-based AIFAM Inc. is

Further evidence that Japan’s pension funds are attracting the overtures of fund managers looking to attract new assets comes from the news this week that New York-based AIFAM Inc. is planning to increase assets in a catastrophe bond fund (the AIFAM ILS Investment Unit Trust I) by a factor of five. Earlier this month Hedgeweek reported that AIFAM had launched a Fund of Funds (Hedged Equity Fund), again to tap into Japan’s 60trillion yen pension pool. It now wants to see if it can boost AUM in its insurance-linked cat bond fund from USD34million to USD150million over the next twelve months. Since its launch in June 2006, the fund, according to Bloomberg, has enjoyed gains of 47.4 per cent, including interest payments, and was up roughly 10 per cent for the first 10 months of the year.

Catastrophe bonds are typically floating rate and issued by insurers to transfer risk in the event of a major catastrophe occurring. They agree to pay investors an annual interest premium, whilst investors agree to forsake the bond’s principal, should a trigger mechanism (i.e. a hurricane) occur. The above-benchmark returns make it an attractive diversifier for Japanese pensions keen to branch away from low-yielding JGBs. An AIFAM spokesperson told Hedgeweek: “The idea is to diversify at multiple levels including geographies, perils and bond structures. The US, Europe and Japan are the main geographic focus due to the universe (of cat bonds), but we incorporate other regions as much as possible, such as Mexico and Australia.” The fund currently invests in 30 to 40 cat bonds with hurricanes and earthquakes the two main perils. To date the fund has had no additional leverage. Regarding Japanese pensions, the spokesperson added: “Cat bonds bring to them fixed income-like carry-based returns while bringing the portfolio diversifying characteristics of an alternative asset class.”

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