New York (HedgeCo.net) – Eurekahedge has launched a new hedge fund index, the ‘Eurekahedge ILS Advisers Index’, focusing on insurance linked securities in partnership with ILS Advisers.
Increasing amounts of government intervention in worldwide financial markets has created an unprecedented correlation amongst asset classes, increased volatility and a tougher environment for skill based managers to generate superior risk adjusted returns. In a very real sense the pool of hedge funds that can perform in today’s environment has diminished. Insurance linked securities funds on the other hand are bucking the trend enabling fund managers to preserve capital while producing month-on-month absolute returns.
“Eurekahedge is delighted to be working with ILS Advisers on this new project. We both share the same vision of being at the cutting edge of innovative investment opportunities for sophisticated investors and with the launch of our new index we hope to bring more exposure to this fresh asset class.” said Alexander Mearns, CEO of Eurekahedge.
Robust Returns
Investing US$1 million in the following 3 indices at the end of December 2006 would have yielded the following gains over the last five years:
Downside protection
Equity markets were severely affected during the financial crisis between May 2008 and February 2009. The MSCI All Countries World Index fell 46% over this period and has yet to recover. The Mizuho-Eurekahedge Index fell 17% and took almost 2 years to recover. In contrast, ILS funds returned, on average, 1% to their investors.
Even major catastrophes, which have a direct effect on the insurance market, have had a minimal impacted upon the index. The Tohoku earthquake and tsunami that occurred in Japan, in March 2011 (which could be classed financially as a Lehman-style event for the ILS industry) caused the Eurekahedge ILS Advisers Index to fall 3% – a comparatively nominal amount. Impressively, the index recovered that loss within 6 months.
Uncorrelated returns
Insurance linked securities funds are largely uncorrelated to hedge fund returns and thus provide an attractive avenue of diversification for investors looking for a more balanced portfolio. The Mizuho-Eurekahedge Index and the MSCI All Countries World Index share a strong correlation (R2 of 0.64). The Eurekahedge ILS Advisers Index registers virtually no correlation with the Mizuho-Eurekahedge and MSCI indices (R2 of 0.11 and 0.1 respectively).
Volatility comparisons
ILS Advisers was founded in Hong Kong by Stefan K. Krauchi and Hansrudolf Schmid in 2011 as part of HSZ (Hong Kong) Ltd. an independent asset manager regulated by the SFC. The two founders combine over 40 years of industry and management experience on top level of major financial institutions.
