The current instability witnessed in the Chinese stock market has hit investor confidence hard and some analysts are warning that the region should expect more volatility.1
Whether China, and its surrounding neighbours, remain the epicentre of current market instability, one thing is certain, investors need to focus their asset allocation toward adding some truly diversifying investments.
We have attended events in the past where colleagues have eagerly focused discussion toward allocating investment to truly alternative asset classes. Finding alternative investments which are truly uncorrelated to traditional market risks like volatility and inflation, whilst directing focus on stable long term performance, can appear rather daunting. Alas, there is an asset class which exists to fulfil these objectives.
When planning for strategic asset allocation, an investment in a portfolio of secondary life insurance policies can prove to be a powerful tool during periods of severe and prolonged market volatility. It allows you to diversify your investment portfolio into an alternative asset class where the underlying assets are not correlated to events in the stock, bond or property markets. This helps reduce the volatility in your investment, whilst maintaining the potential for a strong return. How this is achieved is outlined below;
- An asset class with real diversification. Studies have been unable to detect any correlation between human longevity and the cycles of financial markets.
- Displays low volatility. The intrinsic characteristics of Insurance Securities such as Life Settlements, being non-identical, non-market traded physical securities means that they are by nature significantly less volatile than say listed securities. Couple this with the earlier mentioned characteristics of longevity instruments and results in further reduction in volatility.
- An attractive return portfolio. The above characteristics result in attractive risk adjusted returns being achieved by successful investors.
- Quality of the underlying asset. Like any investment, you want to be sure you get paid in due course. Insurance securities like US Life Settlements boast underlying credit quality higher than most bank issued bonds.
- Offers a known future cash flow. It is not a matter of IF you will see the money but simply WHEN. The uncertainty is in the term of the investment. This therefore is one of the return premium drivers demanded on these very low credit risk instruments.
- The regulatory environment is robust. The regulation of the US life insurance secondary market now exists in forty-five of the fifty states
- Most current fund structures are domiciled in recognise and robust regulatory environments. Regulated Asset Managers are aware that investors justifiably want good governance and transparency.
- LE calculations continue to develop. The life expectancy calculation regime has evolved since the early days of the asset class to more accurately account for the Life Settlements specific cohort of insured lives, as distinct from the general insured population and indeed the general population tables. Underwriting now also accounts for anti-selections bias.
To all budding life settlements investors we give you this one counsel. In this market funds operate within different regulatory regimes, utilise different investment strategies, different valuation methodologies, and operate with varying levels of transparency which makes significant analysis across funds difficult. Ensure that the asset manager you choose can adequately meet your objectives.
We have focused on many topics in the past including how the best performers in the industry choose the right life settlements investment structure, choose a healthy asset manager, collaborate with a reputable fund experts in the industry, estimate gross market return and benchmarking. Doing a little homework, in this ever evolving asset class, can go a long way towards a successful investment long into the future and provide secure performance uncorrelated to traditional markets. We simply need to embrace the characteristics of this investment class (Lack of Correlation, Risk/Reward proposition to name a few) and manage it accordingly to succeed.
As always we wish you well with your life settlement investment opportunities and if you want to learn more about investing in this asset class please contact.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is incorporated in Ireland as an umbrella type investment company with segregated liability between sub-funds. The first sub-fund launched, GIS General Fund (the Fund), is listed on the Irish Stock Exchange.
This structure is aimed at Sophisticated / Institutional investors and provides tax clarity by ensuring there is no tax leakage. It enables a number of different investment options to suit the specific needs of our investors.
The Fund’s core activity is to actively manage a large and diverse portfolio of life insurance policies (life settlements) issued by companies in the USA. Policies are sourced by licensed U.S. Provider companies and the Board of GISF select those that best meet the Fund’s policy purchase criteria.
- The Guardian, "Stock Markets Continue to be Volatile as Investors Fear China Risk", 26th August 2015, [ONLINE] Available at: http://www.theguardian.com/business/2015/aug/26/stock-markets-continue-to-be-volatile-as-investors-fear-china-risk, [Accessed 27 August 2015].
Disclaimer: This information is intended for qualifying investors only and was correct at the time of preparation. It has been prepared to provide general information only and should not be considered as a “securities recommendation” or an “invitation to invest” in any jurisdiction. Potential investors should consider the relevance of this information to their particular circumstances. Before proceeding investors must obtain the prospectus and take their own legal and taxation advice. If you acquire or hold one of our products we will receive fees and other benefits as disclosed in the prospectus and relevant offering documents.
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