Europe may soon get its first exchange-traded fund based on catastrophe bonds.
An application to register the ETF was filed in Ireland, according to Rick Pagnani, co-founder and chief executive officer of King Ridge Capital Advisors.
“This is an opportune time to pursue a European ETF,” Pagnani, who until last year was running the insurance-linked securities desk at Pacific Investment Management Co. (PIMCO), told Bloomberg on Monday.
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King Ridge is already managing the world’s first-ever cat-bond ETF for Brookmont Capital Management. The fund, which is listed in the US, has so far struggled to win over investors, and failed to attract a lead market maker when it went public in April.
Brookmont initially intended to move ahead with a European version of its ETF, but shelved those plans earlier this year, in part due to proposed European regulations that would potentially make it harder to market the products to retail investors.
Pagnani said King Ridge is now acting on its own. “This is independent of Brookmont,” he said.
Cat bonds have delivered record returns since 2023 and investors have dodged major losses so far this year, despite forecasts of an above-normal US hurricane season. Returns for the year currently stand at 10% according to the Swiss Re Cat Bond Total Return Index.
Cat bonds allow insurers and reinsurers to pass part of their risk to capital markets. Sales of the instruments have soared amid increasing risk from property exposure, inflation and climate change. Investors can face potentially large losses if a bond is triggered, but stand to generate significant returns if a predefined catastrophe doesn’t occur.
The European Securities and Markets Authority recently judged that cat bonds shouldn’t be in so-called UCITS funds, which is a designation used in the region that’s intended to protect retail investors. ESMA has warned that cat-bonds’ inherent complexity is ill-suited to the retail audience.
Photograph: Flood damaged homes along the river following catastrophic deadly floods in Chiva, Spain on Nov. 19, 2024. Photo credit: Jose Jordan/AFP/Getty Images
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Topics Catastrophe Europe
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