UCITS cat bond funds dominate alternative credit top performers in 2023
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UCITS cat bond funds dominate alternative credit top performers in 2023

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UCITS cat bond funds have dominated the ranks of the best-performing alternative credit strategies for the year to 30 September, according to the Alternative UCITS Industry & Allocator Report Q3 2023 from UK research firm Kepler Absolute Hedge.

The firm follows 556 alternative UCITS funds with total assets under management (AuM) of $242bn. It sub-divides this into groups according to typical hedge fund categories, such as equity long/short, event-driven and alternative credit which includes ILS.

The firm’s Q3 report showed that UCITS cat bond funds spoke for seven out of the 10 best-performing alternative credit funds in the year to 30 September. The alternative credit sub-category comprises 94 funds in total.

The best performer was Securis Catastrophe Bond Fund, which generated 13.78% in the nine months, while the remaining cat bond funds returned high-single-digit to low-double-digit profits.

This compared to the overall index for alternative credit funds produced by Kepler, which stood at 3.08% for the nine-month period.

Kepler also tracks asset flows and AuM, with the top 10 funds by this measure within alternative credit including Twelve, Leadenhall, Schroders and LGT.

Twelve ranked largest of all the alternative credit funds as of 30 September, with AuM of $2.7bn, and was also the fastest-growing of all the funds in Kepler’s total universe of 556 alternative UCITS funds.

Matthew Barrett, partner, head of manager research at Kepler, said: “Our position at the start of this year – the Americans would call it a fat-pitch in baseball – was that ILS was incredibly compelling, probably the most compelling strategy that we cover.”

“Last year was a paradigm shift for ILS, in that the cash that underpins that cat bond is earning you 5%, and then the double-whammy that reinsurance rates got a lot more attractive in the aftermath of the 2022 hurricane season,” Barrett said.

He added that the asset class “still looks relatively attractive”, however the firm was now “looking to see happens in the renewal window this year, in terms of where the risk gets priced.”

Barrett added that cat bond funds were not always a good match for investors because they are relatively illiquid compared to other alternative credit strategies.

“In the UCITS universe, most of the funds we look at are daily or weekly dealing. The ILS space is all bi-monthly, so trading every two weeks. For a lot of allocators that doesn’t necessarily work. If they are running modelled portfolio services, they can’t take that illiquidity,” Barrett said.

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