April 23, 2024

Study finds institutional investors and wealth managers boost investment in life settlement funds

Nearly two out of three (64%) professional investors predict investment in funds focusing on Life Settlements will rise over the next five years, according to a survey of global institutional investors and wealth managers holding assets of €107 billion under management commissioned by Managing Partners Group (MPG). 

Demand for the asset class is being driven by life settlement fund performance – fund managers specialising in life settlements have consistently generated high single digit annual returns and current market pricing delivers an annualised yield of 12%. 

However, the sector is also being driven by rising numbers of life insurance policyholders choosing to sell their policies at a discount to their maturity value, yet higher than the surrender value, creating an increasing supply of Life Settlements that are institutionally traded through a highly regulated secondary market. 

Around 86% of investors surveyed believe more wealth managers, pension schemes and other professional investors will invest in the asset class for the first time as a result. Just under one in ten (8%) say they do not expect more first-time investors in Life Settlements, while 6% were unsure. 

The main reason for the rise in number of life insurance policyholders cashing in policies identified by the research is the rising cost of long-term care in the US followed by the increasing ageing population. 

The rising cost of living and increasing financial pressure on consumers was cited as the next most likely reason followed by a growing awareness among policyholders that they can sell their life insurance policies. 

Growing awareness of the possibility of cashing in policies is being driven by more Life Settlement providers advertising the fact that customers cashing in policies will receive a higher pay out than if they just surrender them, the study found. 

More than two-thirds (67%) of respondents expect this trend in advertising to continue, with 14% of those predicting dramatic increases. Just under one-third (32%) say providers will keep promotion levels the same, while 1% forecast a decrease. 

The portfolio of Life Settlements in MPG’s High Protection Fund have an average Risk Rating of A+ from AM Best. High Protection Fund delivers long-term capital growth by investing in a portfolio of Life Settlements. It delivered net annualised returns of 9.31% in 2023 and 219.72% since launch in 2009. It attracted net inflows of $20 million last year and aims to achieve smooth predictable investment returns of between 8% and 9% per annum, net of fees. This consistent performance is achievable because market pricing on Life Settlements currently generates a yield of 12% pa on a discount driven basis. 

Jeremy Leach, Chief Executive Officer of Managing Partners Group, commented: “The ongoing cost-of-living crisis coupled with the escalating financial impact from paying for long-term healthcare is felt far and wide. As people look for ways to fund these additional expenses, it makes sense to take advantage of the potential benefits from selling their life insurance policies for a larger cash sum rather than surrendering them. 

“As the number of policyholders selling their policies increases, so too does the market for fund managers offering Life Settlement products . This creates a win/win situation for policyholders in need of liquidity and for investors seeking long-term returns.” 

MPG is a multi-disciplined investment house that specialises in the creation, management and administration of regulated mutual funds and issuers of asset-backed securities for SMEs, financial institutions, and sophisticated investors. It currently manages two funds with a combined gross value of $500m.

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