Trade papers have reported that the “Life Settlement Index” has been discontinued by its founder AA Partners Ltd of St Gallen, Switzerland. The article included the following statements;
“AA Partners has discontinued its index comparing the performance of life settlements with two other indexes after a study found that many fund managers inflate the value of the asset”. Hess said his firm thus concluded that the index contained funds whose net asset values were wrong and didn’t reflect actual performance.
We have explored the topic of “Indexing” in relation to life settlements many times;
- Valuation Dilemmas
- Estimating Gross Market Return for Life Settlements
- A Life Settlements Benchmark/Index: We are not there yet!
- How to Review Your Fund Manager?*
*this article, in particular, contains the warning, “There is no consistent approach to valuation of life settlement policies.”
We are grateful that common sense has at last prevailed.
The Life Settlement Index Debate
Any reader who has been following our discussions for the last few years will be familiar with our position on the in-consistency of indexing or benchmarking in the Life Settlements asset class. Clearly, the difficulty lies in comparing the performance of funds whose valuation approaches have been so different. This is even before the logic of creating an index out of funds containing non-identical securities is considered.
Firstly, there is no universal, industry-wide accepted method of grading life settlement transactions. To be effective we need to account for Origination Risks, Legal Risks, Economic Risk (susceptibility to LE Extension). Additionally, the differences between Secondary and Tertiary market transactions as well as “arms-length vs distressed” transactions.
Hence it remains our view that an “Index” remains a pipe-dream for this industry.
It is an unfortunate reality that many an investor new to this asset has been deceived by “Published Returns” promoted by some so-called managers.
We continue to advocate that investors need transparency and uniformity in any promotional material and return information. At the very least, any Investment Manager worth dealing with should be prepared to supply investors with and “Attribution Analysis” of any published returns. In other words an analysis of what components of the fund actually contributed to the return quoted. Therefore, this will quickly reveal whether the return was from actual cash flows. Comparing policy maturities with costs and premiums. Or whether published returns are simply the contrived assumptions of valuation.
Investors in any new asset would be wise to take counsel from an experienced industry player in order to discern what risks they are willing to accept and to ensure that they are adequately remunerated for accepting those risks. False comparisons are extremely unhelpful and may skew investor expectations sufficiently to drive poor decision making.
As always we wish you well with your life settlement investment opportunities. If you want to learn more about life settlements index in this asset class please contact us. Additionally, if you want to understand performance cycles in life settlements we would be happy to discuss.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is an umbrella type investment company with segregated liability between sub-funds. The fund is incorporated in Ireland. The first sub-fund launched, GIS General Fund (the Fund), is listed on the Irish Stock Exchange.
This structure is aimed at Sophisticated / Institutional investors. Additionally, it provides tax clarity by ensuring there is no tax leakage. It enables a number of different investment options to suit the specific needs of our investors.
The Fund’s core activity is to actively manage a large and diverse portfolio of life insurance policies (life settlements). The Board of GISF selects those that best meet the Fund’s policy purchase criteria.
This information is intended for qualifying investors only. It 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.
 The Deal, Feb 2, 2016 “AA Partners discontinues its life settlement index”.