Spotlight on Gareth Abley, Co-Head of Alternative Strategies, MLC Asset Management
Global Thought Leader Spotlight
Gareth Abley, Co-Head of Alternative Strategies, MLC Asset Management
In my role as the Co-Head of Alternative Strategies at MLC Asset Management, I am responsible for identifying strategies with two key characteristics. Firstly, attractive risk-adjusted returns on a stand-alone basis. Secondly, as uncorrelated as possible to broader markets – in particular the ability to still make money when equities don’t, or when the economy is weaker.
We manage two portfolios worth a combined A$6.75bn. Of this A$3.25bn is in natural catastrophe reinsurance, a portfolio we have been managing since 2007, where we also recently launched a co-mingled fund seeded with A$250m from an external client.
The remaining A$3.5bn is in the MLC Opportunistic Capital Solutions portfolio, which consists of niche private credit, legal finance and opportunistic investments – implemented via a combination of funds/SMAs, co-investments and direct investments.
Key themes driving risks and opportunities
In our nearly 20 years of researching alternatives, we have found very few genuinely uncorrelated asset classes that have a fundamental economic reason as to why they should deliver attractive long-term returns. Natural catastrophe reinsurance or Insurance Linked Securities (ILS) is one of the most attractive. This does not mean that it has been easy for people to capture the ‘beta’ – which in practice is a much more nuanced concept than is initially apparent.
There have been two distinct eras for the asset class. 2007-2017 was a relatively benign period for insurance losses from natural catastrophe events, which allowed investors to generally make good returns, but which arguably masked the risk contained in different portfolios. This benign period also led to a tightening of spreads and a worsening of terms and conditions, which set the scene for a less favourable return environment. 2017-2024 has seen a period of significantly higher insured losses and significant dispersion in underlying manager returns.
The good news is that as a result, current spreads in ILS are much wider – particularly at a time when listed market equity and credit valuations are arguably stretched when set against an uncertain macro backdrop. While nobody knows what natural catastrophe events will occur in 2025, we view it as an extremely attractive time to access the risk premium available in this asset class. One of the unique features of natural catastrophe reinsurance is that the probability of losses don’t vary meaningfully from year to year, but spreads do – meaning there is a much higher ex-ante information ratio in active asset allocation.
Implications for institutional investors
While not quite as attractive as 2023 and 2024, we see the set up as being very attractive for the asset class in 2025. As always, the nuances of how investors access exposure can be hugely influential in driving returns. What are the arguments in favour of cat bonds vs private reinsurance vs both? Retro vs reinsurance? Peak vs non-peak perils? Remote vs non-remote risks? Quota shares vs collateralised reinsurance? Single vs multi-manager? How much cedant diversification makes sense?
All of these decisions can make a big impact on returns. This can give rise to significant manager return dispersion – as we have seen over the last seven years – even across managers taking ostensibly similar levels of risk. Additionally, another quirk of ILS is that it is an asset class where luck can dominate skill over most time periods that matter. Major loss events are relatively infrequent and impossible to predict, which means in identifying whether someone has statistically significant skill in managing portfolios will arguably take 100s of years to be known definitively.
Given these unique characteristics – and that it’s a very attractive uncorrelated risk premium that would arguably complement any diversified portfolio – what’s the best way to capture the opportunity?
Gareth will be presenting at Global Investment Institute’s upcoming Private Credit Investment Forum, taking place on Thursday, 8 May 2025 at the Grand Hyatt Melbourne, Victoria. To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
Gareth Abley, Co-Head of Alternative Strategies, MLC Asset Management
Gareth is Co-Head of Alternative Strategies for MLC. His team are focused on identifying investments that deliver attractive risk-adjusted returns and are uncorrelated to mainstream asset classes. The team manages ~A$6.5 billion in total across two portfolios.
The team manages the ~A$3.3 billion MLC Opportunistic Capital Solutions portfolio that allocates predominantly to various fund and co-investments in niche, esoteric, private credit.
The team also manage ~A$3.2 billion in natural catastrophe reinsurance (ILS) focused strategies, including a recently launched co-mingled Reinsurance Investment Fund, which is available to external (non-MLC) investors.
If you have enjoyed reading this article, please subscribe to GII Insights, delivered monthly, direct to your inbox and it is FREE!
Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation. These views should not be relied on as research or investment advice regarding any stock and are subject to change. There is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and the individual undertakes no duty to update any such forecasts. International investing may involve risk of capital loss from unfavourable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
All material appearing in GII’s Global Investment Insights is copyright, reproduction in whole or part is not permitted without written permission from the Publisher, Global Investment Institute.