I took the liberty of commenting on an Alphaville post Death bonds’ unique risks. My comment is as follows:
Life Settlements are clearly one of the asset classes you need to be extra-cautious investing into, but I have to disagree with the overall tone of this post, which appears to label ALL life settlement investments as money-losing and/or fraudulent products.■
Among the many life settlement investment managers I had a chance to speak with, there is a handful of people who seem to know what they are doing, having both the right industry experience and a (audited!) track record to back it up.
The bottom line is, never invest into something you don't understand. Do your due diligence (especially if that is you fiduciary responsibility!). Pay attention to the valuation policy (no straight-line appreciation to life expectancy), type of policies (avoid those in their contestable period, be wary of the jumbo policies as they tend not to adhere to VBT), and check if the appropriate cash reserves are being cushioned into the fund. Also look for managers with track record of over 4-5 years, because even an improperly managed fund may look fine during the first 2-3 years.
There is more to it, but the investors who do their homework are more likely to gain in the end. Just as with any other asset class.
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