Warren Buffett ran a hedge fund for 12 years before quitting fund management and turning to banking, insurance, and reinsurance in 1969 as a better way to generate returns. Taking their cue from Buffett, Moore, Maverick, Greenlight Capital, Cerberus, Citadel, HBK, D.E. Shaw, Apollo Group, AQR, Third Point, SAC, Jon Paulson, and George Soros have all acquired or started reinsurers (Soros has formed at least four).
The primary reason is that the reinsurers are virtually certain to outperform the managers’ funds. Secondarily, the managers obtain assets from sources otherwise unavailable to them and all of these assets are permanent capital. Tertiary benefits include gentler tax treatment for reinsurers compared to funds in the UK, Canada, Australia, and the U.S., daily liquidity if the reinsurers become publicly traded, and a better way to monetize the fund manager than selling some or all to a financial institution or doing an IPO.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Historically, those hedge fund managers who sponsored startups had to hire teams marquee reinsurers (and offer them large compensation guarantees), personally invest more than $50 million, raise at least $200 million of capital, underwrite large busted deal, startup and fixed costs, and redirect resources for 18 months to 2 years to get going.
Video and further details on reinsurers below
Multi-Strat Re is a turn-key platform that allows eligible hedge fund managers to start their own reinsurers in far less time and impact on internal resources, with far less capital, deal risk, and set up and fixed costs and enjoy the same benefits that the aforementioned 14 managers have enjoyed:
- Outperforming his or her flagship fund by 5-6% p.a;
- Getting significant new assets from new sources (PE, mutual funds, retail, ERISA) while overcoming the “99 investor” restriction;
- Generating permanent capital – the basis for a sustainable business;
- Offering investors better liquidity if publicly traded (see GLRE);
- Providing tax efficiency – no taxes on annual earnings at either the corporate or shareholder levels, capital gains treatment in Australia, Canada, UK, and the U.S;
- Compliance with SEC and AIFMD made easy
Hear about Multi-Strat Re from Joe Taussig in this Opalesque.TV BACKSTAGE video:
- Why reinsurance companies run by hedge fund managers are virtually certain to outperform the manager’s own flagship fund.
- Why have so few hedge funds set up reinsurers?
- What is required from a fund manager to set up his reinsurer?