Posted 1/21/2024, 2:53:00 PM
Hedge Funds Reap Record 14% Returns From Betting on Lack of Disasters Via Catastrophe Bonds
- Hedge funds made big bets on catastrophe bonds in 2022, generating record returns of over 14% compared to 8% for the overall industry
- Catastrophe bonds allow the insurance industry to transfer disaster risk to investors, who get high returns if no disasters occur
- Climate change and high inflation drove record catastrophe bond issuance of $16.4 billion in 2022, bringing the total market to $45 billion
- Spreads on catastrophe bonds reached multi-year highs in early 2022 due to major disasters like Hurricane Ian
- Investor interest in secondary disasters like wildfires is growing due to climate change, expanding the market