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04 July 2014

London Alt Assets summit reaffirms limited investor awareness of the benefits of investing in US Life Settlements

Ioan RobertsAn intense Alt Assets LP summit took place in London on the 3rd and 4th June 2014.  The summit was well attended, with many leading General Partners, Limited Partners and investors represented - including SL Investment Management (SL).

The range of agenda items was vast; but all with the overriding theme and focus on the past, present and future of the private equity (PE) industry. The general sentiment was that the PE market has suffered greatly since the financial crisis; but is now in an up-cycle with the future looking bright.

Ioan Roberts, SL's Life Settlement Trading Manager attended the conference,

"PE and life settlement investments have a great deal in common. They are both illiquid alternative investments that can offer higher returns relative to traditional asset classes. Historically the biggest investors in both asset classes have been the large banks. However, they are now subjected to the stringent capital adequacy requirements imposed by the Solvency II directive and the Basel III reforms."

"This enforced deleveraging has caused a shift in their allocations to more liquid investments, leading to a fall in demand for both life settlements and PE investments in the aftermath of the financial crisis."

In recent months, SL has noticed increased activity in the life settlement market - and this is a welcome development that is echoed within the PE industry. With equity markets reaching a plateau and interest rates still low, pension funds in particular are increasingly looking for investments that can offer higher returns as they seek to match the rise in their liabilities resulting from the baby boomer generation reaching retirement age.

The PE market has also benefitted from a growth in insurance company investment, whilst SL has witnessed more activity from PE houses themselves investing heavily into life settlements.

Another similarity is that assets within a PE and life settlement investment often present challenges for managers in terms of reporting an objective and fair value for assets - certainly more so than with traditional investments. This is an issue that the introduction of the Alternative Investments Fund Management Directive (AIFMD) goes some way to addressing, requiring the valuation processes to be functionally independent from portfolio management. Managers in both asset classes have been striving to comply with these new rules before the Directive's July 2014 introduction.

Ioan Roberts continued, "SL has an impressive pedigree in the provision of specialist asset valuation services to portfolios of alternative assets, particularlyUK with-profit and longevity based assets. Alternative Investment Managers seeking independent valuation services for bespoke assets are encouraged to come and talk to SL and our actuarial team to see how we can support".

In conclusion - both life settlements and PE have suffered from negative public perception over recent years.  Despite this, great strides have been taken to improve the regulatory regime governing these types of asset; and to improve transparency - which can go some way to creating a more open and competitive market.

SL believes that this is an important step in regaining investor confidence in the healthy functioning of the market. SL anticipates increased interest in the alternative assets space in the near future, particularly as investors look at options to create enhanced yield, beyond that perhaps currently offered by more traditional investments.