Pioneer ILS Interval fund shrinks, but returns beat benchmark

The Pioneer ILS Interval Fund, a dedicated insurance-linked securities (ILS) focused mutual investment fund strategy operated by Amundi Pioneer Investment Management, saw its assets under management shrink by around 2.4% in the last quarter of record, but in the six months at April 30th delivered benchmark beating returns.

Having returned to growth for the first time in a year by the end of the quarter to October 31st 2019, when the Pioneer ILS Interval Fund reported total net assets up 1.5% at $831.64 million, the fund then shrank to $816.6 million by the end of January 2020.

Now, the fund has shrunk further, reporting its total ILS and reinsurance net assets down 2.4% at just over $797 million at the end of April 2020.

Investments in collateralised reinsurance sidecars continue to be the largest component of this Interval ILS fund, at 60.3%, with collateralised reinsurance transactions at 21.3%, catastrophe bonds at 14.5% and industry loss warranties (ILW’s) at less than 1% of the total net assets reported.

Affecting the ILS fund’s net asset value in the period were mark-downs to catastrophe bonds that suffered in terms of pricing after the Covid-19 related sell-off, much of which will by now have been recovered.

In addition, the fund had positions in the World Bank’s pandemic catastrophe bond which was written down on the losses triggered by Covid-19 as well.

On top of this, there appears some valuation changes across the private sidecars and collateralised, but nothing too significant it seems.

The main reason for the decline in assets during the period appears to be that redemptions exceeded new share purchases by roughly $36 million in the period, with some element of investors reallocating across asset classes due to the pandemic likely a driver here.

In terms of catastrophe loss activity, the Pioneer ILS fund did experience a small hit to NAV from the Australian wildfires in the period, but that appears to have been the most notable event of the six months to the end of April.

Positively, the Pioneer ILS Interval Fund returned 2.67% at net asset value across the six months to April 30th 2020.

Impressively the ILS fund reported a positive return in each of those six months, including during the pandemic.

The Amundi Pionner ILS portfolio managers explained, “Notably, the Fund posted a positive return in February and March even as the equity, fixed-income, and commodity markets experienced a significant downdraft due to the effects of the COVID-19 virus pandemic and the related containment measures. We believe the Fund’s performance during the six-month period underscores the potential for the ILS asset class to offer risk and return characteristics that are uncorrelated from those of traditional asset classes.”

As a result of this, the Pioneer ILS Interval fund beat its benchmark during the period, as the ICE Bank of America (ICE BofA) 3-month U.S. Treasury Bill Index only managed a 0.85% return in the six months.

With positive returns the Pioneer ILS Interval Fund appears well-positioned, as with reinsurance rates having risen steadily over the last quarter as well the portfolio will be delivering improved returns at this time.