New Zealand Superannuation Fund hired Leadenhall Capital Partners to manage up to US$275 million in natural catastrophe reinsurance-linked investments.
The allocation comes to 1.5% of the Auckland-based fund's portfolio assets of NZ$22.56 billion (US$18.31 billion) as of April 30. The allocation “is a flexible one that can vary in size up to a maximum of US$275 million, depending on the fund's view of the attractiveness of the opportunity over time,” according to a news release.
In an emailed response to questions, Catherine Etheredge, a spokeswoman for New Zealand Superannuation, said funding for the mandate, which falls within the "other private markets" category in the fund's monthly asset allocation announcements, will come from reductions in its fixed income allocations.
As of April 30, the fund had a 2% allocation to "other private markets" and a 10% allocation to fixed income. If the maximum allocation to Leadenhall Capital is made, New Zealand Superannuation's investments in catastrophe-related strategies would come to 2.5% of the portfolio, Ms. Etheredge said.
In the news release, Matt Whineray, New Zealand Superannuation's general manager of investments, said natural catastrophe reinsurance-related investments provide both diversification and “an attractive income stream.”
In an e-mail, Lorenzo Volpi, business development director at Leadenhall Capital, called New Zealand Superannuation a “prime example of the way sophisticated institutions are increasingly looking to invest in more than just cat bonds for exposure to the natural catastrophe-linked asset class.”
Leadenhall is New Zealand Superannuation's second natural catastrophe reinsurance-related investment. In February 2010, New Zealand Superannuation awarded an initial US$125 million mandate to Elementum Advisors, to invest in catastrophe-linked securities, such as catastrophe bonds for hurricanes and earthquakes in the U.S., Europe or Japan. That first mandate has grown to roughly US$200 million at present.
A catastrophe bond “fact sheet” on New Zealand Superannuation's website explains that the fund's risks on such investments can be mitigated by taking on exposures to different types of events and different locations. Meanwhile, payouts when catastrophes occur are “capped to a maximum agreed by the investor.”
In response to emailed questions, Ms. Etheredge said the possibility remains that New Zealand Superannuation could suffer a loss on its catastrophe-related mandate. "However, the Fund, as an investor wtih a long-term time horizon...is well-placed to ride out any short-term losses from catastrophic events," she added.
Mr. Whineray couldn't immediately be reached for further comment.