Increasing demand from family offices and hedge funds is driving a resurgent life settlements market in recent months, according to international asset management group Managing Partners Group (MPG).
Family offices and hedge funds have been dominant players in the market historically, but MPG says these investors have increased purchases of policies since summer 2018.
The firm says this is because of the attractive risk-adjusted returns life settlements offer and their low correlation with mainstream assets such as equites and bonds, some of which are looking substantially over-priced.
Life settlements currently offer a 14.7 percent earnings ratio (PE of 6.8), while equity indices range from 4.6 percent to 4.4 percent across the Dow Jones Industrial, the S&P 500 and the Nasdaq 100 (PE between 21.8 and 22.9), showing life settlements are around four times more favourable than equities.
Jeremy Leach, chief executive, MPG commented: “We are seeing increasing activity in life settlements, not only in the secondary market but also in terms of new policyholders bringing their policies to market. This demand is undoubtedly being driven by increasing concerns about equity pricing and a potential market correction, combined with the need to diversify to non-correlated asset classes.
“Equities are clearly overpriced based on their current yields and the rising interest rates and creeping inflation that we are seeing in developed markets will only serve to weaken stock values further. The only debate is whether this will result in a bear run or an outright stock market crash.”
MPG is a multi-disciplined investment house that specialises in the creation, management and administration of Cayman Islands regulated mutual funds and issuers of asset-backed securities for SMEs, financial institutions and professional investors. The group has over $500 million assets under management.