W&F Issue 11 2018

www.wealthandfinance-news.com 18 Wealth & Finance International - Issue 11 - 2018 Increasing demand from investors including family offices and hedge fund and other asset managers is driving a resurgent life settlements market in the last few months, says Managing Partners Group (MPG), the international asset management group. Over the last decade, hedge funds and family offices have been the dominant players in the market. But MPG says these investors have significantly increased purchases of policies since the end of the summer. It believes this is because of the attractive risk-adjusted returns life settlements offer and their low-correlation with mainstream assets such as equites and bonds, which are looking substantially over-priced. Analysis(1) by MPG shows that life settlements currently offer earnings that are four times or more favourable than equities. Life settlements currently offer a 14.7% earnings ratio (PE of 6.8). Comparative figures for equity indices include 4.6% for the Dow Jones Industrial (PE of 21.8); 4.5% for the S&P 500 (PE of 22.3); 4.4% for the Nasdaq 100 (PE of 22.9); and 2.1% for the Russell 2000 (PE of 48). MPG also points to data from AA-Partners (AAP), a boutique company specializing in life settlement consulting. AAP’s October report(2) identifies that there was a record volume of trades in September and notes that the average internal rate of return (IRR) of policies decreased from 16.6% in August to 14.7% in September. MPG says this 1.9 percentage point fall means that prices have risen substantially, giving a boost to the performance of its High Protection Fund (HPF), which bought several policies in a quiet period over the summer. So much so that at end-October, HPF’s USD Growth Class recorded a 101% return since its launch in July 2009. Jeremy Leach, Chief Executive Officer at MPG, commented: “We are seeing increasing activity in life settlements, not only in the secondary market but also in terms of new policyholders bringing their policies to market. This demand is undoubtedly being driven by increasing concerns about equity pricing and a potential market correction, combined with the need to diversify to non-correlated asset classes. “We were surprised to see such a dramatic hike in prices recently but even at 14.7%, the IRR is still significantly higher than the risk-free rate, so now is still a good time to invest in the asset class. “Equities are clearly overpriced based on their current yields and the rising interest rates and creeping inflation that we are seeing in developed markets will only serve to weaken stock values further. The only debate is whether this will result in a bear run or an outright stock market crash.” HPF is a regulated mutual fund that was launched in 2009 that aims to deliver absolute returns by investing in a portfolio of life settlements. Life settlements, also known as traded life policies (TLPs), are US-issued life insurance policies that have been sold by the original owner at a discount to their future maturity value and are institutionally traded through a highly-regulated secondary market. HPF aims to achieve smooth, predictable investment returns of circa 7.5% per annum for institutional and sophisticated investors by acquiring TLPs at a deep discount and holding them to maturity. The TLPs are valued in accordance with fair value methodology until the fixed pay-outs are received by the fund. • Investors are seeking alternatives to equities and bonds, MPG believes • Life settlements are trading on equivalent of four times or more earnings versus equities Family Offices and Hedge Funds are Driving Strong Demand for Life Settlements, MPG Says Jeremy Leach added: “Life settlements are renowned for their inherent guarantees and balanced-growth characteristics. They also have very low correlation with equities and other core asst classes, so they are an attractive option for investors who wish to increase the diversification of their portfolios, especially now, when the market consensus is that under-supply will push up prices.” MPG is an award-winning business, having been named the 2018 Alternative Investment Firm of the Year – Europe by The European business publication, while its High Protection Fund won the Best Diversified Fund (Five Years) and Best in Insurance-Linked Investments categories in the 2018 Corporate USA Today Awards. HPF is a Cayman Islands-regulated mutual fund and has seven asset classes denominated in US dollars, euros, sterling and Swiss francs. The minimum direct investment is USD100,000 or currency equivalent. The minimum investment via platforms and wraps is USD $5,000 or currency equivalent. MPG is a multi-disciplined investment house that specialises in the creation, management and administration of Cayman Islands regulated mutual funds and issuers of asset-backed securities for SMEs, financial institutions and professional investors. The wider Group currently has over $500m assets under management. For more information on Managing Partners Group see: www.managingpartnersgroup.com