"Challenges in Cracking the Risk Models of Top Hedge Fund Strategies"
The best hedge fund strategy of 2023, tied to insurance-linked securities dominated by catastrophe bonds, is attracting mainstream investors, but the risk models are becoming more challenging due to the increasing complexity of calculating catastrophic risk, particularly related to secondary perils like storms, fires, and floods. This has major implications for investors adding exposure to cat bonds, with concerns about inadequate pricing and the potential impact of climate change on losses. As a result, some investors are becoming more selective and avoiding bonds exposed to secondary perils, while climate change is seen as a significant factor in the growing importance of these risks.