|
Tony Bremness B. G., Opalesque Geneva: Life settlement is a genuine non-correlated asset class that needn't be tweaked for greater benefits. A conservative and skilled approach to investing in such products is sufficient, claims Laureola Advisors, especially if done through an open-ended fund.
"We add alpha through security selection, in addition to taking advantage of market beta," they say. "Our approach is conservative and based on mortality and realized gains, not on accounting and valuation gains."
Laureola Advisors is a boutique life settlements asset manager with offices in the BVIs, the US and Canada.
Laureola's managing director Tony Bremness will present in the upcoming Fixed Income Alternatives Strategies webinar on 9th September at 10 am EST.
A life settlement refers to the sale of an existing insurance policy to a third party for a one-time cash payment. Payment is more than the surrender value, but less than the actual death benefit. After the sale, the purchaser becomes the policy's beneficiary and assumes payment of its premiums. By doing so, he or she receives the death benefit when the insured dies.
The Laureola Investment Fund, a Bermuda fund for non-US investors, is up 6.2% YTD. The $63m fund has annualised almost 17% since its May 2013 inception.
"Performance in July (2.2%) was driven by the maturity of three policies, including a large one. 80% of returns YTD have been from maturities; the true measure of the performance of a life settlement fund," says a recent monthly report reviewed by Opalesque.
"The Laureola structure has none of the problems associated with closed-end funds, and the conservative valuation coupled with the correct time horizon means Laureola will be able to meet all its redemptions except in the most extreme circumstances."
The Laureola fund has completed a restructuring, which would mean lower expenses, and is now officially called The Laureola Investment Feeder Fund.
The Laureola US QP fund, a Delaware fund for US investors (AuM $9m) launched in April 2019, follows a similar strategy. Both funds are USD denominated and the Bermuda fund has EUR, CHF and GBP hedged share classes.
The life settlement market
The life settlement market evolved in the late 1980s with the AIDS outbreak, when terminally ill individuals were liquidating assets to generate cash, according to Accounting Today. Subsequently, the market became highly regulated and expanded to include older as well as impaired-risk insured persons. Tens of thousands of Americans annually lapse or surrender their life insurance policies to insurance companies. Americans ages 65 and older forfeit $143bn of life insurance coverage annually, according to research unveiled at the Life Insurance Settlement Association's Fifth Annual conference (latest figures as of 2015).
In 2019, the secondary life settlements (LS) market had volume increases of 11% to 2,878 policies, and face value traded increased by 15% to $4.4bn - continuing the rate of growth experienced over the past four years, says a Laureola newsletter. Total capital deployed in the secondary market was $840m or $70m a month, an increase of 31%. These trends have continued in 2020.
A news report quoted the CIO of Vida explaining why performance was lower than expectations since 2018. The main culprits were COI (certificates of insurance) increases and LE adjustments by 21st and AVS in late 2018. Vida's Fund is one of the industry's largest
by assets, and Vida is recognized as an industry leader by many measures. COI increases and LE extensions are an industry-wide phenomenon and every large and medium-size portfolio would have been exposed to them in some measure, but not all have reflected the adjustments as Vida has.
This highlights an important difference between open-ended and closed-end LS funds, the newsletter argues. Responsible open-ended funds (funds that can issue an unlimited number of shares that do not trade on exchanges and are priced at NAV) are structurally forced to be transparent with investors on issues affecting valuation and future returns. Closed-end funds (funds that raise a fixed amount of capital through an initial public offering (IPO) and then lists shares for trade on a stock exchange) can bury their mistakes for up to 10 years. Investors wanting transparency and full disclosure should favour open-ended-funds or SMAs (separately managed accounts); in life settlements, the advantages of closed end funds all lie with the manager.
Related article:
23.Apr.2020 Opalesque Exclusive: The Corona Fighters Report 14: Asset managers that delivered in the downturn
Upcoming webinar:
Fixed Income Alternatives Strategies
Time: Wednesday, September 9th, 2020, at 10 am EST
Details and free registration here: www.opalesque.com/webinar/
|
RSS
