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This sounds serious when you are in the crucial stages of floating an independent business that you had been mulling over for years but Wauters is unfazed. “It was good that I was in hospital when we were moving. Margaret [the office manager] didn’t want the boss around being a nuisance.”
The six-strong team at Coriolis Capital, a fund management company dedicated to catastrophe bonds and weather derivatives, moved from SG, where it was a hedge fund management team within the bank dedicated to the same areas.
Enhanced position Wauters says Coriolis’s independence enhances its business case: “Being independent avoids any potential conflict of interest of a fund management arm sitting within a bank.”
He’d actually been thinking of setting up his own company for years and what would be needed to make it work. “We could have done it four years ago but we needed a critical mass of assets to manage.”
Because the team has been working together for ages the decision to go independent was a lot easier. Wauters, Margaret Duke-Wyer, operations manager Caine Nicholls, portfolio managers Guillaume Legal and Martin Jones, and legal and compliance officer Jean Terren had all worked together at SG. Wauters, Duke-Wyer, Jones and Terren also worked for four years at AIG before joining SG in 1998. “I have spent 10 years working with the team and we have spent four years managing funds,” says Wauters, previously global head of insurance and weather derivatives at SG.
Coriolis finally moved into its new home near the Bank of England in the City of London on July 1.
Wauters explains that the fund management unit at SG evolved almost by accident. “We began as prop traders in cat bonds and weather derivatives. When we needed more to play with, SG suggested we should raise outside funds.” So the crunch came when SG wanted to get out of the business, given that no other team in SG’s derivatives division were fund managers. “We sat down together,” says Wauters. “They wanted to reposition the business and so did we.”
SG agreed that Wauters and his team should do a management buyout of the business. This was funded partly by the team, with external support from the heads of some other fund management firms, who put their personal money into the venture.
So Coriolis was born, so named after the French scientist who identified the rotation of the earth. “Since we were in the weather industry, we wanted an appropriate name,” says Wauters. SG will remain an investor and SG Hambros will still be the team’s trustee, custodian, cash manager and administrator. SG will also originate transactions and introduce investors, for which it will get a broker’s fee on a case-by-case basis. SG even allowed the team to use its offices until Coriolis got FSA approval on June 23 this year. Coriolis will manage the $350 million of funds the team ran at SG, but wants to attract new investors.
Impressive record Wauters says Coriolis has not lost any investors in the transition but then the fund has an impressive track record. “The good thing about it is that there’s no correlation with the capital markets. Weather derivatives and cat bonds are entirely dependent on acts of God. So if the FTSE goes into free fall, for example, it’s not going to make any difference to whether or not it rains in London.” This feature of the fund, as well as its diversification between sectors, has meant that it has less than 1% monthly volatility and has posted a positive return for the past four years.
Wauters says that he has a five-year plan for making further inroads into this small but fast-growing asset class. “We want to expand but we don’t want become too big – we don’t want to control more than 20% of the funds in this asset class or we will have too much cash and no deals to invest in.”
