The Laureola Bermuda Fund was up 0.1% in March, and up 0.5% ytd. One small policy matured and four polices were added to the portfolio last month. The portfolio now has 188 policies with an average face of $710k. 37% of the policies have a Life Expectancy of 48 months or less.
Maturities have been below expectation in Q1 but should pick up for the rest of 2021. With the recent increase in yields and the growing concern over price inflation, investors may be interested in data as to how the Life Settlement market has reacted in the past to changes in rates. A 2013 study by Januario and Naik of the London Business School sheds some light. The study covered the 11 year period from 2001 to 2011 and measured the difference between the (gross, projected) IRR that Life Settlements traded at and the Treasury yields.
The excess over treasuries varied between 6.1% and 15.9%, suggesting that the LS market has its own dynamics, and is not correlated with Treasury yields. In fact, in the 2010/11 period when rates were declining, IRRs were at their highest at over 18%. Capital flows, liquidity levels, and confidence in the Life Expectancies have had a much more pronounced effect. For comparison, the current IRRs are about 12% in excess of treasuries, in the middle of the historic range.
A well-managed portfolio of Life Settlements should do well if (1) the yields remain sub 3%, should not be affected much if (2) yields creep up to the 3% to 5% range, but would probably be impacted if (3) yields rose much above 5%. Investors can use their judgement to handicap each of these scenarios, but the Laureola Fund will make a positive contribution to portfolios in two of the three scenarios. No asset class will contribute in all three scenarios.
Combined with the 8% to 12% projected return, the non-correlation, and the structural cash flow, an investment in the Laureola Fund will make a positive contribution to most portfolios in the years ahead.
Download the full Laureola Fund April 2021 update
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