Hedge fund raises BSX stake on ILS boom hope
A US hedge fund has upped its stake in the Bermuda Stock Exchange to more than 40 per cent.
And Murray Stahl, co-founder of the multi-billon dollar hedge fund firm Horizon Kinetics, where Newstead and Belmont Hills owner Larry Doyle is managing director, said that he was confident that the massive growth in the insurance-linked securities sector would boost profits.
Mr Stahl said: “One day — we do not know, but we hope — that the insurance-linked securities (ILS) business is going to be orders of magnitude larger.
“We don't know that, we can't predict it, but insurance companies like to lay off their risk and Bermuda is the home of that kind of investment.”
Mr Stahl was speaking at the annual general meeting of Horizon Kinetics' holding company FROM Corporation.
Mr Stahl said that his firm regarded its stake in the BSX, which it has steadily increased, as “a seedling” that it plans to hold for the long-term and that it would give Horizon Kinetics a way into “the real asset class” of ILS that it “it ordinarily wouldn't get exposure to in the conventional asset management class”.
He added that he expected cash to continue to flow through the reinsurance and ILS market.
Mr Stahl said: “The idea is that, if they want to expand and control risk, at the same time, a big payout resulting from a catastrophic event somewhere in the world, like an earthquake, would immediately disrupt their expansion plans.
“Therefore, the logical approach is to take certain catastrophic risks and lay them off on the market.
“Ironically, the market is willing to accept that and that's actually a pretty good thing for the Bermuda Stock Exchange at the margin.
“All these developments are at the margin. That's sort of a nice thing and I think that it's going to continue.”
Horizon Kinetics, which owned nearly 2.65 million shares in the BSX as of August, has an agreement signed last year to allow it to acquire up to 42.77 per cent of BSX shares issued and outstanding at a price of $4.50 a share plus stamp duty.
BSX president and CEO Greg Wojciechowski said that the Horizon Kinetics investment — the largest single holding in the exchange — was a vote of approval for Bermuda and its future.
He added that the BSX had 145 ILS vehicles listed — around 70 per cent of the global total issuance.
Mr Wojciechowski said: “ILS is a tremendous success story for Bermuda and shows the Bermuda innovative spirit is alive and that it works.
“It also shows the depth and experience of the insurance and reinsurance industry in Bermuda and its ability to evolve and meet the needs of its clients.”
He added that an announcement in the UK that the City of London regarded ILS as a missed opportunity and that the Britain intended to go after a slice of the market showed how ahead of the game Bermuda had been.
And Mr Wojciechowski said: “There is a real opportunity to continue to evolve this segment and potentially migrate it to an exchange trader platform.”
The owner and operator of Canada's Toronto Stock Exchange, TMX Group, bought up 16 per cent of the BSX in 2011.
Mr Wojciechowski said that the BSX was “98 per cent institutionally owned” — largely by financial services and brokerage firms.
He added: “There is some real external exchange experience in the shareholders. That's good because they know what exchanges are and they see the work the team in Bermuda is doing.”