Research from Managing Partners Group (MPG) suggests that the life settlements asset class is set to see growing institutional investment because of its stability of returns and safety arising from a growing supply of policies.
The firm said that it had conducted the research with professional investors who were responsible for $276bn in AUM. It said that 83% forecast growth in the money pouring into the sector from institutional investors over the next five years.
Life settlement transactions involve US life insurance policy owners selling their policy to an investor for a lump sum lower than the death benefit but higher than its cash surrender value. The investor, who is often a professional fund manager, then maintains the policy and collects the death benefit on maturity.
Life settlements are institutionally traded through a highly regulated secondary market. The market increasingly includes high-profile institutional investors and service providers that includes Apollo Global Management, GWG Life, Vida Capital, Broad River Asset Management, Redbird Capital Partners, Partner Re, SCOR, Berkshire Hathaway, Coventry First, Wells Fargo, Bank of Utah, Wilmington Trust, and Suisse Life Settlements.
Around 12% of the professional investors questioned in Switzerland, Germany, Italy, and the UK predict dramatic growth in institutional investment over the next five years with part of the growth down to increased supply. Investment management firm Conning estimates $200bn in life insurance is set to be surrendered or lapse every year until 2027.
Jeremy Leach, chief executive officer of MPG, said: “Institutional investors including pension funds, hedge funds, reinsurers, and other major financial corporations are already investing in life settlements due to the stability and safety of returns. The rapid growth of supply of life insurance policies lapsing and being surrendered in the US is expanding the investment opportunity and professional investors are confident that will translate into increasing institutional investment over the next five years.”
MPG’s research shows around 43% of professional investors who are planning to cut exposure to bonds and equities will shift money into life settlements, marginally behind the 49% planning to move money into commodities.
The study found more than half (55%) of professional investors say life settlements will one of the top three most-popular asset classes with institutions over the next three years. That is marginally lower than the 59% who put high yield bonds in their top three and ahead of the 45% who chose commodities in their top three.