The assured fund was launched for institutional investors and high net worth private clients four years ago. It aims for returns of 8-11 per cent a year by investing in a diverse portfolio of US senior life settlements. These are US life policies sold on the second-hand traded market by policyholders typically aged 75-85.
When a life policy is sold to the fund, the fund pays the policy premiums and the full value will be paid to the fund when the policy matures. Prices of the policies are based on acturarial calculations of life expectancy and are independently checked by Deloitte & Touche.
Policy Solutions can sell on the policy at a profit instead of waiting for it to mature but this is very rare and has only happened once in the fund’s four-year history.
One of the characteristics of investing in US life settlements is that although there is a fixed purchase price and the returns are known at the outset, it is not known when the policies will mature as people could die earlier or later than expected. This means the fund needs to invest in over 200 policies that will mature at different times to ensure that there is a steady stream of returns. Policies will diversified in terms of insurance company, age, gender and smoking status.
The fund is being marketed to advisers as an alternative asset class to equities at a time when stockmarkets are volatile. Returns from US senior life settlements are non-correlated and Policy Solutions has seen demand for non -correlated assets increase over the last few years.
Advisers in the UK can access this asset class through other funds, such as the recently launched Meteor Senior Life Settlements fund, but this feeds into another fund, EEA Life Settlements, which has appointed a number of partners to source the policies, hold them and administer the fund.
Policy Selection has a limited number of partnerships, but buys the policies itself. It says it has a reputation of always buying the policies it bids for, which means that even if it does not offer the best price for a policy, it may be preferred because it is able to complete deals quickly.
Some investors may be wary of investing in a fund that benefits from death but higher prices paid to policyholders on the open market can allow them to improve their standard of living in their final years.
However, returns could be adversely affected if the insured lives longer than expected, as the fund would pay premiums over a longer term.