Article written by Michael Abraham

New life settlement funds are being added to the existing crop on a regular basis. But what should the investor look for?

This writer’s opinion – There are a number of obvious points and of course some that are not

Obvious:
Size
Fund Manager
Asset Spread
Return
Costs

Not Obvious:
Mortality
Valuation Methodology
Actuarial audit
Fund structure
Tax implication

Fund size is also important but in most classes this would be about invested dollars. In this asset class it is about number and spread of policies owned.

For example if one fund has $100m face value and owns 30 policies (30 different lives) whilst another fund has 120 policies (120 different lives) for the same $100m face value, which should you buy?

Simplistically the latter because of the spread!

However, this also opens up one of the less obvious points:- Mortality – in the first fund the average face value of the policy is $3m and the policies are therefore from the ‘Healthy Weathly’s’ rather than in the latter fund where they are more likely to come from ordinary people who cannot afford the level of medical support or enjoy they same stress free lives of the wealthy.

What about the valuation methodology is that clear and is it audited regularly?

Fund structure – is it open ended or closed ended? This writer believes that the former gives a fairer reflection of the underlying value of the life settlements, but this is a complex argument that I will deal with in a separate article.

And Tax – has this thorny subject been dealt with effectively by your chosen fund and its manager?  Has it been factored in to the valuation?

Clearly Life Settlements Funds and the policies themselves are a complex subject, so make sure you talk to someone who knows what they are talking about!

Published on 22 Oct 2008 at 01:02 am