Stockholm-based asset manager Ress Capital is a specialist investor in life settlements and runs one of the few listed vehicles active in the space. Greg Winterton spoke to Hanna Persson, Head of Sales at Ress Capital, to learn more about the firm itself and its approach to the space.
GW: Hanna, Ress Capital’s investment vehicle is publicly listed, on the Nasdaq Nordic exchange. Why did the firm decide to go that route?
HP: The open-ended structure enables gradual growth, and policies can be gradually sourced. It also allows the fund to buy longer life expectancies which a closed-end fund could not do with a buy and hold strategy. We wanted to make this very interesting asset class more accessible to investors that would not necessarily be able to invest in the life settlement market otherwise. Being listed allows different type of investors from all over the world to buy shares easily through their local bank/broker.
GW: Tell us about your approach to policy selection. What are some of the features that you look for in policies that make it into your portfolio, and why?
HP: In the end, using correct mortality assumptions will of course be most important and we tend to be on the conservative side there. But for policy selection, our investment team focuses on limiting the tail risk of the portfolio both at an individual policy as well as portfolio level. This is achieved by reviewing large numbers of policies and then buying single, high-quality policies. We are very selective and buy only 3-4% of the policies we look at.
In general, we look for wealthier and relatively healthy individuals with long life expectancies (average life expectancy at purchase is 12 years) which we believe are more accurate. Then, by looking for stable future premium streams, the negative effect of any individual substantially outliving their life expectancy is reduced.
At a portfolio level, we then always strive to have high level of diversification in terms of age, gender, size and life expectancy which should reduce the systemic risk of medical underwriters estimating longevity for sub-groups.
GW: Ress Capital is a signatory to the United Nations’ Principles for Responsible Investments. Why did you decide to pursue this credential and what’s been the main benefit so far?
HP: Being a responsible investor is an integral part of how we operate. Our clients should feel confident that we prioritise sustainability in our daily activities and that we always strive to improve our sustainability efforts. Being an alternative investment manager active in the secondary market for US life insurance policies, ethics is a key aspect.
At Ress Capital, we are convinced that the future challenges we face will place new demands on us as managers of our clients’ capital. Through our work with responsible investments, we want to contribute to a more long-term and sustainable investment climate where environmental, social, and corporate governance (ESG) factors are included in the investment process. Responsible investments thus become an important prerequisite for achieving our goal of generating good long-term returns.
As an essential part of Ress Capital’s commitment to sustainability and responsible investments, we signed the United Nations’ Principles of Responsible Investment (UNPRI) in 2017 meaning we supports the work carried out by UNPRI to promote sustainability work in the asset management industry.
GW: There is disagreement amongst life settlement-focused investment managers about whether the asset class should be considered more akin to private equity or alternative credit. What’s Ress Capital’s view and why?
HP: I wouldn’t say Ress Capital has taken any official stance on this. However, we believe the asset class potentially has similarities with alternative credit, although we would argue that the credit rating of US life insurance companies is far better and they’re also highly regulated. As regards similarities with private equity, since our fund is listed, it has little in common with closed-end PE funds with no liquidity. Also, we would argue that expected return profile is quite different from PE.
GW: Lastly, Hanna, what’s your message to institutional, end investors that don’t have an allocation to life settlements in their portfolio – what are the main reasons for doing so in your view?
HP: This is an asset class that is fundamentally uncorrelated to majority of other asset classes. The underlying risk is decoupled from the economic cycle. When done correctly, life settlements as an asset class offers a fixed income alternative with yields comparable to those of an equity portfolio, but with volatility below that of investment grade bonds. In times of high volatility in the market life settlements present a unique, stable and truly uncorrelated return stream.
Hanna Persson is Head of Sales at Ress Capital