Investing in cat bonds was the most profitable hedge fund strategy of 2023. Fermat delivered a 20% return, beating the average 8% achieved by hedge funds as a whole. While other cat bond funds did well too, Fermat’s $10 billion portfolio — capturing a quarter of the market — made it by far the most prolific investor to take advantage of a bumper year.

Cat bonds investors are gambling on nature. If a disaster they’ve bet on occurs, their money is used to settle insurance claims. If it doesn’t, they get handsome returns. For decades, the instruments were a last resort reserved for super-rare events, such as a cataclysmic storm on the scale of Hurricane Katrina. But multibillion-dollar calamities have become alarmingly frequent on a warmer planet.

“The insurance market is on edge,” says Seo. “It’s freaked out about risk and wants as little as possible.”

stocks.apple.com: Most Profitable Hedge Fund Strategy Trades Cat Bonds Using Science

Ajit Jain also bet on a benign catastrophe season, by direct underwriting and won big. I see more opportunities for Jain to take on the risk that a “freaked out” market doesn’t want.