‘NAV Wrapper’ Insurance Program for Alternative Asset Managers – Creating a principal-protected fund to attract institutional investors – Q4/24
Matrix Global Services Ltd (“Matrix”) has created an innovative and valuable new tool for alternative asset managers to raise new Assets Under Management (“AUM”). Matrix’s solution creates an insurance-based wrapper protecting against the loss of value of the initial invested Net Asset Value (“NAV”), enabling the manager to market a rare and customized principal-protected fund to leading institutional allocators.
This insurance program offers a combination of value contributions by and for all parties involved:
- The insurers lend their credit ratings and major global balance sheets to back-stop the value of well managed alternative investment vehicles, in return for receiving a premium payment
- The asset manager benefits from recognition by the insurer for providing outstanding risk management– worthy of the insurer’s willingness to defease price risk from the investors–and offering high-prestige, risk-adverse allocators– such as banks, pension funds and sovereign wealth funds–a unique solution providing exceptional risk-adjusted returns
- Investors receive the benefit of accessing attractive emerging managers in interesting, uncorrelated assets classes, while still satisfying risk mandates of Investment Committees, and in the case of rated and regulated balance sheets, potentially capital relief/release as well.
Matrix, with its team of experienced alternative investment managers, underwriters, capital raisers and insurance intermediaries, serves as the exclusive manager of this insurance program, selecting attractive managers and strategies for consideration; providing due diligence and underwriting; and coordinating placement and closing of this unique insurance coverage.
Insurance policies are customized for each manager and fund, to meet the specific requirements of the underlying investments. However, we see a few common themes to successful structures:
- Insurance limits of $50-100 million per insured fund, per tranche; may be repeated with additional tranches for a manager upon successful experience
- 3–5-year terms of coverage
- Principal protection insurance may cover up to 100% of the NAV of a given fund in certain circumstances, but more commonly the manager or investor would retain a certain minority percentage of the risk, with the insurer covering the large majority
- Fund entity would be the named insured, and all LPs in a given fund or share class would be insured
- LPs would have the ability to redeem investment prior to the end of coverage term but would forfeit rights to claim and all premiums paid would be earned
- Each manager will agree to a bespoke, specific investment policy statement for insured assets dictating diversification, concentration limit, risk management factors etc. Only portfolios meeting these criteria will be eligible
- All insurers writing coverage for this program are rated A or better, with multi-billion balance sheets and excellent reputations; they are highly creditworthy risk-bearing partners.
Certain types of strategies are much better suited for the program than others. Core considerations of eligible managers include a 2-3+ year audited track record, a minimum of $50mm in AUM; $100mm+ preferred, high quality team and processes with a focus on compliance and systems.
Strategy eligibility criteria:
- Low volatility
- Uncorrelated to other asset classes
- Invested in quality assets that can be valued and liquidated under subrogation in event of a claim, and provide consistent cash flow and positive returns
- No equity, commodity, macro, timing or trading/MTM risk
- Little to no leverage used in portfolio
- Focus is on private credit and other asset-backed illiquid assets
Matrix is currently actively reviewing asset managers and strategies that may be a good fit for this new and innovative NAV wrap insurance program. If you manage an alternative investment vehicle and are interested in discussing this solution in more detail, please contact us at the below information.
Similarly, investors, allocators and consultants interested in reviewing insured fund options as a consideration for investment– including potentially allocating to a basket of diverse underlying strategies– please contact us at the below information.
Matrix are authorised and regulated by the Financial Conduct Authority.
” Matrix, with its team of experienced alternative investment managers, underwriters, capital raisers and insurance intermediaries, serves as the exclusive manager of this insurance program… “
About the Author
Brad has spent 25 years as a key innovator and leader in financial markets. He has allocated and invested billions of dollars of capital in a range of asset classes, and held senior roles in investment organizations, including CEO, CIO, Portfolio Manager and Director of Compliance.
Contact Brad McGill, Managing Director Capital Markets
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