Boutique fund manager Managing Partners Limited (MPL) is launching seven new share classes in its High Protection Fund, enabling investors to take advantage of the opportunities it sees in the US life settlement market.
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 show that the life settlements market is bouncing back after the recession, with the face value of life insurance policies sold reaching USD2.57 billion in 2013, representing a 17 per cent 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 eight and nine per cent 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, says: “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 USD100 million in life settlement policies over the past 10 years.”
New research from MPL reveals a growing appetite for alternative asset classes in general from institutional investors. More than three quarters (76.4 per cent) of those interviewed expect institutions to increase their exposure here over the next five years – 7.3 per cent 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 per cent).
MPLs research reveals that currently 19.2 per cent of institutional investors would consider investing in life settlements as an asset class. However, 61.5 per cent of institutional investors expect institutions to increase their exposure to life settlements over the next three years, and only 1.9 per cent expects them to reduce their allocation. The corresponding figures for five years are 69.2 per cent and zero per cent respectively.
When asked why they think they will increase their exposure, 44.0 per cent said it is because life settlements offer low correlation with other asset classes, and this was followed by 40.0 per cent who said that more policies coming onto the market and an increasing number of product providers will increase liquidity for investors. A further 28.0 per cent said the increasing number of policies coming onto the market will also improve opportunities for investors. Nearly one in five (18.0 per cent) 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.