The life settlement industry regularly touts the lack of correlation to public equity and liquid fixed income markets and diversification benefits as two of the reasons why institutional, end investors should consider allocating capital to the asset class.
Historically, however, that view has not had the benefit of being data-backed at the aggregate level – until now.
Unlocking Value: Insights into Life Settlements Investment Trends is a new report from industry group the European Life Settlement Association (ELSA) and insurance asset management firm Conning.
The report surveyed 156 investors and market participants between August and December last year, and according to the survey results, portfolio diversification (83%) and lack of correlation to broader markets (79%) were the top two positive aspects of a firm’s attitude towards life settlements.
That these two reasons came top of the list for survey respondents should not be a surprise, however.
“Asset managers in the life settlement market have been promoting the lack of correlation benefit that our asset class offers to investors for many years, and rightly so, because the drivers of returns in this market are not related to the finance sector. There are not many asset classes that offer a genuine lack of correlation, and those that can offer this benefit are becoming increasingly attractive to sophisticated investors,” said Hanna Persson, Head of Sales at Ress Capital.
Survey respondents also liked the potential for high returns (76%) and the ease of identifying risks (71%) as positive aspects of the asset class.
Further encouragement for life settlement types can be found in the future plans of capital allocators. A total of 29% said that they are ‘currently invested and looking to increase investment’ and 22% said that they are ‘currently invested and looking to maintain investment’. Only 7% said they were ‘currently invested and looking to decrease investment’.
Alongside identifying some of the traits of the asset class that investors like, the report also identifies some notable obstacles that must be addressed if the industry is to grow.
The life settlement market has been accused in the past of being somewhat opaque, with little publicly available data for investors to get an idea of the true size of the market or benchmark their managers to any kind of life settlement-specific index. Both of these objections feature in the report, with 40% of survey respondents looking for more historical returns data before they would consider investing.
But the number one request from investors when asked what they would need to invest is more education (45%). In recent years, both the industry at large and individual companies and people have been preaching the good word about life settlements; industry groups ELSA and the Life Insurance Settlement Association (LISA) have been more active in terms of producing educational content, and plenty of newsletters and podcasts have been launched by market participants which, collectively, rise the tide.
Still, there is plenty more work to be done.
“The observation about education is not a surprise to me and it is indeed critical to the future growth of our industry. The inner workings of our market, and the drivers of returns, are more complex than some other asset classes, so there is plenty that we still need to do, individually and collectively, to advance the general level of knowledge about life settlements among the capital allocator community,” said Chris Conway, Chief Development Officer at ISC Services.
The survey covers a range of other topics, including the expected target returns for the asset class (and over what time horizon), the extent to which a firm might be looking to increase or decrease its allocation to life settlements, the type of structures that they invested in (closed-ended, open-ended, proprietary, synthetic), how they view life settlements within a broader asset allocation model, what other asset classes the firm is invested in, and more.
Unlocking Value: Insights into Life Settlements Investment Trends is the first survey of its kind to be produced in the life settlement market, so it is not yet possible to extrapolate any trends in investor activity in or sentiment towards the asset class. So, what exactly is the takeaway here?
For Chris Wells, Executive Director at ELSA, the benefits of having actual data to back up the anecdotal evidence, both good and less so, is the foundation that the industry needs to shape its efforts in the coming years.
“This inaugural survey has provided our membership, and the industry at large, with genuine, primary research-based data which we can use to steer our efforts as both an organisation and industry going forward,” he said.
“Whilst there is clearly plenty of work to do, I’m also encouraged by the positive experiences from those once they participate in the asset class. Our industry provides many benefits not only to investors, but also to consumers, and it is terrific to see that much of the positivity that we promote is reinforced in this survey.”
