Life Settlements Are Settling In as an Alternative Asset Class

In the 1980s, men being treated for AIDS began defraying hospital expenses by selling their life insurance policies for less than the death benefit. The practice became known as life settlement.

By the early 2000s, banks had accumulated portfolios of life insurance policies from healthy senior citizens. Packaged and marketed as life settlement funds, the holdings appealed to institutional and high-net-worth investors interested in an alternative asset class uncorrelated with stocks, bonds or real estate.

The past year saw a surge of interest among investors who were hungrier for yield than at any time since the subprime bond crash of 2007.

“The hunt for yield is back on,” says Jeremy Leach, CEO of Managing Partners Group (MPG), which is headquartered in London and manages $64 million in U.S.-issued life policies in its High Protection Fund. “Investors are looking for real rates of return that are going to be higher than the risk-free rate.”

MPG said in January that it was adding life settlements to its Melius Fixed Income Fund, targeting up to a 50-50 split between life settlements and corporate and high-yield bonds.

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