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Aeolus pushes back rated launch as firm overhauls fees

Aeolus bermuda.jpg

Bermudian ILS manager Aeolus’s launch of a rated vehicle will be delayed past the 1 January renewals, as the initial fundraising stage has coincided with a challenging year after Hurricane Ida and other cat events, sources have said.

In other developments, this publication has learned that the manager has recently added on a new high water mark to its fee structure for existing fund investors, and that its co-chairs Trevor Jones and Chris Grasso are leaving the firm at year-end.

Aeolus had begun exploring the idea of launching a new carrier in late 2020, but ramped up fundraising activities this past summer as new president Aditya Dutt joined the firm in August.

Sources have said the firm was initially hoping to be launched and writing business from the platform for 1 January across a range of non-cat business such as specialty lines, but that the timeframe has now been extended.

The plan to include non-cat alongside core catastrophe risks would have marked out the platform from other recent ILS-backed launches that have been more used as fronting facilities and collateral management tools for existing cat books – such as Lumen Re (LGT) or Nectaris (Leadenhall) – both of which were also in development for extended timeframes.

Aeolus said the firm was working on multiple initiatives, but that it did not comment on any specific ventures.

The Bermudian ILS manager is widely expected to look to diversify its business platform in the coming years, as its proposition currently focusses very much on the high risk-return end of the cat spectrum.

Dutt, given his background at RenaissanceRe’s ILS platform and expertise with ILS-backed rated vehicles, will be a key part of progressing these plans.

The delays come as the firm has been grappling with an already challenging fundraising environment for its flagship collateralised funds this year, as this year’s cat losses are expected to cause extensive capital trapping and as investors grow increasingly wary of low-attaching aggregate risk.

As this publication has previously reported, January 2022 capacity at retro funds could be around 20% or more down year-on-year, sources have estimated. Trapped capital levels are running high, reaching up to 70%-80% of some funds, RenaissanceRe’s CEO estimated on the firm’s Q3 earnings call.

Aeolus has also faced more specific challenges from a change in recommendation from pension consultant Aon Hewitt, which recently changed its rating of the firm’s Keystone fund from “Buy” status to “Qualified”, and its more conservative Spire fund from “Buy” to “Sell”.

The consultant highlighted its concerns over the firm’s exposure to aggregate risk, and said it had not seen the firm’s investment process “evolve to account for the current climatology where there are a larger number of small and medium sized events as opposed to less frequent large events”.

Aon Hewitt also changed its rating on a Nephila fund earlier this year as well, although in board meeting papers for a joint Pennsylvanian pension client, the consultant said it believed the ILS sector as a whole still had a place in its portfolio.

Fee and personnel changes

Sources said Aeolus is now moving to introduce a high water mark in its fee structures as one way of addressing points called out by Aon Hewitt, which said the firm had higher-than-market fee structures in place.

A high water mark structure enables investors to recoup some of their prior losses before investment managers are able to charge performance fees again.

The firm is also set to part ways with two of its longstanding partners, Jones and Grasso, at the end of the year. Both had been at the firm before its 2016 sale to Elliott and are moving on after the initial post-sale earnout phase.

The duo had moved into co-chair roles of the firm’s board last June when new partners were admitted, with Grasso also holding the title of co-head of portfolio management alongside CEO Andrew Bernstein.

Jones had worked more on the investor relations and sales side of the business, where Aeolus has grown its team in recent years – most recently with the hire of former Aksia consultant Amit Patel – but also with the likes of former RMS executive Stephen Moss in 2019 as head of investor analytics.

On the underwriting side, it has hired cat specialists with more expertise in reinsurance than retro, such as Nick Jagoda from Elementum last year and Andy Richardson from Lancashire earlier this year.

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