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Drooling Cat-Bond Investors Overlook Risk, Montross Says

Berkshire Hathaway Inc.’s Franklin “Tad” Montross said pension funds that increased bets on catastrophe bonds to improve investment returns may flee the market after a major natural disaster.

Issuance of the securities has been increasing as investors seek assets that are uncorrelated with most capital markets and offer higher returns than corporate debt. Cat bonds pay hundreds of basis points more than benchmark yields, such as the London interbank offered rate, to investors who risk losing all their principal to an insurance company if a costly enough natural disaster strikes.