Hedge fund manager Fermat Capital Management is voicing strong opposition to a European proposal that could limit retail investors’ access to catastrophe bonds, as the firm and other managers coordinate a response to protect the $60bn market, according to a report by the Insurance Journal.
John Seo, co-founder and managing director of Fermat, said the EU plan – originating from the European Securities and Markets Authority (ESMA) – would represent an “unprecedented” intervention in UCITS funds, which currently hold nearly a third of the cat bond market. Fermat, which manages around $11bn in total, has seen assets in its UCITS Cat Bond Fund rise to $2.7bn over the past year.
Catastrophe bonds, which transfer natural disaster risk from insurers to capital markets, have remained resilient even amid geopolitical turmoil, providing investors with exposure largely uncorrelated to traditional equity and bond markets. Hedge fund managers argue that the risk profile of these instruments is transparent and well-understood by investors.
Seo noted that if restrictions are imposed, retail investors would likely seek alternative ways to gain access, while firms like Fermat have no plans to unwind existing UCITS holdings. He added that the EU’s gradualist approach should allow the market to adjust without sudden disruption.
ESMA has raised concerns over valuation challenges, liquidity and potential losses from natural disasters, but regulators stress that UCITS cat bond funds are small relative to the overall market, limiting systemic risk. Fermat and its peers continue to lobby against the proposed restrictions, arguing that investors themselves support access to the asset class.
