Dear Sir or Madam,
The following can be recorded with regard to the primary market activity of catastrophe bonds (Cat Bonds) during the period from January to October 2016. Total issue volume of USD 4.93 billion stands in relation to total outstanding volume of USD 25.45 billion. This does not take into account a bond that is currently being floated on the primary market with around USD 400 million. However, a comparable volume ends at the same time which is why overall volumes should remain stable. It must thus be noted that supply continues to lag behind demand and that this has resulted in pressure on yields for some three years. This situation, however, has been accentuated in this year.
It is a particular challenge to generate a stable return each year in light of the environment referred to above. In order to be able to convincingly fulfil this task in the future too, we will rely on the following principles when managing our cat bonds funds: .
Clear investment strategy:
The investment policy of “Twelve-Falcon Insurance Linked Strategy Fund” and “Twelve-Falcon Insurance Opportunities Fund” aims primarily to achieve a money market yield in the subfund’s reference currency and an appropriate risk premium by investing in a portfolio of debt instruments which are linked to an insured event (insurance linked securities, ILS or cat bonds). The general aim is also for returns to exhibit a low correlation with the bond and equity markets, as well as a smaller fluctuation in the value of the investments compared with long-term bond investments.
Sustainable growth policy:
We limit the accrual of new investor funds by setting quotas so that liquidity is commensurate to the investment strategy. This quota procedure ensures that new shares are only issued in a limited number because without the prospect of attractive investment opportunities an excessive liquidity quota would reduce the fund’s return. In our opinion, this voluntary limit on growth helps to achieve a stable performance.
Control via a quota system means that we only permit new monies into the fund at certain times and with firmly defined volumes. This facilitates specific investments and a very controlled development and expansion of the portfolios.
This general situation, coupled with the attractive return, is already per se a solid foundation in order to keep a commitment in the fund or also to expand it. Unfortunately, however, we were no longer able to take all subscription orders into account as our investors are on the whole in agreement with the principles of our strategy described above. You can obtain information on the current status from your sales partner.
The Board of Directors November 2016