When it comes to constructing a catastrophe bond fund it is important to consider market limitations, in terms of size and the availability of diversification. Given the cat bond market is only so large, there is a point at which growth in fund assets can come at the expense of returns, according to Plenum Investments Partner and Senior Portfolio Manager, Dirk Schmelzer.

This means finding the optimal size for a catastrophe bond fund is important, if you want to benefit from portfolio construction related alpha and not simply become another market tracking fund.

Diversification is one of the issues, given the limited size of the catastrophe bond market and the now growing number of fund managers and investors targeting it.

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