Catastrophe bond managers produced “another marquee year of returns” in 2024 and once again experienced a strong 12 months of inflows, according to analysis by Kepler Absolute Hedge, a research and data-led provider of insight into hedge fund strategies.All in all, across the wider alternative UCITS investments fund space, assets under management (AUM) declined by 7.5%, or $17.3 billion to $230.2 billion in 2024, but while it was another year of contraction overall, the catastrophe bond market performed well.According to Kepler, “the ILS sector once again had a strong year for flows, aided by high spreads in the market and ultimately strong performance.” In fact, when it comes to the top five positive AUM changes within the AH Credit Index, two cat bond managers make the list for 2024.In fourth place sits the Schroder GAIA Cat Bond fund, which saw its AUM increase by $658 million to $3.489 billion for the year.

The fifth spot for 2024 goes to the Leadenhall UCITS ILS Cat Bond Fund, which achieved AUM growth of $486 million to $1.094 billion.Within the broader AH Credit Index, the overall AUM change was a positive $3.4 billion for the year, supported by the growth at the two cat bond managers.2024 was also another year of robust returns for cat bond managers, Kepler highlights.

“Cat Bond managers delivered another marquee year of returns (c.mid-teens).The sector capitalized on the upward pressure on reinsurance premiums following a series of industry-wide loss events in prior years and has seen since elevated rates, even as new capital has flowed into the space,” explains the firm.

The analysis shows that the GAM Investments GAM Star Bond fund was a top performer in 2024 at a return of 14.5%, albeit one percentage point down on 2023’s even stronger 15.5%.“The AH Credit Index delivered its best year since we incepted the index back in 2010, adding 6.8% in 2024.The strategy was incredibly consistent throughout the year with only one small down month (-0.2%) and 95% of managers positive.

Higher-for-longer yields and increasingly tighter spreads created the ideal backdrop for directional fixed-income investing,” says Kepler.Looking ahead at the performance of the wider UCITS space, Kepler notes, “In recent years, the Alternative UCITS sector has faced several challenges, including mixed performance relative to traditional asset classes (particularly equities), a difficult flow environment for active funds, and rising risk-free rates presenting alternatives.Against this backdrop, the sector saw another year of contraction (-7%), however, despite the negative headlines signs are emerging that the sector is stabilizing amid a shift in investor sentiment.

“With global equities facing subdued return expectations due to high valuations and concentration, and bonds losing their diversifying appeal in a ‘higher for longer’ environment, we believe liquid alt strategies can play an important role into investors portfolio.The opportunity set for hedge fund strategies remains as robust as it has been in recent years, with ample opportunities for alpha generation driven by regional divergences, geopolitical risks, and other factors.Additionally, elevated cash rates—such as short rebates and the ability to earn money market rates on unencumbered cash—are expected to provide a favourable tailwind for the asset class.” .

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