Institutional investor interest in life settlement funds is set to rise over the next five years, according to the findings of recently published research.
A study conducted by Managing Partners Group found that nearly two-thirds (64%) of professional investors predict increased adoption of the funds by 2030 due to the rising cost of healthcare.
A greater number (86%) believe that wealth managers, pension schemes and other professional investors will invest in the asset class for the first time as a result of market developments.
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The demand for the asset class is being driven by the performance of life settlement funds, according to MPG which cited consistently generated high single digit annual returns from the fund managers in the sector.
In addition, the current market pricing delivers an annualised yield of 12%, stated the study.
Another development cited in the study is the increasing numbers of life insurance policyholders choosing to sell their policies at a discount to their maturity value, yet higher than the surrender value due to the rising cost of long-term care and increasingly ageing population, especially in the US which remains the biggest market for these policies.
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This has created a prolific supply of life settlement policies traded through secondary markets, according to MPG.
“The ongoing cost-of-living crisis coupled with the escalating financial impact from paying for long-term healthcare is felt far and wide,” said Jeremy Leach, chief executive of MPG. “As people look for ways to fund these additional expenses, it makes sense to take advantage of the potential benefits from selling their life insurance policies for a larger cash sum rather than surrendering them.
“As the number of policyholders selling their policies increases, so too does the market for fund managers offering life settlement products. This creates a win/win situation for policyholders in need of liquidity and for investors seeking long-term returns.”
The study interviewed 100 investment professionals across Europe, Asia and the US during January 2024.
