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Sidecar returns down 13% post-HIM

12 January 2018

A group of sidecars tracked by Trading Risk took losses of 13.0 percent on average between July and October as the fallout from hurricanes Harvey, Irma and Maria took its toll.

By the end of October, the sidecars had lost an average of 10.5 percent of investors' capital, according to regulatory filings from the Stone Ridge and Pioneer Interval funds.

The sidecars are likely to have regained some value in the fourth quarter, but the 31 October reporting period captured HIM losses as well as the wildfires in northern California, depending on the timing of losses being recorded.

Meanwhile, Stone Ridge Asset Management ploughed $325mn into a new Mt Logan Re vehicle at the end of October in the first of its post-event fundraising commitments.

TransRe's Pangaea 2017-3 was the most severely affected of the group, with its par value falling by 25.5 percent as at 31 October.

Hamilton Re's Turing Re 2017-1 was written down by 25.1 percent while Swiss Re's Sector Re vehicles were down between 9.1 percent and 18.3 percent.

Sector Re has become Swiss Re's main source of retro support now that the carrier is less active on the cat bond market than it has been in the past. Some of the Sector Re tranches focus largely on peak US risk, which explains the higher loss levels.

As of last summer, Sector Re provided Swiss Re with $492mn of capacity for its peak risks.

Everest Re vehicles also fared badly, with Hudson Paul 3 and Rainier experiencing write-downs of 14.7 percent and 13.5 percent respectively.

Everest Re ceded $197.4mn third quarter catastrophe losses to Mt Logan, which took total losses ceded to the sidecar to $241.79mn for the first nine months of the year, the firm's 10Q filing showed.

However, other lower-risk Mt Logan tranches were among the least-affected vehicles, as Hudson Charles recorded only a 1.7 percent write-down.

In the same low-loss territory, Brit's Versutus sidecar only saw a drop of 2.1 percent.

Brit raised $40mn last year to take the total limit provided by Versutus investors to $150mn after adding North American property insurance binder business to the sidecar.

Munich Re's Eden Re II 2017-1 class A and Eden Re II 2017-1 class B sidecars both saw losses of less than 5 percent.

Pioneer's ILS Interval fund reported a loss of 4.95 percent for the year ended 31 October, as its sidecar investments took losses of between 2 percent and 25 percent following HIM.

It ended 2017 with an 8.4 percent loss, according to Bloomberg records, with recoveries in early January.

Pioneer portfolio managers Charles Melchreit and Chin Liu said they believed the strategy of seeking diversification across catastrophe perils and regions and focusing on quality sponsors helped to limit damage to the fund's performance in the past year.

Stone Ridge's Interval fund recorded losses of 9.0 percent for its financial year ended 31 October 2017, taking the fund's annual average return since inception to 3.71 percent at that point.

By year-end, the fund had slipped further to post a 2017 loss of 11.63 percent, Bloomberg listings show.

Stone Ridge CEO Ross Stevens said in his annual letter to shareholders that $1bn had flowed from the firm's reinsurance funds to meet claims from the Californian wildfires and last year's hurricanes.

But reinsurers had made Stone Ridge their "first post-event call" after last year's losses, he continued.

"Many cynical industry participants assumed that in a hard market, reinsurers would share less risk with us and keep more of the higher-yielding business for themselves. Exactly the opposite has occurred," he said.

Total net assets across Stone Ridge's Interval and High Yield funds came to $6.12bn at the end of October, down from $6.14bn at the end of the previous quarter.

The High Yield fund's net assets dropped almost 8 percent to $1.10bn, but the Interval fund recorded $5.02bn of assets at 31 October.

Its asset base was bolstered by $2.2bn of new inflows over the full year, more than double the $1.1bn intake total for the previous financial year.

Share: This article was published as part of issue January 2018/1

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