Investment giants KKR & Capital Group launch multi-strat interval funds with ILS remit
Indicative of a broader and still developing trend we’ve been covering in recent years, of multi-asset managers adding catastrophe bonds and other insurance-linked securities (ILS) as eligible assets within prospectuses, KKR and Capital Group have begun marketing a pair of 40’s Act interval style mutual funds with ILS part of their remit.
While this is indicative of this broader trend, of ILS being added as an allowed asset class to a growing number of multi-strat funds, it’s worth highlighting this pair of asset management giants given their scale, ability to distribute fund offerings widely, historical alternatives focus and track-record in tapping relatively uncorrelated sources of return for their clients.
Capital Group manages over $2.8 trillion in equity and fixed income assets for millions of individual and institutional investors around the world, with its American Funds brand particularly well-known.
KKR is an alternatives and private markets specialist, with over $553 billion in client assets under management as of the end of 2023 and has targeted reaching $1 trillion within five years.
Of course KKR also has a direct pedigree in reinsurance and ILS investing, having backed ILS manager Nephila Capital in the past and also acquired life and annuity specialist reinsurer Global Atlantic, which itself utilises third-party capital in sidecar structures.
But most notable really is the scale and reach of this pair. Which suggests any fund strategy they launch could grow in size and if they elect to hold an allocation to catastrophe bonds or ILS within them, it could be more meaningful than many other multi-asset strategies that include a cat bond allocation, for example.
The pair have filed for two public-private fixed income interval funds, Capital Group KKR Core Plus+ and Capital Group KKR Multi-Sector+, which are expected to launch in the U.S. in the first half of 2025, pending regulatory approval.
It’s a first move by KKR and Capital Group to help investors access portfolios of public assets that also include private investments as well, as they seek to further democratise access to the sometimes more hard to reach asset classes and alternatives.
Capital Group and KKR believe that strict eligibility requirements, relatively high investment minimums and complex tax reporting have all hindered access to private markets for investors.
As a result, the pair partnered to help financial professionals clear those hurdles and bring new opportunities to client portfolios at competitive fees, with these two mutual interval funds the first to launch under this initiative.
“As a firm, we do not enter a new market unless we are committed for the long term and believe we can offer something meaningful and durable for our clients,” explained Holly Framsted, Head of Global Product Strategy and Development at Capital Group. “Our focus remains on delivering distinct solutions that serve unmet needs in investor portfolios. These strategies aim to solve the access gap that individual investors currently face when it comes to private investments, and we expect these two public-private strategies will be the first of many across asset classes and geographies.”
Capital Group is responsible for the overall investment strategy, but KKR Credit is a sub-advisor and the pair intend to work closely together to deliver investment portfolios that “thoughtfully combine public and private investments, with an aim toward solving distinct investor needs,” they explained.
“KKR and Capital Group share a deep commitment to making private markets assets more accessible to individual investors,” Eric Mogelof, Partner and Head of Global Client Solutions at KKR added. “We are pleased to take this next step in our strategic partnership and look forward to offering additional solutions that bring our best‐in‐class private markets investment capabilities to a broader group of investors.”
The funds will be offered to the US wealth market via investment advisors, but institutional investors are also in scope, as Capital Group and KKR believe the offering can be relevant in their portfolios as well.
Reinsurance related bonds and notes are one eligible asset class for both of the funds, essentially catastrophe bonds and other ILS opportunities that may be sourced as diversifying alternatives to complement the fund’s portfolios.
Of course, there are numerous other asset classes mentioned in the prospectus for these new funds. But, as investment managers increasingly gain an appreciation for cat bonds and ILS, especially for the way the return-stream from ILS can complement broader fixed income portfolios, it would make sense for at least an element of the allocation to go to the asset class at this time.
As we reported recently, ILS manager Leadenhall Capital Partners has highlighted that adding ILS to portfolios can add a significant yield advantage as well as relative value, compared to other asset classes, while also improving the efficient frontier of returns.
We also recently reported that ILS manager Twelve Capital found that even a modest cat bond allocation can improve returns and risk metrics for a traditional 60/40 stocks and bonds investment portfolio.
We’d also written about high-net-worth investor appetite for access to a wider range of alternative asset classes recently, which is something these multi-strat funds can offer.
Which is precisely why catastrophe bonds and ILS are increasingly showing up in multi-asset fund prospectuses.
As the size of the asset managers running these strategies, as well as their reach, continues to grow, multi-asset manager allocations to the ILS market are likely to increase over time as well.