In a world seemingly often focused on the ephemeral and transient, it was probably only a matter of time before, a “new investment asset class” was attempted. Goodbye to alternative investments; say hallo to “Vanity Capital”.
We could not resist writing a note about this. The definition used by BoA/ML in a recent inaugural piece is enough to pique curiosity: “… the pursuit of, and the accumulation of, attributes and accessories to augment self-confidence by enhancing one’s appearance and prestige. It is self-actualization through self-improvement and self-focus.” In other words, a modernized and updated Narcissism as a potential source of investment returns.
The concept, while meant seriously (and we would not disagree with the underlying logic given the seemingly inexhaustible ability of individuals to find themselves fascinating), is one that lends itself to parody along the lines of: “My Giacometti is bigger than your Giacometti”, or: “I suppose that is your everyday private jet; and you left the customized 747 at home?”, or even: “Damn! Down to my last case of the ’45 Lafite.”
So, why would we, serious folk at Awbury even pay attention to this? Well, we read broadly; and, occasionally, we do like a bit of light relief from the serious business of originating, analyzing and closing business in our E-CAT space. However, the more important point is that the creation of such “asset classes” seems to us to be a symptom of a world that is uncertain about its values (let alone valuations!), and one where those who eschew appearance, or the latest fad; and, instead, focus on substance and solid research remain able to identify and generate sustainable long-term returns; which is, of course, our goal at Awbury.
As the latest quarterly financial reports from the (re)insurance industry demonstrate, there is no sign of any reverse in the downward trend in reinsurance pricing on NatCAT business; while business being placed is also becoming more concentrated, with secondary markets being increasingly ignored and discarded. Naturally, industry participants are putting a brave face on this, but it seems clear to us that, as we have stated before, the need to generate premium that will justify corporate cost bases is becoming more pressing, as the NatCAT “cake” is not expanding and more people are trying to take a piece of it for themselves. The industry as a whole has cost ratios which are becoming unsustainable in the face of declining revenues.
At Awbury, our goal continues to be providing revenue streams, where the underlying risk is primarily credit, or structures that allow access in more efficient ways to long-term investment returns or deployment of capital, that are not correlated with other insurance markets. Thus, we enable our partners to benefit from returns which are generally much less market- or price-sensitive than in most other insurance lines, focusing on our clients’ specific needs, and delivering specifically tailored solutions to them.
– The Awbury Team