ESG & Investing
Investors in Best Hedge Fund Bet of 2023 Review Climate Assumptions
Catastrophe bonds are being built with models that often underestimate the risks tied to climate events such as wildfires and thunderstorms.
Flooded homes following heavy rains caused by Storm Daniel in Farkadona, Greece, in 2023.
Photographer: Konstantinos Tsakalidis/BloombergThis article is for subscribers only.
The risk models that helped drive one of the most lucrative bets of 2023 are increasingly being tested by smaller weather shocks fueled by climate change.
Catastrophe bonds and other insurance-linked securities, which powered last year’s highest-returning hedge fund strategy, are built on calculations that can underestimate a new breed of risk stemming from high-frequency events such as wildfires and thunderstorms, according to veteran investors.