Alternative Investments – Their Role in Wealth Creation

Date: August 5, 2015

Investors considering adding an asset to their portfolio need to evaluate it on two main criteria:

Adding assets which duplicate existing holdings serves no real purpose.

Diversification is not just a theoretical concept. In practice it will reduce losses by ensuring that at least part of the portfolio is delivering positive returns at any given time. It both mitigates the possibility of losses and reduces the quantum of loss actually experienced.

Loss avoidance is critical in investment portfolios. Heavy losses lead to irrational decisions taken out of fear (which is why there are few buyers when prices are depressed). Also, in practical terms, heavy losses can take years to recover:

Senior investors can ill afford these recovery times.

Diversification, like performance, is more often promised than delivered. To measure the true diversification potential of an investment, an investor must evaluate whether the asset can generate returns in scenarios which will hurt his existing holdings. Will the new investment deliver positive performance if:

Alternative Investments, as the name suggests, offer the best potential for diversification – as long as they are genuinely alternative. This is widely recognised among sophisticated investors in the USA, where the investment portfolios of several of the larger University Endowments are over 50% invested in Alternatives.

The asset class of Life Settlements is one of the most attractive Alternative Strategies.

In the United States it is both legal and encouraged for an individual to sell his life insurance policy to an investor. The insurance policy then becomes a financial asset called a Life Settlement.

Life insurance companies in the USA have never missed paying the death benefit on a valid life insurance policy since Abraham Lincoln was President – 1864. This is a track record unmatched in investment and banking.

Life Settlements currently trade at an average yield (IRR) of 16%, with a range of 12% to 25%, this will meet the return requirements of most investors.

The drivers of returns in Life Settlements are:

Investors can easily confirm that a well constructed portfolio of Life Settlements offers genuine diversification, as it is obvious that the asset class is not in any way dependent on:

Many Alternative investments are restricted to Qualified Investors only in Singapore, and this includes Life Settlements.

Tony Bremness,
Managing Director,
Laureola Advisors Inc.

This article is contributed by Laureola Investment Fund