“Nothing is off the agenda” with GAM & Swiss Re cat bond and ILS partnership

Having announced a new partnership this morning, that sees reinsurer Swiss Re becoming co-manager of the GAM Investments operated and distributed catastrophe bond and insurance-linked securities (ILS) funds, executives told us that “nothing is off the agenda” and they see an opportunity to expand the range of ILS products offered.

We spoke with Rossen Djounov, Global Head of Distribution and Client Solutions at GAM Investments, and Mariagiovanna Guatteri, CEO and CIO of Swiss Re Insurance-Linked Investment Advisors Corporation (SRILIAC), a registered investment adviser subsidiary of global reinsurance company Swiss Re.

This morning’s announcement revealed that, from May 7th, Swiss Re will become the co-investment manager of GAM’s ILS fund range, including the GAM Star Cat Bond UCITS Fund.

GAM Investments also announced the hire of well-known insurance-linked securities (ILS) industry executive Dr. Rom Aviv, as its new Head of ILS.

Under the new partnership, Swiss Re will take on responsibility for investment and portfolio management decisions, while GAM will continue to provide risk management oversight and will lead global distribution and product structuring for ILS fund opportunities.

Rossen Djounov, Global Head of Distribution and Client Solutions at GAM Investments told us, “We’ve been in the ILS space for many, many years. In the early days, it felt like we were missionaries going out and educating everyone. Then eventually we built the following, and we’ve sold over $10 billion worth of ILS funds.

“But the market has matured, so investors are now highly sophisticated. They’ve had exposure to the asset class for a number of years.

“Clearly, a lot more newcomers have come into the market offering exposure to the asset class, specifically to cat bonds, and the more sophisticated, the earlier investors that we were dealing with, are now coming and saying, Okay, so what’s next?”

Djounov said investors are asking GAM, “How do we move on from here and stay invested and benefit from all the characteristics of the ILS securities market?

“We thought, we need to try and offer something that is differentiated, something that is future proof, something that is cutting edge and continue to develop with the market. Hence, going for a global titan (Swiss Re). It doesn’t get better than that, so we’re super excited about the news.”

Asked about the potential for expansion of the GAM ILS offering, Djounov continued to say, “That’s the starting point. Continuously delivering on our promise for best risk-adjusted returns in the existing products, and we have an amazing manager with a fantastic track record. The results are stunning, stellar.

“So, we’ll continue to deliver on our promise for these products. But clearly, the future is all about developing new investment ideas coming to market in all of its forms, separately managed accounts, public funds in multiple jurisdictions and so on and so forth.”

We asked Djounov about the process for selecting Swiss Re as the co-manager for the GAM cat bond funds and ILS strategies, to which he explained that “it wasn’t a public tender,” given GAM’s already strong position in the market which meant that couldn’t be done.

“It was far more targeted,” Djounov explained, adding that “I’m very, very pleased it ended up where we are today.”

Mariagiovanna Guatteri, CEO and CIO of Swiss Re Insurance-Linked Investment Advisors Corporation (SRILIAC) further stated, from Swiss Re’s point of view, “We’re very excited. We are partnering with GAM which has a distribution footprint globally and they’ve been around 20 years distributing the asset class.

“So it’s a sales force that is highly sophisticated in selling this asset class and that’s really exciting for us. So we’re looking forward to working together, we’ve already been working very well together throughout this process.”

On how Swiss Re will approach management of cat bond and ILS fund portfolios for GAM, Guatteri said the same foundations with which SRILIAC manages its own cat bond funds will remain.

“The investment philosophy is one, it is our investment philosophy. So we go through the same disciplined risk selection. For all the clients, all the funds, we’re going to leverage the same platform from Swiss Re, which comes with fantastic proprietary tools, underwriting knowledge and expertise. So that will be the foundation to everything we do.

“Clearly, different strategies will have different nuances, different liquidity parameters, so there will be different restrictions, so we will have to target to that. But the fundamental risk selection process and philosophy around portfolio construction will be similar across the strategies,” Guatteri told us.

Further discussing the potential to broaden out the range of ILS fund strategies and products on offer through GAM, with Swiss Re’s assistance, the ambition is to widen the scope and answer some of the questions investors have had about what’s next, after catastrophe bonds.

Guatteri of SRILIAC said, “I think the UCITS will stay focused on cat bonds, because that’s where the liquidity is. But there are other platforms, other wrappers we can use and GAM already has some of that.

“So, another strategy with less frequent liquidity, clearly opens up other opportunities.

“Being at Swiss Re, we have access and we’re so close to risk, we see so much. That’s why we’re best-positioned to really capture new opportunities in ILS and, of course, we’ll be evolving with an evolving market. We cannot share specific plans yet, but we’re definitely well positioned to do that.”

Djounov of GAM continued, “Nothing’s off the agenda, that’s why we think this gives us the cutting edge, to go and drive the market forward in whatever is possible.

“Clearly amazing risk management, origination and capabilities, as well as trading capabilities, so whatever is possible in whatever wrappers the clients want, we can now deliver access to these strategies . And that’s seamless access, because we’ve got the global infrastructure and proximity to clients. That’s not going to change.

“The expertise is there, we’ve been in the business for 20 years, and now we’re able to securitize a lot of new and interesting ideas that investors are really attracted to and are asking for.”

Guatteri said that as the partnership with GAM scales the expectation is that Swiss Re will continue to build-out the SRILIAC team to support this expansion and said, “We already have all the capabilities necessary, we also rely so much on the Swiss Re overall platform. But yes, of course, especially as we think of new product ideas, we will scale up accordingly.”

Looking ahead Guatteri added, “If I look at the outlook, the trend, I expect both supply and demand to continue to be fairly balanced and to be conducive to a growing market.

“The protection gap, the demand for risk transfer is not going away and clearly the asset class has demonstrated well the value of diversification, with respect to other asset classes.”

Djounov of GAM concluded, “It’s great to be back in a leadership position. We see demand, everything else appears to be quite volatile and traumatic, but this is a bedrock of stability and good diversification.

“The market will continue to expand, so hopefully, through our partnership, we’ll be able to get access to other strands of the ILS market to cater for that demand.

“The rest of the time, it’s just growing the market share. The very strong partnership that we have going forward is for sure, going to attract some investors that we lost to peers back into the fold.

“But also, clearly in an asset class that has matured significantly in recent years, performance and consistency of performance and out-performance is an important selecting factor.

“So we should focus on continuing to deliver distribution alpha, as we call it on the GAM side, coupled with the SRILIAC teams’ investment returns that are second to none, will be a tremendous partnership going forward. So we expect our market share to re-grow, as well as for us to bring new investment ideas.”

Also read:

– Swiss Re takes on co-management of GAM’s catastrophe bond and ILS fund range.

– GAM hires Rom Aviv as Head of ILS.