Pillar Capital Management - Best Niche Hedge Fund
Pillar Capital Management (‘Pillar’) was founded in 2008 and is headquartered in Bermuda. The firm manages open-ended Bermuda incorporated funds invested in the global property catastrophe risk market.
The senior management team at Pillar, headed up by CEO and CIO, Stephen Velotti, has an average of 25 years’ experience in the reinsurance marketplace.
Pillar Capital is focused on providing alpha to investors through the reinsurance space. It aims to provide an attractive yield for investors while managing the risk it takes to achieve its returns. Analysing the entire market from the large reinsurance sector to the small ILW market and searching for opportunities on the buy and sell side allows Pillar Capital to optimise the portfolio and provide long-term compound returns.
When asked to comment on the nature of the ILS market this year, Velotti says that one of the surprises so far has been the large variance around valuations, from developing movements to the wide range of valuations across the entire market (ILS, Traditional, Sidecar, etc). Regardless of the market behaviour, Velotti is keen to stress that the key for Pillar Capital is not to have one deal that has performed well, “but an entire portfolio that has”.
“We were very pleased with the majority of our positions and how they performed during 2017 and this allowed us to take advantage of opportunities in 2018. As we did not have to make wholesale changes to the portfolio, the continuity enhanced the fund’s position,” says Velotti.
Rather than target returns, Pillar’s strategy is to develop a portfolio that considers the risk/ reward of the portfolio and, in particular, the tail of the portfolio’s distribution. Portfolio metrics are evaluated utilising Pillar’s proprietary Pillar Risk Optimization System (‘PROS’).
Velotti says that deal access is one of the key factors in providing a superior portfolio to investors. “Having the ability to view a large spectrum of opportunities across the entire market,” says Velotti, “allows Pillar Capital to maximise returns and optimise the risk/return metrics of the portfolio. The senior executives of Pillar Capital have built up a strong market presence by having a very experienced team with an average of 20-plus years in both the North American and international markets.”
From a cultural perspective, the best way to describe Pillar Capital’s investment philosophy is that the team is singularly focused on providing “true alpha” and generating long-term compound returns that beat the market for its institutional client base.
“Last year has shown that having a high no-loss return does not equate to providing above average returns over the long-term/investors’ investment horizon. Having and building strong relationships on the investor and investment side is key to providing an effective conduit between the two sides of the business,” states Velotti.
Looking ahead for the next six months, he notes that with ILS being an integral part of the reinsurance market for the first time during a large loss year there are a number of trends arising in 2018; from how investors have responded to an active natural catastrophe year to how the ILS products have responded for the purchasers in the space.
“In general the ILS market has responded positively and we expect to see changes that will move towards increasing efficiency and transparency,” says Velotti.
On winning this year’s award, he concludes: “Winning the award was a team effort. We have built a strong and deep team and everyone contributed to another win.” n