3 Minute Read
Posted by Michael Bradburn on May 11, 2018

According to a 2017 InvestmentNews Article, Alternatives in the Mainstream, 83% of Investors say they want more access and information about Alternative Investments.

67% of Advisors polled said they lack understanding of Alternative Investments and further stated that how to utilize these unfamiliar investment vehicles in asset allocation was vexing.

As with all things, humans rarely invest themselves into things without a good reason. The alternative investment space offers many good reasons to become an expert, but here are two of the biggies:

  1. The Alternative Investment sphere is projected to grow by over $150 Billion in the next few years.
  2. Investors want access to non-correlated asset classes to increase diversification away from market risk.

There are many forms of alternatives currently in use by Advisors. Amongst the popular ones...

  • Alternative Strategy Mutual Funds
  • Fund of Funds
  • Private Equity
  • Hedge Funds
  • Private Real Estate Funds
  • Bank Loans
  • Business Development Companies
  • Non-Traded REITs
  • Leveraging Strategies
  • Currencies
  • Structured Products
  • Crypto Currencies

So, what is the common underpinning of all of the above-listed investment classes that stands out? Duh, Correlation!

Every strategy derives its return from volatile market mechanisms and has an element of downside capture.

There is one Alternative Asset Class that provides absolute returns, avoids volatility and eliminates downside capture risk. Senior Life Settlements.

It's no wonder that many main stream advisors don't have a degree of familiarity with other non-traditional betas. It takes a fair amount of time and grey matter to get your arms around some of these strategies.

Within the classification of non-traditional betas, a particular subset under which Life Settlements fall, are Insurance-Related investments. This sub-classification contains highly-specialized investments like Catastrophe Bonds, Lloyd's Syndicates and Weather Derivatives. But these insurance-related mechanisms also contain a derivative-based relationship with potential returns. If this happens, I make money. Life settlements are different.

Life insurance is a performance contract. The consideration is very simple:

  • The insured pays premiums for an amount of death benefit.
  • For a contract in good standing at maturity, the life insurance carrier promises to pay a death benefit.

As an investment vehicle, Senior Life Settlements derive their value from a singular event...The mortality of the insured. No other factors affect the investment like market volatility, interest rates, geo-political events or even natural disasters barring, of course, Earth's complete destruction. And then, we all have bigger problems than portfolio performance.

From a very high level, you now understand the value proposition Senior Life Settlements represent for creating above-market, risk-mitigated yield. So, what does this look like in asset allocation? Let's chat to find out.  

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