Traded life policy manager Managing Partners Limited has developed an index for the sector, tracking the size of five funds specialising in traded life policies – the Traded Policies Fund,
Traded life policy manager Managing Partners Limited has developed an index for the sector, tracking the size of five funds specialising in traded life policies – the Traded Policies Fund, Select High Security Fund, Corinthian Growth Fund, Assured Fund USDB and Aurora Fund – on a quarterly basis.
In the 12 months to the beginning of November, the aggregate size of the funds tracked by the Traded Life Policy Fund Index grew by 108.5 per cent, with their combined assets under management rising from USD194.3m to USD405.2m.
Traded life policies are US-issued life assurance policies sold before the maturity date to allow the original owner to enjoy some of the benefits during their lifetime. The policies are purchased at a discount to their maturity value, which in the majority of cases is fixed at the outset, which means that they are guaranteed to rise in value, MPL says. The market has grown from USD50m in 1990 to more than USD20bn today.
According to the firm, while traded life policies carry the risk that it is not known when the people whose lives are assured will die, with the right diversification and actuarial analysis funds can deliver steady, predictable returns. Because of this high degree of certainty and solid underlying value, products that invest in them can use a substantial degree of gearing to enhance returns and initial allocation rates.
Funds that invest in traded life policies also offer strong diversification benefits in that they have a very low correlation with equities or bonds.
‘A combination of the current market volatility and increased opportunities in the traded life policy market have made this asset class all the more attractive,’ says MPL managing director Jeremy Leach.
‘Traded life policies provide steady, predictable and attractive returns that both institutional and retail investors are finding hard to ignore. The Sterling Growth Class (the retail share class) of our Traded Policies Fund has delivered annualised returns of 9.5 per cent since its launch in March 2007.’
In the year to the beginning of November, Managing Partners saw the volume of investment in its traded life policy funds increase by 190.2 per cent increase. The firm estimates that 75 per cent of the money invested in its funds is from institutional investors, and 25 per cent from retail investors.
MPL, which specialises in managing alternative asset classes for institutions and sophisticated investors, manages various Cayman-domiciled collective investment schemes and regulated mutual funds with total assets exceeding USD100m.