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 investors have unwittingly taken on risks disproportionate to their appetite. Similarly, they also missed value opportunities, through simple lack of knowledge.
The life settlements industry has overcome many obstacles. Meanwhile becoming one of the most innovative strategic investment opportunities. It is no secret that the life settlements asset class is set for growth.
For many institutional investors pursuing diversified sources of return, life settlements are a perfect fit, in their alternative investment strategy where the returns are uncorrelated with the performance of the rest of their portfolio.
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. 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.
GI Asset Management has developed a best practice approach to implementing structures. It provides both the flexibility 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. Actively managing a large and diversified portfolio of life insurance policies through Life Settlement transactions.
Certainly, 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. However, each has specific additional risks that an investor should work towards understanding.
A Life Settlements Fund
Innovative investment funds have been created. These 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. Meanwhile, it can also allow for a more predictable outcome of risks and opportunities. This portfolio construction overlay process will go a long way in managing risks in the long term. It is a better option then rather than simply buying any available portfolio or any group of individual policies that meet generic buying criteria.
A life settlements investment fund can be more attractive to investors as opposed to direct purchase of underlying life insurance policies. Clearly, 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
- 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. The monthly calculation of NAV can be used to conduct 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. Clearly, this portfolio is well diversified. It takes into account issuing insurance companies, medical impairments, age, gender, face value amount and expected maturity dates.
- 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 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.
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 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). It 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.