There are many strategic investment opportunities available in the asset class. Choosing the right life settlements investment strategy can be quite tricky for many institutional investors. Many an investor, new to the game, has unwittingly taken on risks disproportionate to their appetite or missed value opportunities, through simple lack of knowledge.
The life settlements industry over the years has overcome many obstacles to become one of the most innovative and serious investment options available to institutional investors. With the presence of large institutional investors in the market it is no secret that the asset class is set for growth.
Having analysed the unique opportunities life settlements provides and assessed the best performing fund managers, with specialists focus on the asset class combined with the right investing mindset, you may find that you are ready to invest.
For many institutional investors pursuing a diversified sources of return, life settlements is a perfect fit, in their alternative investment strategy where the returns are uncorrelated with the performance of the rest of their portfolio.
There are many factors to consider when investing however in the next few posts we will consider structure, domicile, and fund manager/self-managed fund.
When it comes to implementing the investment into your portfolio there are a number of methods for investing in the life settlements market.
Direct Investment/Physical Ownership of Life Policies
Institutions can invest in physical policies via direct ownership. Policies are sourced from providers/brokers in the secondary market or from other institutions in the tertiary market. There are advantages and disadvantages associated with both of these sources.
These are the most common access points to the life settlements market, however direct ownership can also incur risks which are beyond the perception of novice investors to manage directly.
In many cases it is best for the investor to employ the services of a reputable fund manager with a significant amount of experience in the life settlements industry It can take years of experience to develop accurate management techniques so it is essential that the fund manager has been operational long enough to have learned how to develop the optimum strategy for you.
The Investment Manager has developed a best practice approach to implementing structures that provides them with both the flexibility to utilise an investment vehicle and proven asset selection processes suited to investor needs.
The overall investment objective, for its GIS General Fund is to generate attractive risk-adjusted returns over time, by actively managing a large and diversified portfolio of life insurance policies through Life Settlement transactions. If you wish to further understand the Funds investment strategy please contact the Investment Manager.
There are two avenues open to investors who might wish to access the physical market. One is through an open-ended pool, and the other is through a closed-ended pool. Each has specific additional risks that an investor should work towards understanding.
A Life Settlements Fund
Innovative investment funds have been created which hold diversified pools of life settlement arrangements that can significantly reduce risk profiles for investors. Creating pools of complimentary investments can smooth out statistical anomalies and allow for a more predictable outcome of risks and opportunities. This portfolio construction overlay process rather than simply buying any available portfolio or any group of individual policies that meet generic buying criteria will go a long way in managing risks in the long term.
A life settlements investment fund can be more attractive to investors as opposed to direct purchase of underlying life insurance policies due to the many diversification benefits and the professional experience of fund managers in portfolio construction.The Investment Manager provides a dynamic, integrated asset management service with the flexibility and transparency to meet your life settlements investment objectives as well as significantly improved diversification
Open-Ended Fund
- An open ended life settlements funds offer ongoing subscriptions and redemptions.
- The death benefit proceeds for matured policies can be reinvested to acquire new life settlements assets.
- Open ended funds provide valuations on a regular basis and the monthly calculation of NAV can be used to conduce performance analysis
The open-ended fund (GIS General Fund) provides investors with the opportunity to access the asset class and participate with other investors in a portfolio of policies. These are seasoned policies that the investment manager has held for several years all of which passed their extensive due diligence tests prior to purchase. The portfolio is well diversified in terms of issuing insurance companies, medical impairments, age, gender, face value amount and expected maturity dates.
Closed-Ended Fund
- Close-ended funds are designed to raise an identified amount of capital, exist for a specified period of time and return the capital upon the completion of the fund.
- All investors are new investors at the establishment of the fund.
- Proceeds from maturities are distributed between investors instead of reinvested.
- Generally all investors are tied to the fund for its entire duration,
A Synthetic Life Settlements Structure
Synthetic life settlements, in which investors can trade mortality risk without actually purchasing physical life insurance products, offer similar benefits for investors with supposedly fewer transactional burdens. However they are typically opaque as to fee structures and underlying assumptions. They also miss a number of the value opportunities that can be exploited in the physical market.
In addition they introduce new risks such as Counterparty / Credit Risk Concentration and lack of exit opportunities.
These synthetic variations of the life settlement have not had significant take-up.
Conclusion
Whichever strategy you choose to invest in life settlements remember that this asset class rewards those with patience, dedicated capital, and the openness to recognise that there are players in the industry who’s experience and dedication can help ease you though “the growing pains”. This space as with most other asset classes can be hard on the inexperienced but rewarding for the patient and informed investor.
Make sure you check in with us next time as we explore how the domicile of the fund can be an important consideration in the investment process.
As always we wish you well with your life settlement investment opportunities and if you want to learn more about investing in life settlements please contact us.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is incorporated in Ireland as an umbrella type investment company with segregated liability between sub-funds. 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 and 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) issued by companies in the USA. Policies are sourced by licensed U.S. Provider companies and the Board of GISF select those that best meet the Fund’s policy purchase criteria.
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.
