A prospectus in relation to the proposed placing and offer for subscription of Sterling Shares, US Dollar Shares, Swiss Franc Shares and Euro Shares in DCG IRIS Limited has been approved by the UK Listing Authority.
DCG IRIS Limited is a newly formed, Guernsey registered non-cellular company with an indefinite life. The Company is a feeder fund and will principally invest its assets in CS IRIS Low Volatility Plus Fund Limited (the Master Fund), which is managed by Credit Suisse AG (the Master Fund Manager).
The Company has been established with the objective of providing its Shareholders, through its investment in the Master Fund, with positive returns through investing in insurance-linked contracts and assets carrying exposure related to insured event risks known as insurance-linked strategies (ILS).
The Master Fund is registered with limited liability as a non-cellular company in Guernsey and was launched in January 2012. The objective of the Master Fund is to achieve positive returns through an investment strategy related to insured event risks.
The main strategy which the Master Fund Manager employs is to create a diversified portfolio of insurance risks, which are quantifiable and can be modelled mathematically. The Master Fund focuses on insurance-linked risks worldwide.
Ana Haurie (pictured), Group CEO of Dexion Capital, says: “DCG IRIS will offer the opportunity to access a diversified insurance risk portfolio in terms of perils, geographies and instrument types, which is for the most part difficult to obtain in this asset class. The Insurance-Linked Strategies asset class is not correlated to the financial markets, offers high historical yields and facilitates real investment portfolio diversification.
“We‘re confident that this offering will bring more investment options to the market and will help to entice additional capital into the ILS space. The fund will enable investors to benefit from the experience of one of the world’s largest asset managers in the insurance-linked space, Credit Suisse.
“As a result of the high insurance losses in 2011 reinsurance capacity has become more scarce and reinsurers, faced with already overstretched loss budgets, have become more reluctant to write new business. A change to one of the leading models for US wind risk in early 2011, which substantially increases expected losses, further added to this trend. As a result, premiums have increased significantly and the Company should be able to benefit from this change.”
The Master Fund has maximum flexibility to invest directly or indirectly in a wide range of financial instruments involving insurance exposures and risks and derivatives of such investments, including listed and unlisted (over-the-counter derivatives or otherwise) equity and equity-related securities, preference shares, debt securities (which may be below investment grade), other collective investment schemes (which may be open-ended or closed-ended, listed or unlisted and which may employ leverage), currencies, futures, options, warrants, swaps and other derivative instruments. The Master Fund may also retain amounts in cash or cash equivalents pending reinvestment or if this is considered appropriate to the investment objective.
As at 29 May 2012, the Master Fund’s net assets were approximately USD222.5 million (unaudited). The Master Fund will utilise the funds subscribed by the Company to make further investments in accordance with its investment policy.
Whilst not forming part of its investment objective or policy, the Master Fund’s portfolio has been constructed so as only to be affected by very large catastrophe events and in order to target an annualised return (net of losses and fees) of LIBOR plus five to seven per cent., with low volatility of two to four per cent. Expected losses from the portfolio are in the region of two to four per cent. per annum.
The Master Fund was launched in January 2012 and therefore does not have a long record of past performance data.
In order to provide illustrative performance data for the Master Fund, the historic past performance data of Managed Investments PCC Limited – IRIS Low Volatility Cell, a fund with the same manager and a similar investment policy, has been adjusted to reflect the anticipated weighting of assets in the Master Fund, thus providing hypothetical historical performance data referred to as the "Low Volatility Plus Carve-out".
The Low Volatility Plus Carve-out has achieved a net annualised return of 7.5 per cent. since inception in August 2007 with one negative month, associated with the Japanese earthquake in March 2011, of -5.0 per cent. In general, the Master Fund can be expected to have a slightly higher risk profile than Managed Investments PCC Limited – IRIS Low Volatility Cell.
During this time, the Low Volatility Plus Carve-out exhibited low correlation with other financial markets and alternative investments. The returns compare well to, and exhibit less volatility than, those of the four largest quoted reinsurers and the quoted Lloyd’s syndicates, as well as a leading index of insurance company stocks.
As a result of the high insurance losses in 2011 (due principally to the earthquake in Christchurch, New Zealand, the Japanese earthquake and tsunami, the tornadoes in the US and the floods in Thailand) reinsurance capacity has become more scarce and reinsurers, faced with already overstretched loss budgets, have become more reluctant to write new business. A change to one of the leading models for US wind risk in early 2011, which substantially increases expected losses, further added to this trend. As a result, premiums have increased and the Company should be able to benefit from this change.
The Company has appointed Dexion Capital (Guernsey) Limited as its investment manager. The Investment Manager is a company incorporated under Guernsey law and is licensed and regulated by the Guernsey Financial Services Commission. The Investment Manager is responsible for the management, control and operation of the business and affairs of the Company in accordance with the Company’s investment objective and policy. In particular the Investment Manager is responsible for the subscriptions for, and redemptions of, shares in the Master Fund.
Credit Suisse AG is the investment manager of the Master Fund and is regulated by the Swiss Financial Market Supervisory Authority and, in the UK, by the Financial Services Authority. The Master Fund Manager is a Swiss bank which was founded in 1856 and is wholly-owned by the Credit Suisse Group AG ("CSG"), a global financial services company headquartered in Zurich, Switzerland. CSG provides investment banking, private banking and asset management services worldwide.
The Master Fund Manager manages assets on behalf of a wide range of clients and as at 31 March 2012 had approximately USD1,385.1 billion of assets under management. At the same date, the Credit Suisse alternative investments team had USD197.1 billion assets under management and as at 29 May 2012 the insurance linked strategies team has USD4.1 billion assets under management. The Master Fund Manager and its group has over 11 years’ experience of establishing and operating investment funds in insurance-linked strategies.
Subject to market conditions and the Master Fund’s performance, the financial position of the Company and the financial outlook, it is the Directors’ intention to pay quarterly dividends to Shareholders. Whilst not forming part of its investment objective or policy, the Company will, in the absence of unforeseen circumstances and after the initial investment period, which is anticipated to be a period of three months, target an annualised dividend yield of 5.0 per cent. of the Issue Price. Reflecting the investment period, it is anticipated that dividends declared in respect of the period from Admission to 30 June 2013 will amount to 4.75 per cent. of the Issue Price.
The Directors intend to set the proposed level of dividend for future financial years after taking into account the long term income return of the Master Fund. There are however, no assurances that these dividends will be paid or that the Company will pay any dividends. The ability of the Company to pay dividends is also subject to the Company being able to satisfy the solvency test required by the Companies Law.
The Company intends to offer Shareholders (other than certain Overseas Persons) the right to elect to receive such dividends in respect of some or all of their Shares in the form of scrip shares (of the same currency class) to be issued at a price equal to the estimated NAV per Share of that class at a date determined by the Directors shortly before such issue.
The Directors have the authority to purchase in the market up to 14.99 per cent. of the Shares of each class in issue immediately following Admission at a price not exceeding: (i) five per cent. above the average of the mid-market values of Shares of the relevant class for the five Business Days before the purchase is made; or (ii) the higher of the last independent trade or the highest current independent bid for Shares of the relevant class.
Purchases of Shares are at the discretion of the Directors and will only be made through the market for cash at prices below the last published NAV of the relevant class of Shares. Shares which are purchased may be cancelled or held in treasury. Investors should also note that any repurchase or redemption of Shares will be subject to the ability of the Company to redeem its investments in the Master Fund. The Companies Law also provides, among other things, that any purchase is subject to the Company satisfying the solvency test contained in the Companies Law at the relevant time.
If the Shares of a particular class trade at an average discount to NAV per share of more than five per cent., during the three month periods ending 28/29 February and 31 August in each year, the Directors will consider, subject to applicable law including the requirements of the Companies Law, putting a redemption offer to Shareholders of that class. If the Directors determine to make such an offer, up to 25 per cent. of the relevant Shares then in issue (excluding Shares held in treasury) would be offered for redemption at the NAV per Share at the relevant redemption date, less costs attributable to the redemption offer (including a proportion of the Excess Costs).
Subject to the applicable laws including the requirements of the Companies Law, the Directors will consider a redemption offer for the entire share capital of the Company if either of the following events occur:
(i) the NAV of the Company, as at 30 June 2013, is less than GBP150 million or currency equivalent; or
(ii) after 30 June 2013 the average of the three consecutive month end NAVs of the Company is less than GBP50 million or currency equivalent.
Shares would be redeemed at the NAV per Share at the relevant redemption date, less costs attributable to the redemption offer (including a proportion of the Excess Costs). A redemption offer pursuant to (i) above would be implemented by reference to the January 2014 redemption date of the Master Fund, due to the notice period for redemption of Master Fund Shares.
If as a result of the number of Shares tendered under any redemption offer the Directors determine that the Company would be of uneconomic size they will as soon as practicable put forward proposals in place of the proposed redemption offer for an orderly winding up or reconstruction of the Company which, for the avoidance of doubt, shall include an option to allow Shareholders to realise their entire holding for cash at the then NAV less any costs associated with such realisation.
Investors should note that any redemption offers will be subject to the normal redemption notice periods of the Master Fund and any restrictions on redemptions imposed from time to time by the Master Fund.
Share conversions between classes
The Company intends to offer a monthly conversion facility as at the first Business Day of each calendar month. The Directors have the discretion not to operate the conversion facility with respect to any Share class or across all Share classes from time to time. Where the conversion facility is made available, Shareholders shall be entitled to convert their Shares in any class for Shares in another class.
Issue Costs
The Company shall pay to Dexion a fee of 1.5 per cent. of the gross proceeds of the Issue and Dexion shall be responsible for all of the costs of the Issue out of this fee.
