Ahead of the Hedgeweek European Leadership Summit, taking place in London on Thursday 29 February, we sat down with Luca Albertini, the CEO and founding partner of Leadenhall Capital Partners to hear more on the current state of the insurance-linked securities (ILS) market, where it is heading in 2024, and what he is most looking forward to from the event.
Luca co-founded Leadenhall in 2008 and has extensive experience in both banking and insurance having spent time at the securitisation units of Citicorp, GE Capital and Credit Suisse First Boston. He was responsible for developing one of the largest and most successful ILS teams in Europe whilst at Swiss Re Capital Markets.
HW: How good was the ILS market last year?
LA: Well, clearly, the one defining feature of 2023 for insurance and the ILS market – the two markets that go side by side – has been a very strong improvement, both in the risk-adjusted pricing as well as in the terms and conditions of the underlying contract. The pricing environment and the terms environment were as strong as in at least a generation, and certainly the best conditions since we launched.
HW: What excites you most about the opportunities for ILS specialists in 2024?
LA: We are an ILS asset manager, we don’t do anything else, and our strategies are divided between life and non-life insurance securities. We find currently the relative attractiveness of the non-life insurance securities market compared with other alternative asset strategies to be very, very strong.
If you look at the AUM growth of insurance-linked strategies in the aggregate last year, we grew single digits in terms of capital, despite a strong performance. There are several reasons for this, but one of the reasons is the investor wanted to observe a good year before coming in. So now that we achieved what we promised, probably exceeded it, we really see this as the most exciting opportunity to convert that into investment opportunities in 2024 for our investors.
HW: In terms of growing Leadenhall as a business, what will you be focused on in 2024 – maximising the potential of your existing product line or adding new revenue streams?
LA: We will always look for new revenue streams and this is how we built Leadenhall since the beginning – to have more than one core product so that as a manager, we have a more stable performance. However, the opportunities that we see now mainly focus on products we already have, and therefore I am not planning to launch any new strategy, with the possible exception of one initiative (still in non-life insurance linked exposure) which we are assessing at the moment but cannot yet be disclosed .
The core of the opportunity remains in our suite of existing products.
HW: You recently hired Yuko Hoshino from a fellow ILS specialist to lead fundraising efforts in Japan and Asia. How would you describe the opportunity set for hedge funds, and ILS specialists in APAC?
LA: The APAC region has been investing in our sector for ages, and Yuko in her prior job has been working for a very long time in the ILS market and has been very successful. There has been a long history of understanding of our product in the in the APAC region, but APAC for us is probably more Japan, Singapore, and then of course, Australia and New Zealand.
Leadenhall’s corporate partner, with a 80% partnership interest, is Mitsui Sumitomo Insurance, and so we belong to a leading Japanese insurance and financial services group. For us, Yuko is a way to actually maximise the synergies between what we can offer and the set of relationships that our financial services division has in Japan, which is very, very deep.
We find the arrival of Yuko exciting, because it’s clearly important in many markets that you address the questions and concerns in their language, with local culture, and this creates a different level of connection than the average relationship.
HW: What is the biggest challenge facing a) your business and b) your investment strategy, as we head into 2024?
LA: There are two points here. Firstly, in the new interest rate environment, a lot of products now deliver certain levels of returns, and therefore, there’s a lot of competition in front of allocators where they must choose whether to allocate to ILS or other strategies. ILS has the benefit of being effectively a floating rate instrument, as the return of ILS reacts immediately to the increase of interest rates. But the competition for capital in a high-rate interest rate environment, and without quantitative easing, is harder and therefore you need to fight for attention.
Secondly, the other thing that has happened in the UK market, but noted by other markets as well, has been the disastrous impact of the mini budget of Liz Trust of two years ago, and the pot of money which should have long term investment horizon (the defined benefit pension plans), is now being asked by the pension regulator to have a higher degree of liquidity. We can see some of those investors that were traditionally long-term investors are now requiring a higher degree of liquidity.
We’re excited to have you join us at the Hedgeweek European Leadership Summit later this month! What is the one piece of advice you would offer line managers in the fund industry looking to improve their leadership skills?
LA: Well, the one thing I will say is, success in the hedge fund industry often comes down to the capability and delivery of individuals. We are a people business and therefore, when you’re in a people business, your leadership style needs to be inclusive, and you need to clearly lead by consensus. I have always felt that to reduce the turnover, people need to be individually looked after to feel important.
HW: Following on from that, what are you most looking forward to about the summit?
LA: I work in an extremely specialist industry, so I wake up in the morning and it is insurance, insurance, insurance. The breath of fresh air is to hear from people who do something different from me. Although we are in the same room with similar hedge fund kind of labels, they will have dynamics and things that for them is the ABC of everyday, which for me, hearing them may be very insightful and may help me improve my own management style.
HW: Finally, we want to know how hedge fund leaders start their day. What does your morning look like during a typical working week?
LA: Well, I’m 58, but I’m blessed to have a 12-year-old who happens to study at a school which is far away from us, and therefore my morning is effectively a military start so that we can be at a school bus drop off before 8am!
Want to learn more? Join us at the Hedgeweek European Leadership Summit on Thursday, 29th February at 116 Pall Mall, London. Register for your complimentary pass here.
* Please note: Please note that registration for this summit is only open to senior executives at fund managers and investors. If you are a service provider and would like to attend, please get in touch on [email protected].
Complimentary spaces are limited for fund managers with less than $1bn in assets under management. For any questions on this, please contact the Hedgeweek Team.