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GAM FCM ILS Yield

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GAM FCM ILS Yield fund seeks to capture attractive, long-term, positive returns through an actively managed portfolio of global catastrophe (cat) bonds. Managed by a recognised industry leader in the insurance risk sector, Fermat Capital Management, the strategy has over a 10-year track record of long-term positive results and exhibits low correlation to traditional asset classes.

What are Cat Bonds?

Crucially for portfolio diversification, cat bonds have typically low correlation to more traditional investments, even during periods of heightened volatility."

Our Edge

Deep ILS experience

Established in 2001, Fermat's combined expertise in catastrophe re/insurance, investment, legal, trading, risk and modelling enables it to fully analyse each ILS on an absolute and relative basis.

Active approach to ILS selection

The team seek only the highest quality, most stable opportunities at any given time, with only ILS instruments providing the most attractive portfolio risk / reward impact selected for inclusion, rather than merely engaging in diversification for diversification's sake.

Unique risk modelling approach

The team utilise a proprietary modelling tool, harnessing the output of three major commercial catastrophe risk management packages, in order to identify unintended risk and correct any inconsistencies and biases. The combination of these tools gives the team an edge in accurate risk modelling and tactical portfolio decision making.

Investment Team

Fermat is a recognised insurance-risk industry leader and highly experienced cat bond manager, based in the US. The portfolio managers, Dr John Seo, Nelson Seo and Brett Houghton, manage assets of approximately USD 8.1 billion and have over 50 years' combined experience in ILS and cat bonds, dating back to the inception of the market in the late 1990s.

The level of experience and in-depth market knowledge is critical to Fermat's ability to identify the true risk of each bond, as well as granting them ready access to new issuances.

Over time, the team have demonstrated their expertise by actively trading billions of dollars in catastrophe bonds through a series of large insurance industry events and natural catastrophes, while providing stable returns for clients and maintaining high levels of liquidity.

Fermat differentiates itself with a focus on adequate compensation for identifiable risk while avoiding uncompensated risk.
Dr John Seo, Co-founder and managing director, Fermat Capital Management LLC.
Dr John Seo
Co-founder and Managing Director of Fermat Capital
Nelson Seo
Co-founder and managing director of Fermat Capital
Brett Houghton
Managing Director, Fermat Capital

Philosophy and Process

Investment Philosophy

The team believes returns from catastrophe investments are driven by a fundamental mismatch between re/insurance regulation and the demand for insurance created by rapidly rising coastal and urban concentrations of economic activity worldwide.

They believe that through active bond selection and management, they can construct a portfolio of cat bonds with a risk-return structure that aligns with the best paying re/insurance risks, and therefore capture alternative beta at the optimal risk-return level. Their approach focuses on 'peak peril' exposures while maintaining a rational level of diversification.

Investment Process

The team's process centres on extensive due diligence, deep market understanding and sophisticated risk modelling. In-depth analysis of issues is performed by specialist investment and legal experts.

In order to price and select those ILS that are taken forward for consideration, the team uses sophisicated risk modelling tools - focusing on ILS exceedance curve modelling, market exceedance curve modelling and implied yield curve modelling - to understand each bond's true risk. They seek to build a portfolio containing only clearly modelled, well-compensated risks that are supported by quality data, and then to actively manage risk. The resulting portfolio of approximately 150-200 positions is constructed on a bottom-up basis, with those bonds providing the most attractive portfolio risk/reward impact being selected for inclusion.

1

Due Diligence

  • Comprehensive review of structures, terms and risks
  • Comparison versus existing market and new issue pipeline
2

Pricing and Selection

  • Sophisticated proprietary modelling of each investment
  • Understanding risk is key to determining price
3

Portfolio Construction

  • Optimise portfolio's risk/return profile
  • Risks actively managed on a daily basis

Reasons to Invest

Diverse source of returns

Returns are linked to the occurrence of catastrophes – such as earthquakes or windstorms – rather than economic drivers and therefore cat bonds tend to perform independently of traditional asset classes.

Stable source of alternative returns

Cat bonds are a form of insurance-linked security (ILS) and provide an efficient solution for re/insurers to transfer insurance risk from their balance sheets to capital markets, while seeking to offer steady, attractive yields in a low yield environment.

Low exposure to traditional risk

The uncorrelated nature of the asset class to the broader market means there is low exposure to credit, interest rate and financial market risk.

Solid track record

A track record of delivering positive returns during differing market environments underpins the value of this asset class as a portfolio diversifier.

Key Risks

Capital at risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Credit Risk / Non-Investment Grade

Non-investment grade securities, which will generally pay higher yields than more highly rated securities, will be subject to greater market and credit risk, affecting the performance of the Fund.

Interest Rate Risk

A rise or fall in interest rates causes fluctuations in the value of fixed income securities, which may result in a decline or an increase in the value of such investments.

Credit Risk / Debt Securities

Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.

Insurance-Linked Securities Risk

Cat bonds are exposed to catastrophes through which they may suffer substantial or total losses of amounts invested. In such an event or combination of events, which may happen at any time, the Fund’s value may fall significantly and may not recover.

Liquidity Risk

Some investments can be difficult to sell quickly which may affect the value of the Fund and, in extreme market conditions, its ability to meet redemption requests.

Our Thinking

Outlook 2025
Cyber ILS demand is growing
December 2024

INSURANCE-LINKED SECURITIES: “Cyber ILS is a significant opportunity for cat bond investors.”

Our Thinking

Fund Information

Contact Us

If you would like us to contact you, or email you with further information, please complete the enquiry form below.

Speak to one of our client directors

If your query is urgent or you wish to talk to a member of the team, please click the button below for their contact details.

 

 

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Contacts

Please visit our Contacts and Locations page.

Disclaimer: Past performance is not an indicator of future performance and current or future trends. The indications could be based on figures denominated in a currency that may be different from the currency of your residence country and therefore the return may increase or decrease as a result of currency fluctuations. Capital at risk: all financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Any reference to a security is not a recommendation to buy or sell that security.

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