Essential to maximising investor returns and the efficient operation of a life settlements fund structure, as well as the fund’s marketability, is the mitigation or elimination of any adverse regulatory consequences or unnecessary tax leakage due to additional external taxes incurred from poor structuring decisions. Ideally any investor in your fund should only pay the tax appropriate to him in his own jurisdiction or domicile and be confident of the regulatory environment of his Fund’s domicile.
In this post we will deal with setting up a structure appropriate for the client’s interests. the regulatory and taxation impact of your fund’s type and domicile for your life settlements investment, and the potential impact on your return on investment (ROI), can a be complex.
In the previous post we examined how choosing the right life settlements investment strategy can be quite tricky for many institutional investors without the right knowledge or experience.
What do investors want of their investment Manager? We believe that investors look for the following key issues.
- Integrity and Diligence
- Skill and Knowledge of the asset class itself.
- Skill and experience and commitment in executing the tasks in managing the asset in the interests of the investors
- A reasonable fee structure that aligns the interests of both the Investor and the Manager.
- Reasonable Disclosure of known risks, and of fees.
The relatively short history of the life settlements asset class is littered with examples where poor structuring decisions, poor execution of management services, poor risk management and poor disclosure of fees and risks to clients have resulted in Bad Headlines and disgruntled investors.
Choosing a domicile that has a recognised and robust regulatory environment
In the Post GFC World where increasing regulation and transparency is the rule rather than the exception, choosing a domicile that has a recognised and robust regulatory environment will be both a marketing plus and a risk mitigation strategy. Investors justifiably want good governance but also predictability and stability.
Choosing a “Brand Name” Investment Vehicle Type
Once you have chosen a recognised jurisdiction to domicile it becomes logical to choose a “Brand Name” investment vehicle. By this we mean an Investment vehicle that has a tried and tested history for both regulatory treatment and tax structure. Typically, these structures have been used over the years by not only other Life Settlement Investment Funds but more importantly other asset classes.
This brings both greater confidence in regulatory treatment as well as a history of legal precedents for accounting and taxation treatment. It also provides the collateral benefit of being one less item requiring detailed explanation and education of potential clients.
Choosing a Domicile with High Quality “Name Brand” Service Providers
Using high quality “Name Brand” service providers is another key element of aligning the underlying client’s interests and needs and helping the Investment Manager execute the day to day tasks of managing a fund with a high level of reliability. Again, we believe that choosing high quality service providers is one less issue for investors to be concerned about or educated upon. A warning though for “Would-Be” Investment Managers, if you choose high quality service providers (Fund Custodians, Administrators, Auditors, Tax and Legal Advisers.) be prepared to pay a higher transaction cost and also be prepared to be accountable and transparent on your management practices. They will be demanding in this area but this is a great comfort to your clients and in the long run it will be a marketing plus for your offering.
Choosing a Domicile with a Double Taxation Treaty
In 2009 the United States Internal Revenue Service published two tax clarifications addressing how buyers and sellers of in-force life policies should treat transactions. Although this bought some clarity to the market it also created a number of problems for funds and companies that held life settlement policies in countries that did not have a suitable tax treaty with the US.
Not all Life Settlement Funds operating internationally are domiciled in countries that can take advantage of double taxation treaties with the United States. It is very important that you ensure that your life settlement fund is structured to minimise the risk of unnecessary tax leakage.
GIS General Fund
The GIS General Fund is one of the suite of products offered by Global Insurance Settlements Funds PLC. This Irish Umbrella QIF structure takes advantage of the tax clarity in Ireland, enabling us to develop the most appropriate structure for each investor.
It is also an umbrella structure which provides the greatest degree of investment flexibility, with numerous sub-funds having segregated clients that can be independent of each other.
As always we wish you well with your life settlement investment opportunities and if you want to learn more about investing in this asset class please contact us.
Disclaimer: This information is intended for qualifying investors only and was correct at the time of preparation. It has been prepared to provide general information only and should not be considered as a “securities recommendation” or an “invitation to invest” in any jurisdiction. Potential investors should consider the relevance of this information to their particular circumstances. Before proceeding investors must obtain the prospectus and take their own legal and taxation advice. If you acquire or hold one of our products we will receive fees and other benefits as disclosed in the prospectus and relevant offering documents.
