Rising Interest: Institutional Investors Eye Life Settlement Funds

Institutional investor interest in life settlement funds is expected to surge over the next five years, driven by the findings of recently published research. A study conducted by Managing Partners Group (MPG) revealed that nearly two-thirds (64%) of professional investors anticipate increased adoption of these funds by 2030, attributing this trend to the escalating costs of healthcare.

Furthermore, a significant majority (86%) of respondents believe that wealth managers, pension schemes, and other professional investors will enter the asset class for the first time due to market developments. MPG highlighted the performance of life settlement funds as a key driver for this growing demand, noting consistently high single-digit annual returns generated by fund managers in the sector.

According to the study, the current market pricing offers an annualized yield of 12%, further bolstering investor interest. Additionally, the research points to a rise in the number of life insurance policyholders opting to sell their policies at a discount to their maturity value, yet higher than the surrender value. This trend is attributed to the increasing costs of long-term care and an aging population, particularly in the US, which remains the largest market for these policies.

MPG noted that this dynamic has led to a significant supply of life settlement policies traded through secondary markets. Jeremy Leach, chief executive of MPG, emphasized the broader financial implications, stating, “The ongoing cost-of-living crisis coupled with the escalating financial impact from paying for long-term healthcare is felt far and wide."

Leach further highlighted the rationale behind policyholders opting to sell their life insurance policies, explaining, “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."

He noted the mutually beneficial aspect of this trend, stating, "As the number of policyholders selling their policies increases, so too does the market for fund managers offering life settlement products. This creates a win/win situation for policyholders in need of liquidity and for investors seeking long-term returns."

The study, conducted in January 2024, involved interviews with 100 investment professionals across Europe, Asia, and the US. The research sheds light on the evolving landscape of institutional investment preferences and underscores the growing significance of life settlement funds as a viable asset class in the investment arena.

By fLEXI tEAM