Hunt for yield drives rising demand in life settlements
• More fixed income funds need to diversify deliver higher yields which more investors increasingly demand , MPG believes
• Life settlements which offer yields of up to 12% are benefiting from increased diversification as investors look for reasonable levels of returns
• MPG will add life settlements to its Melius Fixed Income Fund, which currently invests in corporate and high yield bonds
The switch to a higher yield-driven market is strongly boosting demand for life settlements which can achieve yields as high as 12%, Managing Partners Group (MPG), the international asset management company, says.
It is warning that the yield driven market worldwide will temper performance expectations for fixed income funds and is urging those aiming for double digit performance to increase exposure to corporate bonds and other higher yielding securities including life settlements.
MPG is adding life settlements to its Melius Fixed Income Fund, which currently invests in corporate and high yield bonds, targeting up to a 50/50 split between life settlements and other assets.
Life Settlements are US-issued life insurance policies that have been sold by the original owner at a discount to their future maturity value. They have little or no correlation to equites and bonds. MPG says alternative asset classes in general are set to benefit from increased diversification as investors look for reasonable returns while equities are set for a tough year ahead.
Jeremy Leach, Chief Executive Officer at MPG, said: “We are now very much in a yield driven market and we expect equities to have a choppy ride with some downward pressure to accommodate the higher yield market which demands higher dividend rates per share.
“Life settlements are valued on a very similar basis to fixed income securities as they are investment grade securities that carry a fixed maturity value so there is a natural fit for the blend. Market pricing on Life Settlements currently generates a yield of 12% on a discount basis yield driven basis. That is why we are adding them to our fixed income fund as they will contribute strongly to yields. Inflation-linked bonds have had their day given that inflation is falling worldwide.”
MPG predicts the UK will narrowly avoid recession but only achieve growth of between 0.5% and 0.75% lagging behind the US and the EU. It is forecasting GDP growth of closer to 1.5% for the US, France and Germany but warns there is a bigger recessionary risk in the US during the first half of 2024. It expects inflation to drop to around 2.25% in the UK and EU by the end of the year.
Its Melius Fixed Income Fund has returned 7.67% in the 12 months to December 2023 outperforming the iShares Core US Aggregate Bond benchmark by 10.01% over the period, benefiting from an exposure to fixed income in the USA, UK, Europe and Switzerland. Melius has a yield driven investment strategy that carries less pricing sensitivity to interest rate movements.
Its High Protection Fund is seeing strong demand for Life Settlements as a growing part of the alternative assets sector. It has returned 214.8% since it was launched in July 2009. It aims to achieve smooth predictable investment returns of between 8% and 9% per annum, net of fees and in the most recent 12 months achieved 9.27%. It is an absolute return fund offering share classes in a number of different currencies. It aims to deliver returns by investing in Life Settlements or Traded Life Policies (TLP's) or companies that invest in TLPs.
The market increasingly involves high profile institutional investors and service providers, including Apollo Global Management, GWG Life, Vida Capital, Broad River Asset Management, Red Bird Capital Partners, Partner Re, SCOR, Berkshire Hathaway, Coventry First, Wells Fargo, Bank of Utah, Wilmington Trust, and Credit Suisse Life Settlements LLC.
The standard deviation in the fund’s performance has been 0.13% since launch and its Sharpe Ratio of 4.5549 reflects its excellent consistency in outperforming the risk-free rate. The fund has no initial charges or performance fees which has given it a performance edge on competing funds within the Life Settlement sector.
