The Captive Investors Fund



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The Captive Investors Fund

A competitive advantage for CRI-administered captives

It has been three years since we last featured The Captive Investors Fund (“CIF” or “The Fund”) in CRI Quarterly. In the spring of 2014 The Fund celebrated its 20th anniversary and a record $2.2 billion in assets. With assets now at $3.6 billion and a solid 23 year track record of returns, the timing is right for an update and to remind you of the significant benefits The Captive Investors Fund offers captive insurance companies that work with Captive Resources (CRI).

Overview. The Captive Investors Fund is a Cayman Islands domiciled mutual fund that is open exclusively to CRI client captives. The CIF was established to offer the captives a preferred investment vehicle that provides improved returns with a balanced risk profile. The Fund’s primary objective is the preservation of capital with a competitive investment return. Since inception, the annual return has averaged 5.9%. This compares favorably to 3.8% earned by intermediate investment grade bond funds that a captive could invest in directly.

Advantages and Investment Objectives. Just as CRI client captives give their members control over their insurance, the CIF gives the captives significant control over their investments. The CIF’s Board of Directors is made up of representatives from the captive shareholders, which gives the captives direct insight and control over the management of The Fund. Under the guidance of its Board of Directors, the CIF is specially designed to meet the investment objectives of the group captives to:

• Preserve capital;

• Maintain high credit quality to support outgoing letters of credit;

• Minimize risk through diversification;

• Provide monthly liquidity to pay claims; and,

• Generate a favorable return on investment.

The Fund’s significant scale allows it to engage many of the world’s best-in-class investment advisors to manage the CIF’s highly diversified portfolio of high quality securities at low institutional fees. The Fund provides monthly subscriptions and liquidity, and has an excellent credit advance rate. This high credit advance rate allows

participating captives to keep nearly all of their capital invested, while maintaining only minimum balances of low-yielding cash to pay frequency claims and operating expenses.

Growth of The Fund. Since The Fund’s founding in 1994, it has achieved many milestones, and has grown steadily to its current level of $3.6 billion, through investments of its 29 captive shareholders. This growth has been fueled by several unique factors, including:

• Captive Participation: Any captive that works with CRI may invest by buying CIF mutual fund shares. As a captive increases its investment into The Fund, it is able to participate at higher levels of management in The Fund. Once a captive has invested $10 million in the CIF, it is eligible for a seat on the Board of Directors.

• Asset Allocation: In order to achieve its investment objectives, The Fund’s asset allocation includes global fixed income, equity securities and alternative assets. For each type of investment, The Fund further diversifies with sectors or styles managed by world class investment advisors. The Board of Directors establishes limits to each asset class and sets sector and style diversification guidelines. As a multi-manager fund, the CIF has the ability to rebalance between sectors and asset classes to maintain a balanced risk.

• Sound Management Practices: Holdings are constantly reviewed by a dedicated CIO and investment professionals at CRI to ensure compliance with investment guidelines. Supporting the investment objectives, the CIF follows tried and true risk management

practices, including:

3 Diversification across asset classes, sectors and securities;

3 High credit quality and liquidity;

3 Best-in-class investment managers;

3 Specific investment guidelines for each portfolio;

3 Periodic rebalancing to maintain The Fund’s target risk profile;

3 Active Board of Directors and Investment Committee oversight;

3 World class service providers; and,

3 Dedicated staff for portfolio monitoring.

• Active Management: The U.S. equity market is the most efficient market in the world and the CIF does use U.S. equity index Exchange-Traded Funds1 (ETFs) for low cost passive market exposure. However, credit markets and most international equity markets are not nearly as efficient. With the CIF’s scale, it can retain leading investment managers at low institutional fees that rival the cost of bond funds and international indexes.

Beyond cost, there is the matter of risk. The CIF’s investment

policies are often more conservative than many index investments.

Separately managed accounts allow The Fund to customize each

portfolio’s investment policy to better manage risk through higher quality assets with high credit quality, size and liquidity guidelines. Diversification is ensured through concentration limits, and complete transparency allows investment professionals to monitor compliance. Over time, the CIF’s higher quality helps it protect principal in down markets while it participates in rising markets.

Captive Resources’ Role. As consultant to the Captive Investors Fund, Captive Resources provides advisory and consultative services with respect to the coordination of The Fund’s many service providers listed in Table 1: The Captive Investors Fund Highlights.

In addition to coordinating The Fund’s service providers, as Consultant, CRI prepares and distributes monthly and quarterly performance reports, holds quarterly Investment Committee conference calls, and organizes The Fund’s meetings and workshops. Table 2 provides an overview of CRI and Kensington Management Group staff and their contributions to the CIF.

Future Outlook. 2016 and 2017 were pivotal years for the Captive Investors Fund. After a long search and due diligence process, the CIF selected State Street (Ireland) as a new best-in-class business partner for custody and fund administration services. Following a nine month planning and transition process, the CIF converted from Royal Bank of Canada (RBC) to State Street on February 1, 2017. It was a seamless transition thanks to the dedication and determination of many CRI and KMG associates. State Street’s world class technology and its global network have already enhanced The Fund’s

management and provided a solid foundation to support substantial

future growth.

The outlook for the CIF is bright. The CIF will continue to benefit from substantial positive subscription flows driven by the health and growth of CRI client captives. The Fund was established in the Cayman Islands to benefit from the island’s professional community and to take advantage of Cayman tax and corporate laws. The Cayman Islands Monetary Authority is a good regulator concerned first and foremost with protecting policyholders and shareholders.

Conclusion. With continued diligence and Board leadership, The Fund will stay focused on delivering value to its captive shareholders and their members. It is committed to delivering excellent annual returns by pooling captives’ investable funds into high quality

securities, managed by best-in-class investment advisors, under a disciplined asset allocation and risk management process, at low cost.

All of us who serve now or have served The Captive Investors Fund are proud of the 23 year heritage of reliable investment management tailored to the specific needs of CRI captive insurance clients. We are gratified by the hundreds of millions of dollars The Captive Investors Fund has contributed to captive profits and to improved member

distributions.

As an agent or broker, you can propose membership in CRI client captives to your own clients with confidence, knowing that their money will be safely invested in The Captive Investors Fund which is designed and managed to meet the specific needs of group captive insurance companies.

1 An ETF, or exchange traded fund, is a marketable security that tracks an index, like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.

Table 1: The Captive Investors Fund Highlights

• Cayman Islands domiciled Mutual Fund

• Open exclusively to captives working with CRI

• $3.6 billion assets under management

• Service Providers:

Consultant: Captive Resources LLC

Custodian: State Street Custodial Service (Ireland) Ltd.

Fund Administrator: State Street Fund Services (Ireland) Ltd.

Auditor: PricewaterhouseCoopers

Tax Advisor: Ernst & Young

Legal Counsel: Maples and Calder (Cayman); Stuarts Walker Hersant Humphries

Corporate Office: Maples Corporate Services

• The Fund is regulated by the Cayman Islands Monetary Authority

Table 2: The Captive Investors Fund CRI & KMG Staff

Captive Resources

George Rusu, Chairman & CEO - founding CIF Director and leader on the CIF Board since inception

Scott Renninger, Chief Investment Officer - serves as CIF

Chairman and monitors The Fund’s performance and operations on a daily basis; follows Board approved guidelines to allocate subscriptions and rebalance the CIF’s multi-manager portfolios and funds

Christopher Geli, VP Investments, Research and Analysis - Manager monitoring, search, and due diligence; monthly account analysis and rebalancing

Teresa Meccia, SVP and Controller - leads The Fund’s

operational functions

Diane Sterling, SVP Finance - provides accounting reviews, audit, and updates to critical legal documents

Nick Hentges, President - oversees consulting resources as

regards CRI’s role as Consultant to the Fund

Kensington Management Group, Ltd.

Mike Gibbs, President - CIF Secretary

Jon Brosnihan, SVP - CIF Assistant Secretary

This article was written for CRI Quarterly by:

Scott D. Renninger,

Chief Investment Officer, Captive Resources, LLC

& Chairman of The Captive Investors Fund

Scott D. Renninger, joined CRI as its Chief Investment Officer in 2010 and became Chairman of The Captive Investors Fund in 2017. He came to CRI through his experience as Director, Finance Committee Chairman and Treasurer of Elite Distributors Insurance Company. Scott serves as Trustee and Investment Committee Vice Chairman of Princeton Theological Seminary. He earned a BS in Finance and Business Administration from the University of Delaware and an MBA from The Wharton School at the University of Pennsylvania.

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