Life settlements is a form of financing extended to an individual (usually a senior) backed by that person’s life insurance policy. A life settlement fund generates returns for investors by holding insurance companies accountable for the promised death benefits upon maturity of the individual’s policy. A well-managed portfolio provides investors with potential returns comparable to that of equities, but with less volatility and with no correlation to equities or other investible assets.
As a life settlement fund, the Laureola Investment Fund (USD) rose +0.9% in December, taking CY20 performance to +9.6% with a volatility of 2.0% vs the S&P500 Total Return Index’s return of +18.4% with a volatility of 24.8%. Since inception in May 2013, the Fund has returned +16.2% p.a. with an annualised volatility of 5.6%.
CY20 annual return was within the expected 8% to 12% range for the Fund. While the Fund’s annual return was below that of US equities, it was ahead of 8 of 12 major global asset classes including global REITs, government bonds, high yield bonds, and European equities.
For superior long-term results, the trick is consistency. A steady 8% to 12% annual return places the Fund second among the 12 major asset classes over the past ten years, and third, out of the 12, over the past 3 years. In addition to consistency, the Laureola Investment Fund offers no correlation to equities and bonds.
The quality of returns is critical in life settlement funds – the more generated from realised gains, the better. In 2020, 100% of the Fund’s returns were generated by realised gains. Cash profits (i.e. realised gains) are the highest quality returns from any type of investment.
Life settlements are heavily regulated in the US and can be suitable for ESG-biased investors. The US government recognises the social good that life settlements provide. Life settlements provide better financial outcomes for seniors and promote better corporate governance within insurance companies. To that end, regulations are introduced not to limit life settlements transactions but to promote and encourage responsible behaviour amongst participants.
Alex Lee CFA
Director, Investor Relations – Australia and New Zealand
Laureola Advisors Inc.
Email: alee@laureolaadvisors.com
Tony Bremness is based in Europe and can be contacted at Tony.Bremness@laureolaadvisors.com