January 3, 2020

PIMCO cites cat bonds as ESG asset for new multi-strat funds

PIMCO building logo

Investment management giant PIMCO (Pacific Investment Management Company LLC) believes catastrophe bonds can be an ESG (environmental, social and corporate governance) appropriate investment, adding them as fixed income assets two of its new funds are able to allocate to.

PIMCO has launched the PIMCO Climate Bond Fund and the PIMCO Enhanced Short Maturity Active ESG Exchange-Traded Fund, both of which will be able to invest in catastrophe bonds and potentially other insurance or reinsurance linked securities instruments.

Both of these funds target delivering investors an ethical, climate aware, source of return, with the Climate Bond Fund aiming for “optimal risk adjusted returns… while giving consideration to long term climate related risks and opportunities,” and the Active ESG Fund targeting “maximum current income, consistent with preservation of capital and daily liquidity, while incorporating PIMCO’s ESG investment strategy.”

Catastrophe bonds, or “event-linked exposure” as the prospectus for each fund puts it, are detailed as viable assets that the two funds can allocate to.

The PIMCO Climate Bond Fund seeks to invest in, “a broad spectrum of climate focused instruments and debt from issuers demonstrating leadership with respect to addressing climate related factors.”

While the Active ESG fund will base its allocation decisions on PIMCO’s own ESG strategy and also use data from third-party providers to identify whether an asset has ESG qualities.

Of course, PIMCO continues to build-out its own specialist insurance-linked securities (ILS) investment operations, but at the same time this shows that ILS assets such as catastrophe bonds have much more potential within the asset manager than just in the dedicated strategies it is building-out.

It’s not unusual for a major investment manager to add catastrophe bonds as a possible security it can invest in within multi-asset fixed income strategies, in fact this is becoming increasingly common and resulting in even greater diversification of risk into the capital markets.

But it is notable in this case that these specific funds are ESG and climate bond focused, as this reflects another of the key selling points of in-particular catastrophe or natural disaster linked ILS.

That, in the provision of disaster risk finance, some of the market’s outstanding catastrophe bonds offer an investment that an increasing number of investors see qualifying as socially responsible and environmentally sound.

To read more articles like this one, visit Artemis.


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