bermuda captive | 2010
discretionary mandates for smaller to medium-sized captives. Using this model brings efficiencies of cost, scale and reporting to captives, captive managers and fund managers. Although it may seem obvious, it is worth noting that another benefit of this scale is diversification for investors by reducing exposure to single securities and issuers.
The fund approach also involves a simpler due diligence process
as public information such as fund ratings, fee schedules, rankings and performance make the selection process simpler and transparent. Because of the thousands of different mutual funds available, a level of customisation is typically achieved through the variety of managers, investment styles and asset allocations chosen. Pooled vehicles, particularly passive funds such as ETFs (exchanged traded funds), are gaining prominence as an easy and inexpensive way to gain exposure to more asset classes.
As a result of the funds’ accessibility to subscriptions and redemptions,
the value of the portfolio is assessed on a mark-to-market basis on any dealing day. Therefore, fund reporting is typically provided as fair value rather than amortised cost value and will reflect price movements. As regulators move towards more stringent reviews of captives’ solvency and capital adequacy, this reporting approach is gaining accounting favour, despite the fact that investment losses may trigger additional capital requirements.
Strengths
• Cost efficiencies • Simpler accounting • Liquidity • Diversification and scale.
Weaknesses • Standard (non-customised) investment approach • Mark-to-market valuation (losses and capital requirements).
Conclusion
There is no single solution that best fits all captives’ needs. A captive must decide whether to choose the customisation that a segregated account brings or the efficiencies that a pooled vehicle can provide.
With the thousands of mutual funds available to investors, the same
customised approach that an investment manager offers can now be achieved through a careful selection of cost-effective funds. Captive insurers must realise that regardless of whether segregated accounts or pooled vehicles are employed, the basic principles of sound investing remain the same: look for a consistent asset management process, a strong track record, disciplined risk management and superior customer service.
Louise Twiss West is the head of business development at HSBC Global Assett Management (Bermuda) Limited. She can be contacted at
louise.twiss-west@
hsbc.bm. Claudio Lede is the head of product development and marketing at HSBC Global Asset Management (Bermuda) Limited. He can be contacted at:
claudio.lede@hsbc.bm
Issued by HSBC Bank Bermuda Limited. HSBC Global Asset Management (Bermuda) Limited (“AMBM”) of 6 Front Street, Hamilton, Bermuda, is a wholly owned subsidiary of HSBC Bank Bermuda Limited (the “Bank”). AMBM is licensed to conduct investment business by the Bermuda Monetary Authority. The Bank is licensed to conduct banking and investment business by the Bermuda Monetary Authority.
27
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52