There are few genuine alternatives to property, shares and bonds that produce consistent returns independent of the direction of traditional markets. In 2009, in the immediate aftermath of the Global Financial Crisis, Brookvine set out to identify a genuine, accessible and liquid source of portfolio diversification.
We noted emerging European pension fund investment in insurance-linked securities (ILS) such as catastrophe bonds. These investments were earning attractive yields, historically at least 5 percent above US government bonds with a similar maturity, and had a low correlation to asset classes like stocks, bonds, hedge funds and commodities. They were comparatively liquid and we noted a unique characteristic − the source of the risk of loss is independent of the source of return.
Yet few Australian institutions had researched and considered an investment in catastrophe bonds. They are a highly specialised and emerging asset class. Moreover, this form of diversification had previously been inaccessible to private wealth investors.
Not many fund managers had the requisite skills and experience, and even fewer had Australia in their sights. We accepted the double challenge of first, finding a partner willing to commit resources to an unknown market, and second, to convince Australian investors about the benefits of investing in this new asset class.
What Brookvine did
We identified the pioneers of investing in the asset class and engaged a specialist reinsurance expert to help us understand the asset class and different means of accessing it. Fermat Capital Management LLC (Fermat), featured prominently and we initiated what would become a long-standing partnership.
In mid-2011 Brookvine successfully secured the first Australasian mandate for Fermat and the following year seeded the commingled Fermat ILS Yield Fund. Since the commencement of Brookvine’s partnership with Fermat through its completion at the end of August 2018, Brookvine raised $680 million from institutional and high net worth investors in Australia and New Zealand. From September 2018, Fermat chose to consolidate its distribution arrangements in Australia and New Zealand with its global distribution partner following their opening of a local office.