In the endless quest for uncorrelated investment returns, the Swiss firm has launched insurance-linked products and brought over a team of specialists.

The asset management arm of Geneva-headquartered Lombard Odier has launched an insurance-linked strategies offering and hired Dr Gregor Gawron from Dynapartners to lead the team.

Lombard Odier Investment Managers has appointed the ILS team to offer a further asset class with low correlation to mainstream assets to institutional clients, it said in a statement. The team will consist of Simon Vuille and Marc Brogli along with Gawron who will head the insurance linked strategies. The team, based in Zurich, will report to LOIM’s chief investment officer, Jan Straatman.

Gawron joins the firm from Dynapartners where he was the head of the CAT bonds and ILS offering. Prior to that role, he worked at Falcon Private Bank and he has also been a portfolio manager in the ILS team at RMF/Man Investments, where he worked closely with his current team.

“CAT [catastrophe] bonds are uncorrelated to other risks, including economic and capital market events, while the 4 per cent to 6 per cent returns on offer remain attractive.  The overall ILS universe size is close to $60 billion and growing steadily,” Straatman said.

Catastrophe bonds, a form of insurance-linked investment (others might gain exposure to areas such as life settlements), are, according to one definition, high-yield debt instruments that is usually insurance-linked and meant to raise money in case of a catastrophe such as a hurricane or earthquake. It has a special condition that states that if the issuer (insurance or reinsurance company) suffers a loss from a particular pre-defined catastrophe, then the issuer's obligation to pay interest and/or repay the principal is either deferred or completely forgiven.

“Investors face multiple challenges that are tough to reconcile: low growth, zero interest rates and valuations getting stretched.  Institutions can find themselves lured into taking more risk without getting the returns expected. We need to help clients increase returns while safeguarding capital and that means better building blocks for portfolios.  CAT bonds possess those qualities.”

The ILS team will use an approach aimed at optimising portfolios of insurance-linked securities and targeting maximum diversification across different risk types, and different regions, the firm stated. The ILS/CAT Bond boutique will expand LOIM’s high conviction fixed income range.

“In the next couple of years, fixed income will be more volatile and subject to rising rates. It will be crucial to add active and high conviction strategies which protect clients better against rising rates, instead of the traditional market cap based strategies. CAT bonds can meet these criteria with a higher starting yield and floating rate coupon,” added Straatman.

Lombard Odier Investment Managers managed $49 billion on behalf of clients at the end of 2014.