The Synergies of Hedge Funds and Reinsurance
The Synergies of Hedge Funds and Reinsurance
May 13th, 2013
Department of Economics
University of California, Berkeley
i
Abstract
Bermuda-based alternative asset focused reinsurance has grown in popularity over the last decade as a joint venture for hedge funds and insurers to pursue superior returns coupled with insignificant increases in systematic risk. Seeking to provide permanent capital to hedge funds and superlative investment returns to insurers, alternative asset focused reinsurers claim to outpace traditional reinsurers by providing exceptional yields with little to no correlation risk.
Data examining stock price and asset returns of 33 reinsurers from 2000 through 2012 lends little credence to support such claims. Rather, analyses show that, despite a positive relationship between firms’ gross returns and alternative asset management domiciled in Bermuda, exposure to alternative investments not only fails to mitigate market risk, but also may actually eliminate any exceptional returns asset managers would have otherwise produced by maintaining a traditional investment strategy.
ii
Table of Contents
Acknowledgements .......................................................................................................................... i
Abstract ........................................................................................................................................... ii
Table of Contents ........................................................................................................................... iii
Section I: Introduction ...................................................................................................................... 1
Section II: Industry Milieu ................................................................................................................ 4
Insurance
May 13th, 2013
Department of Economics
University of California, Berkeley
i
Abstract
Bermuda-based alternative asset focused reinsurance has grown in popularity over the last decade as a joint venture for hedge funds and insurers to pursue superior returns coupled with insignificant increases in systematic risk. Seeking to provide permanent capital to hedge funds and superlative investment returns to insurers, alternative asset focused reinsurers claim to outpace traditional reinsurers by providing exceptional yields with little to no correlation risk.
Data examining stock price and asset returns of 33 reinsurers from 2000 through 2012 lends little credence to support such claims. Rather, analyses show that, despite a positive relationship between firms’ gross returns and alternative asset management domiciled in Bermuda, exposure to alternative investments not only fails to mitigate market risk, but also may actually eliminate any exceptional returns asset managers would have otherwise produced by maintaining a traditional investment strategy.
ii
Table of Contents
Acknowledgements .......................................................................................................................... i
Abstract ........................................................................................................................................... ii
Table of Contents ........................................................................................................................... iii
Section I: Introduction ...................................................................................................................... 1
Section II: Industry Milieu ................................................................................................................ 4
Insurance
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