Principal
Michael Stahel is director and head of insurance-linked investments (ILS) for Clariden Leu Alternative Investments in Zurich.
Prior to Clariden Leu, Stahel worked for Swiss Re in various positions in Zurich and London. Most recently he was transaction manager within Swiss Re’s risk syndication unit.
Stahel received a BA in economics from the Zurich University of Applied Sciences (ZHW) in 1998 and an MBA from Rochester University/NY in 2005.
The Firm
Clariden Leu is a private bank that manages over $100 billion in assets primarily for high-net- worth individuals and families. Its products are not open to the public and are only distributed in approved jurisdictions.
The ILS unit within the firm is comprised of four portfolio managers, a dedicated legal professional and a risk manager. The unit also includes a project manager who is responsible for structuring ILS products and a dedicated sales representative.
Portfolio Strategy
The bank currently runs over $1 billion in insurance-linked investments that are broadly divided between two open-ended fund structures distributed in six share classes, according to Stahel.
Insurance-linked securities — including catastrophe bonds, pandemic bonds and other publicly traded structures — are run as part of the Clariden Leu Cat Bond Funds (CH/LIE) and are marketed as a conservative fixed-income strategy.
The fund’s current asset allocation is 95 percent in ILS and five percent in cash.
The Clariden Leu ILS Plus Funds (GUE) includes insurance-linked derivatives such as industry-loss warranties, direct reinsurance and retrocession programs, and is positioned as a balanced alternative investment.
The fund’s asset allocation includes 60 percent to ILS, 35 percent to insurance-linked derivatives and five percent in cash. Stahel adds that a “very small allocation” of assets are dedicated to third party managers, which are primarily used to run the derivatives strategy.
The current minimum investment for each fund is a single share, which is currently worth approximately $130 million. Each fund includes a service fee, but does not include performance fees, lock ups, or subscription or redemption fees.
Both funds offer daily liquidity at a fixed spread and a monthly net asset value (NAV) pricing.
Investor Profile
Clariden Leu markets its ILS funds primarily to private individuals through its own captive sales force or through other banks for their private clients.
“This puts us in a very unique position, as we are not depending on a small number of large investors but have the broadest possible investor base,” Stahel says. “As a consequence, we have hardly lost any money through redemptions into the fourth quarter 2008 and are running a very stable portfolio.”
Current Sector Issues
The spare number of new catastrophe bond issues and other ILS structures over the summer months had a material impact since there were sufficient opportunities in the secondary market at “very attractive price levels,” Stahel says.
Macro hedge funds and other investors dumping their positions for liquidity lead to a significant price drop — as much as 5 percent — for ILS paper on the secondary market
Stahel said that situation has changed considerably since then.
Several reinsurance companies were forced to issue cat bonds to keep their capital positions and rating levels steady, often at increased interest rates to ensure smooth placement in the market, Stahel says.
That forced prices in the secondary market up considerably — as much as 30 to 40 percent — and attracted new investors into the ILS space.
“As a result, there was a small rally in the third quarter,” Stahel says.
The rally also lifted the boats of many dedicated ILS funds that were forced to mark to market losses earlier in the year.
“The opportunity to buy cheap paper is gone. We’ve reached a stable environment,” Stahel says.
Clariden Leu has been able to navigate the changes in collateral arrangements that were precipitated by last year’s collapse of Lehman Brothers with relative ease. “We have always had solid transparency on the collateral positions and the valuation of these positions,” Stahel says.
As one of the largest investors in the ILS space, the fund has been in close contact with sponsors and arrangers on the suggested new collateral structures including the BNP Paribas solution of a tri-party-repo. “The changes are not impacting our investment strategy.”
