The awaited launch of the Brookmont Catastrophic Bond ETF is nearing and Artemis spoke with Ethan Powell, Principal & Chief Investment Officer of Brookmont Capital Management, LLC and Rick Pagnani, co-founder of King Ridge Capital Advisors LLC, to learn more about the strategy and their thoughts on how they see it developing.
Recall that a definitive prospectus was recently filed with the SEC for the Brookmont Catastrophic Bond ETF, which will have a ticker symbol of ILS and will be listed under on the New York Stock Exchange (NYSE).
It will be the first catastrophe bond fund strategy to be exchange-listed and traded, meaning liquidity opportunities for investors are set to be far more frequent than we see with most cat bond investment funds.
The fund is being launched and managed by Brookmont Capital Management, LLC, while recently founded ILS manager King Ridge Capital Advisors LLC will be the sub-adviser to the cat bond ETF, effectively managing the portfolio.
With liquidity considerations a key aspect for any ETF, we wanted to explore what this means for the Brookmont Catastrophic Bond ETF and how it will be managed, while also diving deeper into issues related to the portfolio management of the strategy and the manager’s ambitions for the strategy.
1. Perhaps we can start with a quick explanation of the strategy, why it’s different and why investors should care?
Rick Pagnani, King Ridge Capital Advisors: “The ETF is designed to offer institutional investors, asset managers, and high-net-worth individuals a liquid, transparent, and easily tradable way to access the catastrophe (Cat) bond market—an asset class that has historically provided accretive risk-adjusted returns with low correlation to traditional markets.
“Historically Cat bonds have exhibited wider spreads than high-yield credit, yet they remain difficult to access due to structural complexities, knowledge and institutional entry barriers. Further, it is challenging to build a diversified catastrophe bond portfolio for a typical investor on their own. By packaging them into an ETF, we aim to lower some of the barriers to entry.
“For investors seeking uncorrelated income, portfolio diversification, and resilience in volatile markets, ETF’s may provide an efficient way to allocate capital to this alternative asset class. While we advocate for a long-term strategic allocation, the ETF structure allows for flexibility—letting investors enter and exit positions more easily.”
Ethan Powell, Brookmont Capital Management: “We are hopeful that the ETF will provide greater visibility and scale to an asset class that will play an increasingly important role. This market is critical in pricing and distributing the risks associated with the increased cost of owning hard assets as climate volatility accelerates.”
2. How close is the fund to its launch and what other tasks need to be completed to get the strategy listed on the NYSE and in front of investors?
Ethan Powell: “We have an effective prospectus on file with the SEC. We are currently finalizing launch partners for seed as well as providing secondary liquidity for the product. We anticipate launching the ETF with the optimal amount of seed capital and believe this will be reached by March.”
3. How important is democratising access to the asset class, in your view, by making it more readily available and providing daily liquidity through an ETF?
Rick Pagnani: “It’s critical. Cat bonds have a compelling role in diversified portfolios, and we’ve conducted numerous portfolio optimizations that consistently point to an allocation to this asset class. Institutional investors recognize this, and awareness is growing among family offices and HNW advisors. However, actual adoption has been slow due to accessibility challenges.
“While Cat Bond mutual funds and interval funds have seen growth, there may be additional pent-up demand. Conversely, ETFs are widely adopted for their transparency, liquidity, and cost efficiency. By structuring Cat Bonds in an ETF format, we aim to improve accessibility. Additionally, ETFs are compliance-friendly, making it more straightforward for institutional investors to allocate to Cat Bonds within existing mandates. With the ability to trade on a variety of platforms, our ETF significantly broadens access to this unique market—helping to bridge the gap between demand and actual participation.”
Ethan Powell: “By increasing participation in the asset class and creating a more liquid transparent fund vehicle we believe that the public will gain a better understanding of the risk associated with living, building and working in higher risk geographies. As evidenced by the dialogue after the California fires the public is confused by the role government, insurers, reinsurers and investors play in underwriting and assuming risk. This fund gives us a venue to have greater dialogue around live cat bond events as well as longer term trends in risk pricing and transfer.”
4. Do you believe this could be transformative for the sector in any way, and others may look to follow suit?
Rick Pagnani: “Absolutely. We believe this ETF could contribute to greater awareness of the asset class, though broader market adoption will depend on demand, liquidity and event driven factors. If more investors gain exposure to Cat Bonds through regulated structurers, trading volumes and market participation could increase over time.
“Beyond ETFs, we see this as the beginning of a broader ecosystem. As liquidity and participation grow, we anticipate the development of complementary products.
“A larger, more liquid Cat Bond market is also significant from a macro perspective. The insurance gap—the shortfall between economic losses from disasters and insured coverage—continues to widen, and the traditional insurance industry alone may not be able to close it. The capital markets may play a role in addressing this gap if the right products and market conditions exist.”
“Our goal is not just to launch a product but to contribute to the evolution of this asset class—expanding its reach, increasing market depth, and ultimately driving innovation in risk transfer solutions.”
5. With daily liquidity comes certain challenges, given the asset class is not always as liquid as it needs to be. ETF’s typically work with market-makers and liquidity providers. Who are you working with, what will their role be and how important is this to the strategies success?
Ethan Powell: “We are working with traditional ETF market participants as well as Cat bond trading desks to facility an orderly market in the secondary. However, most of our fundraising efforts are geared towards larger strategic allocators that can transact at NAV in the primary market in increments of one million dollars or more.”
Rick Pagnani: “You are correct. One of the unique benefits of launching an ETF in this asset class is the involvement of a broader ecosystem of market participants, such as market makers and authorized participants. We are in active dialogue with several partners and expect them to play a valuable role in facilitating a robust market.”
6. There are other items of note in the prospectus that can help you in managing liquidity, such as being able to allocate to a broader range of assets/securities in reinsurance than cat bonds alone. What’s your feeling for how the portfolio mix will develop over time?
Rick Pagnani: “Per the ETF’s rules and regulations, we will maintain a minimum 80% allocation to cat bonds. We do have the latitude to invest in broader (re)insurance-related securities. These allocations will allow us some flexibility to manage liquidity and will likely shift in response to varying market conditions.”
Ethan Powell: “We anticipate having position sizing of around 2-4% and being well diversified based on geography, peril and trigger types. Our goal is the provide our investors Cat bond market exposure so keeping cash drag and tracking error down is key. However, we have an obligation to ensure we have sufficient liquidity to meet redemptions either in cash or in kind. This liquidity goal will likely ebb and flow in importance based on the market environment and the likelihood of cat events impacting our holdings.”
7. Do you feel the need for liquidity could raise portfolio management challenges, and how do you intend to overcome them?
Rick Pagnani: “Managing liquidity is a key consideration, but we’ve structured the ETF to navigate these challenges effectively. The ETF format requires us to construct and maintain a diversified portfolio across multiple geographies and perils, ensuring a balanced approach to risk and liquidity.
“We’ve dedicated significant research to understanding liquidity dynamics in the Cat Bond market, including how trading volumes shift under different market conditions. This research informs our portfolio management strategy, allowing us to adapt as needed while maintaining an optimal balance of yield, risk, and tradability.”
Ethan Powell: “We view the ETF as more than just an access point—it’s a step toward enhancing overall market liquidity and transparency. By broadening investor participation and facilitating price discovery, we believe the ETF can contribute to a more dynamic and efficient marketplace for Cat Bonds.”
8. It feels like the market could be on the cusp of something right now, given the new entrants and types/sizes of investors looking at the space. How important is it that the cat bond market work towards becoming more liquid to be able to achieve its potential, in your views?
Rick Pagnani: “Liquidity is critical if the ILS market is to scale and meet the growing demand from institutional investors. As I mentioned earlier, the widening insurance gap is a major economic concern. Rising climate risks—such as flooding and wildfires—are making traditional insurance more expensive or even unavailable, which in turn impacts property values and economic stability.
“Capital markets can play a crucial role in closing this gap, but only if the right investment structures exist to attract institutional capital at scale. A more liquid Cat Bond market would support price discovery, improve trading efficiency, and ultimately make the asset class more investable.
“By introducing an ETF structure, we would be helping to build the foundation for a more dynamic, scalable market.”
Ethan Powell: “We are seeing the synergy of evolving market trends. First, we are seeing substantial growth in alternative assets. I believe recent figures suggest that AUM today is around 25 trillion dollars. If you simply look at investor’s accessibility to private equity, private credit, infrastructure & real estate, these investments were historically reserved for institutional or super HNW investors. Today they are available through varying structures to Main Street investors. This has had a tremendous impact on the liquidity of those respective markets.
“Secondly, global ESG asset growth has been tremendous. The last figure I saw estimated that global AUM was north of 30 trillion dollars. Investors today are certainly aware of Environmental, Social and Governance and their investment priorities are reflected in these numbers. Cat Bonds find themselves at the intersection of both growth trends. The demand for alternative structures coupled with shifting investor preferences particularly as it relates to the environmental issues. It seems like hardly a week passes without another major natural disaster. Investors are paying attention. I believe that this convergence has the potential to drive awareness and positively affect the liquidity dynamics of the Cat Bond market over time.”
9. Where in the investor universe do you expect to see the most demand for the cat bond ETF (as in what types of investors)?
Rick Pagnani: “We anticipate strong demand from institutional investors, family offices, RIAs, and high-net-worth individuals looking for liquid access to alternative, non-correlated assets.
“First and foremost, institutional investors—such as pensions, foundations, endowments, and sovereign wealth funds—now have an efficient way to allocate to Cat Bonds. Family offices and HNW RIAs will also find value in the ETF’s accessibility, allowing them to integrate Cat Bonds into diversified portfolios.”
Ethan Powell: “Additionally, we see a compelling use case for asset managers, particularly those overseeing fixed-income portfolios—whether in core-plus, non-traditional, or multi-sector bond strategies. Alternatives and multi-alternative fund manager may also see investment merit from an ETF structure. A Cat Bond allocation within these strategies has the potential to enhance risk-adjusted returns and improve portfolio diversification.”
10. What would your goals/ambitions be for the fund one year from launch?
Rick Pagnani: “That’s a great question—one we discuss often. Our primary goal is to increase awareness and access to the Cat Bond asset class. In a market where asset allocators are actively seeking truly non-correlated alternative strategies, we want this ETF to be a key part of the solution.”
Ethan Powell: “Success in the first year isn’t just about AUM growth—it’s about educating the market, expanding participation, and demonstrating the value Cat Bonds can bring to diversified portfolios. If we can help institutional investors, asset managers, and advisors better understand and integrate this asset class, we’ll consider that a significant step forward.
“Ultimately, we want to lay the foundation for long-term adoption, helping to drive liquidity, transparency, and broader acceptance of Cat Bonds within mainstream investment portfolios.”
11. Before we wrap up is there anything else investors should know?
Rick Pagnani: “Well, our compliance department wouldn’t be too happy if I didn’t mention a few key things!
“First, while Cat Bonds have historically provided attractive spreads and diversification benefits, past performance is not indicative of future results. Like any investment, there are risks, and in this case, those risks are tied to catastrophic events. If a major disaster occurs, investors could experience losses, including principal loss.
“Second, liquidity is something to keep in mind. The ETF structure allows for daily trading, but the underlying Cat Bond market does not always have the same liquidity, particularly after significant events. In times of market stress, bid/ask spreads may widen, and exiting a position may not be as seamless as in more liquid asset classes.
“Third, suitability matters. Cat Bonds and Cat Bond ETFs are not appropriate for all investors. These investments have unique characteristics, including complex event triggers, variable pricing, and limited secondary market trading. Investors should carefully consider their risk tolerance, investment objectives, and liquidity needs—and as always, consult a financial professional before investing.
“And finally, while we believe Cat Bonds can play a role in certain portfolios, the future of the market depends on many factors—including investor adoption, regulatory developments, and broader economic conditions. We’ll be keeping a close eye on all of that as this ETF evolves.”
Ethan Powell: Well said!
