Publication: Managing Partners News
Publication Date: 29/07/14

MPL offers new share classes as life settlement market
offers best opportunities in a decade

• New research (*2) shows 76.4% of institutional investors expect institutions to increase their exposure to alternative asset classes over the next five years
  
• The main reason for this is to diversify portfolios/reduce risk (*2)
• 19.2% of institutional investors would currently consider investing in life settlements as an asset class (*2)
  
• 61.5% of institutional investors believe that institutions will increase their exposure to life settlements as an asset class over the next three years. Only 1.9% expect them to reduce their exposure (*2)

Managing Partners Limited, the boutique fund management company, is launching seven new share classes in its High Protection Fund, enabling investors to take advantage of the outstanding opportunities it currently sees in the life settlement market in the United States.

The fund manager believes that life settlements are currently more attractively priced than at any other time in the last 10 years. In part, this is because there has been a significant increase in policyholders trying to sell them, but it says that dramatic positive changes in the life settlements market such as tighter regulation and improved accuracy around longevity calculations have also made the sector more attractive for investors. Latest figures (*1) show that the life settlements market is bouncing back after the recession, with the face value of life insurance policies sold reaching $2.57 billion in 2013, representing a 17% rise on market transactions in 2012.

Life settlements are US-issued whole of life policies sold before their maturity date because they are no longer wanted by the original owners who want to enjoy some of the benefits during their own lifetimes. They offer investors the security of knowing exactly what amount will be paid out but not when. Therefore fund managers need to carry out prudent actuarial analysis and sufficient diversification.

The new share classes in the High Protection Fund include 'GrowthPlus' classes in Sterling, US dollar, Euro, Czech Crown and Swiss Franc, and 'Growth' classes in Sterling and Swiss Franc. They are suitable for institutional and sophisticated investors.

The High Protection Fund is an absolute return fund that aims to deliver long term capital growth of between 8-9% by investing in a portfolio of life settlements. It was launched in June/July 2009 with Czech Koruna and US Dollar Growth share classes and the Euro Growth share class was added in June 2010.

Jeremy Leach, Chief Executive Officer, MPL, said: "The life settlements market is extremely active at the moment and whilst activity in the market continues to increase, prices remain at the most attractive they have been for over a decade. However, it is essential to have the necessary skills to select the right policies. For example, having a good understanding of when a portfolio of policies is most likely to mature is essential. At MPL, we have extensive experience and have invested over $100 million in life settlement policies over the past 10 years."

New research (*2) from Managing Partners Limited, the boutique fund management company, reveals a growing appetite for alternative asset classes in general from institutional investors. More than three quarters (76.4%) of those interviewed expect institutions to increase their exposure here over the next five years – 7.3% anticipate a significant increase. The reason most commonly cited by respondents to increase exposure is growing demand to diversify portfolios and reduce risk (60.0%).

Growing interest in life settlements as an asset class

MPLs research (*2) reveals that currently, 19.2% of institutional investors would consider investing in life settlements as an asset class. However, the findings reveal that 61.5% of institutional investors expect institutions to increase their exposure to life settlements over the next three years, and only 1.9% expects them to reduce their allocation. The corresponding figures for five years are 69.2% and 0% respectively.

When asked why they think they will increase their exposure, 44.0% said it is because life settlements offer low correlation with other asset classes, and this was followed by 40.0% who said that more policies coming onto the market and an increasing number of product providers will increase liquidity for investors. 28.0% said the increasing number of policies coming onto the market will also improve opportunities for investors. Nearly one in five (18.0%) said regulatory changes have made investing in life settlements much safer.

MPL believes the life settlements market is set for substantial growth going forwards, making it a far more compelling proposition for investors. The reasons for this include:

• The life settlements industry is undergoing much tighter regulation in the US, with the market now regulated in 42 of the 50 states
  
• Policyholders are becoming increasingly aware of the option to sell their policies on the open market rather than surrendering them or letting them lapse. Product providers are coming under increasing pressure to notify policyholders of this option and several states have made it law with others set to follow
  
• US census data shows that the life settlements market in the US is primed for substantial growth and liquidity in coming decades as the baby boomers – the most life insured generation ever – enter retirement and sell policies to raise cash
  
• Having gone through the global financial crisis and delivered relatively uncorrelated returns, life settlements have proved their worth as an alternative asset class
  
• The ability of life expectancy analysts working in the market continues to improve as they build experience and their data becomes increasingly accurate
  
• Life insurance was widely sold as a way to offset inheritance tax but the American Taxpayers Relief Act 2012 has reduced this potential burden and should lead to a major increase in the number of seniors choosing to sell their policies
  

(*1) Source: the Deal, a business unit of The Street, June 2014
(*2) 57 institutional investors in Europe were interviewed in June 2014