Opulen Capital Life Settlement: The Life Settlements Life Preserver

When the market tanked last year, hedge fund managers saw an exodus of investors not unlike an emptying of a bathtub drain. Some fund managers watched as nearly 90 percent of their business dried up. In an industry where investors once raked in 20 percent returns, it was clear those days were long gone. With hedge fund returns as low as 3 percent, managers decided enough was enough.

Today, most of those same hedge funds are heavily invested in the life settlements industry. With well over 8,500 life settlement funds to choose from and a projected total life settlement valuation at a staggering $160 billion, the market is ready for a broader investment foundation.

And that’s about to come, what with baby boomers about to hit the prime life settlement selling age brackets. It doesn’t hurt the life settlements market to know that unlike traditional investments, current US accounting rules allow money managers to circumvent booking large losses after buying life insurance policies.

Too much money was the cause for the decline in hedge fund returns. Add to that a recession that caused even more hedging activity, an influx of too many dollars and too little payout. With returns sinking year on year in the traditional hedge fund market, investors are happily engaged in recouping their losses in the life settlements market.

Such action is causing quite a bit of contention among life insurance companies, which see 35 percent of policies written lapse. Policies sold on the life settlements market tend not to lapse because premiums are being paid by the buyers, who have a vested interest in keeping the policy in force until the policy holder’s death.

Several hedge funds have joined the life settlements market: LSF Investment Fund, a new partnership started by the managers of New Aquarian funds; HM Ruby Fund; National Life Settlements Fund, and a business unit of General Re, part of the Berkshire Hathaway company. As a means to attract investors in a shaky market, the life settlements industry has tossed the hedge fund industry a much-needed life preserver.

Some of the more common life settlement fund structures include:

• Hedge fund structure – uses net asset valuations on contributions and redemptions. Check with your manager to see how the valuation on this structure is figured.
• Private equity fund structure – based on a quarterly distribution of profits, but could be less profitable if the fund hold widely varied maturity expectations.
• Hybrid fund structure – typically a combination of the first two structures. It avoids valuation periods. Allows for redemptions and inflows.
• Debt structure – can be set up to pay in a number of ways, including: paying the investor a variable amount based on fund returns; paying a fixed amount payable at set intervals after a stated period; paying a fixed amount at the end of the fund’s life.

Talk with Opulen Capital to understand the various life settlement fund structure options, and for advice on whether life settlements can offer a greater investment opportunity than today’s hedge fund market. For more information, call us at 1-877-OPULEN 1.