Reinsurance (ILS) sees increased demand for pension funds: Agecroft

Agecroft Partners, the hedge fund advisory and marketing specialist, put a positive outlook on reinsurance-related investments, via insurance-related securities (ILS), saying large pension funds are increasingly looking for more in addition to entry points into this market.

Don Steinbrugge, founder and CEO of Agecroft Partners, explained recently that large institutional investors, such as pension funds, tend to favor certain asset classes at different points in economic cycles, the reasons for accessing asset classes adapting to conditions.

Current conditions show a tendency for pensions to seek less correlated alternatives at the moment, which is where ILS, catastrophe bonds and other investments directly related to reinsurance risks fall.

Comparing information gathered from investors attending a Cap Intro (capital introductions) event in October 2020, with an Agecroft held next month, Steinbrugge noted the evolution of investor demands.

A point to note for the ILS market from this data, is that ESG and impact investments are experiencing a significant increase in demand, by around 65%, according to Agecroft.

As Cat Bonds and other ILS strategies increasingly seek to be classified as suitable ESG investments, this growing interest in ESG and the impact of major investors around the world is positive for the asset class. .

Agecroft expects standards to emerge to aid in the ESG classification of investment funds, which would also benefit the ILS market by establishing a clear path to achieve accreditation as an appropriate ESG.

An important trend observed by Agecroft is that investors are focusing more on hedge funds to target strategies with a particular ability to demonstrate a low correlation with the capital markets at large.

As a result, Agecroft expects to see positive flows towards diversifying hedge fund strategies and away from more correlated ones like low yielding fixed income, according to Steinbrugge.

Pension plans and other large investors are looking to improve their risk-adjusted returns, Steinbrugge said, with reinsurance one of the priority areas.

As a result, Agecroft expects reinsurance funds, hence ILS and Catastrophe Bonds, to register higher inflows than some other uncorrelated asset classes.

Reinsurance is now experiencing increased demand for pensions, due to rising market prices and its obvious low correlation with broader economic indicators.

Until 2021, Agecroft expects an increase in flows to the hedge fund industry, as there is pent-up demand to deploy capital and therefore the less correlated alternatives are likely to take a disproportionate share, of course hampered by the market size which has always been a constraint for the ILS fund market.

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