Investment in life settlement funds by institutional investors and wealth managers is poised for significant growth

By Newsdesk

February 26 2024
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A recent survey has revealed that nearly two out of three (64%) professional investors forecast an increase in investments in life settlement funds over the next five years.

Investment in life settlement funds by institutional investors and wealth managers is poised for significant growth

This projection is based on research conducted among global institutional investors and wealth managers who collectively manage assets worth €107 billion. The survey was commissioned by Managing Partners Group (MPG), a multi-disciplined investment house. The interest in life settlement as an asset class is being propelled by several factors including the performance of life settlement funds and an increasing supply of life insurance policies on the market.

Life settlement funds have been known to consistently generate high single-digit annual returns, with current market pricing offering an annualised yield of 12%. This performance has caught the attention of fund managers specialising in this asset class. Additionally, a rise in the number of life insurance policyholders opting to sell their policies rather than surrender them has been noted, boosting the supply of life settlements. These settlements are traded on a highly regulated secondary market and offer a payout higher than the surrender value of the policies but less than their maturity value.

Approximately 86% of the surveyed investors believe that more wealth managers, pension schemes, and other professional investors will invest in life settlements for the first time because of these factors. The main reasons cited for the increase in the number of policyholders cashing in their policies include the rising cost of long-term care in the US and the growing ageing population. Another notable reason is the increasing financial pressure on consumers, compounded by growing awareness among policyholders of the possibility to sell their life insurance policies.

The study found that this growing awareness is partly due to life settlement providers advertising the benefits of cashing in policies, which is expected to continue according to more than two-thirds (67%) of respondents. A significant portion of the investors also expects the trend of advertising to continue, with some predicting dramatic increases.

Jeremy Leach, Chief Executive Officer of Managing Partners Group, remarked on the relevance of this trend amid the cost-of-living crisis. He said, “The ongoing cost-of-living crisis coupled with the escalating financial impact from paying for long-term healthcare is felt far and wide. As people look for ways to fund these additional expenses, it makes sense to take advantage of the potential benefits from selling their life insurance policies for a larger cash sum rather than surrendering them.”

Leach also highlighted the growing market for life settlement products as beneficial both for policyholders in need of liquidity and investors seeking long-term returns. MPG's High Protection Fund, which invests in a portfolio of life settlements, had an average risk rating of A+ from AM Best and delivered net annualised returns of 9.31% in 2023. The consistent performance of these investments, driven by the current market yield of 12% pa, showcases the potential of life settlement funds to offer predictable investment returns. MPG currently manages two funds with a combined gross value of $500m, emphasising its strong position in the market of institutional investment.

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