Established in 2008, Carlisle is a leading, highly diversified global investment management firm. Our state-of-the-art facilities and statistical modelling systems incorporate knowledge gained from 60+ years of combined investment experience within the alternative asset sector. Supervised by the Luxembourg regulator and being subject to controls of reputable audit firms at both management company and fund level, we operate independently, which allows us to focus solely on investors call for transparency and performance, within a regulated framework providing accurate management of the risks involved while maximizing investment returns.
- Please share with our readers a bit of background to Carlisle’s Long Term Growth Fund, including details about the key personnel in your team.
- What was the motivation for Carlisle to venture into the life settlement fund space, and how has the industry evolved over the recent years?
- Please walk our readers through the highlights of the Long Term Growth Fund’s investment processes and how the team distinguishes themselves apart from other funds focusing on similar assets.
- From an investor’s portfolio management perspective, how does exposure to life settlements complement other traditional and alternative asset classes, and what are the main benefits offered by life settlements which have attracted both retail and institutional investors over the recent years?
- The majority of life settlement funds have significant geographic exposure to the United States (US), relative to other countries or regions, which typically carry substantially lower weights in the portfolios. Has this concentrated exposure towards the US life settlement market posed any challenge to the Long Term Growth Fund in terms of diversification and downside protection?
- Following from the previous question, what kind of developments do you expect to take place in non-US life settlement markets over the upcoming years, and do you see any interesting opportunities which may arise from there?
- Risk management remains as one of the major concerns for investors interested in the non-traditional asset classes, as downside risk could be extremely idiosyncratic given the nature of the strategy and asset class. Please share with us some insights on how you identify opportunities within the sector and manage downside risk in order to minimise the negative impact on the portfolios.
- Since the inception of the Long Term Growth Fund back in 2009, what has been the greatest challenges faced by the team, and what were the steps taken by the team to better prepare itself against similar challenges which may occur in the future?
- How has the ongoing COVID-19 pandemic affected the life settlement industry over the recent months, and what steps have been taken by the investment team to maintain good performance and minimise downside risk?
- What are the primary challenges faced by investors interested in gaining exposure to the life settlement industry? How do you expect the industry to transform in the face of these challenges and how well is Carlisle’s team positioned to maintain its edge in the market?
Carlisle’s Long Term Growth Fund was launched back in July 2009. This was shortly after 2008 financial crisis which put a lot of pressure on multiple asset classes. Firstly, investors were looking for open-end investment vehicles that would deliver sustainable returns with limited correlation to traditional financial markets. Secondly, investors expected them to be up to the highest standards of transparency and execution. In order to address these needs, the Long Term Growth Fund was launched with the philosophy of providing yield-oriented and tax optimised investments with limited correlation to tradition financial markets and within very strict regulatory framework. The Long Term Growth Fund is an investment fund whose strategy is focused on the acquisition, trading and management of a portfolio of U.S. based life insurance policies.
Carlisle prides itself as one of the most experienced teams within the industry with a tireless focus on Life Settlements. Our team has more than 80 years of collective investment management and includes some of the industry’s veterans.
Carlisle was founded by a management team that had a long history of working together already, so it did not feel like a new venture. Carlisle’s founding was simply a culmination of years of its principle’s experience in assisting institutional clients in the development, structuring and management of investment vehicles within Life Settlements space.
Life Settlements have seen an unprecedented level of growth over the past decade, with some of the world’s most prominent institutional investors, including sovereign pension plans and endowments, starting to recognise the unique benefits of integrating life settlements in their portfolios. As Life Settlements continued to gain traction among world’s largest financial institutions the level of transparency and sophistication has also increased.
Carlisle’s strategy involves delivering razor-sharp focus on the asset class in which it invests which has been the main contributor to our success.
Our investment process includes several steps whereby life settlements we acquire become subject to a set of strict quantitative and qualitative selection criteria as well as rigorous stress testing. In addition decades of experience in sourcing and reviewing life settlement policies allows us to apply the so called commoditisation technique whereby we can review a large number of policies and react in a quick manner when solicited.
Last but not least, Life Settlements have been and remains a highly intermediated market where relationships, the level of expansion of your sourcing network and reputation play a huge role. Having a vast sourcing network allows us to have better access to a larger number of opportunities, which we can often purchase at a substantial discount to market prices.
This allows us to excel among other peers in both portfolio deployment and portfolio management.
The beauty of Life Settlement is that despite its conceptual simplicity it has limited correlation to traditional financial markets as well as changes in fiscal and monetary policies. Due to the isolated mortality variable Life Settlements have been able to deliver steady positive returns, even in times of current financial distress as they offer guaranteed pay-outs from highly rated life insurance companies, if kept to maturity, with a defined and known cost structure.
Not at all, since Life Settlements are mainly based on the United States Life Insurance marketplace. The reason for that is simple: US Life Insurance Market is enormous and represents over US$20 trillion in Face Value. In addition, as the largest aging population in United States history grows, US seniors are expected to control close to US$800 billion of life insurance by 2030, with US$160 billion believed to be eligible for Life Settlements. Therefore, we believe that life insurance policies supply is poised to grow providing excellent sourcing opportunities for players with well-established sourcing channels.
The concepts of so-called tradable term and endowment life insurance known in the UK and Germany do exist, however in principle they are different products from mainly universal life insurance policies traded in US. The market size remains miniscule which limits the capacity. Finally and most importantly over the past decades US government has implemented and established complex measures for market regulation and market control, while comprehensive regulations, licensing and permit obligations were established in almost all federal states of the USA, and include instruments for fair pricing and a transparent purchase process were introduced. That being said, we believe US will continue to remain the primary secondary life insurance market.
Indeed, the number of risks that can materially impact Life Settlements Performance are limited.
The primary risk of Life Settlements remains to be the extension, or the risk of the insured living longer than expected. We employ detailed actuarial and financial analysis whereby our policies become subject to a series of exhaustive sensitivity and stress tests to ensure that the value of each policy does not erode with extension.
In addition, our funds consist of portfolios of hundreds of policies diversified across multiple parameters including but not limited to face value, insurance carrier, age, mortality profile, rating and gender to mitigate risks associated with concentration.
The final risk, is of course credit risk. While investors buy into a well-diversified portfolio of life settlements issued by a large number of highly rated insurance company, the credit worthiness of said insurance companies must be analysed prior to purchase.
Life Settlements have attracted a lot of smart institutional capital over the past few years. As the market became more sophisticated and well-established the level of efficiency has also increased and so did the level of competition. In other words, demand has increased faster than the supply of life settlements. Our primary challenge remains therefore sourcing at attractive rates which translates into our ability to generate trading gains and amplify mortality driven returns. Since the beginning we were focused on building a robust sourcing model which would enable us to have access to unique sourcing opportunities in rather niche and underserved market segments. In that respect having an open-end fund has been a challenge but also a solution. Not only did it allow us to generate extra liquidity, on top of maturities, but also to keep constant access to the market further solidifying our position as an industry leader.
We always like to remind investors that Life Settlements represent the unique asset class that has limited correlation to traditional financial markets due to the isolated mortality variable as its primary performance driver so long as investors take a long-term approach and policies are kept to maturity. In line with rating agencies expectations, we have seen that stress on equity and credit markets that could have adversely impact earnings and restrain refinancing capacity have had limited impact on US insurance companies.
At the same time, we have started seeing first reflection of the widespread epidemic in the US causing increased mortality for the specific Life settlements target demographic of elderly insureds.
Given the open-open fund structure we however do acknowledge that a short-term liquidity squeeze, due to the pandemic reaction, has kept our minds busy managing liquidity needs. The Long Term Growth Fund FCP SIF has always been active in the tertiary market through policy sales, providing for a sufficient liquidity stream for our investors. To that extend, our management team has been pro-active in accelerating our trading activity since the beginning of current crisis.
In addition, in 2018 we have launched a series of closed-end Absolute Return Funds aimed to address the needs of larger institutional investors seeking to further minimize liquidity risk and fully benefit from a truly uncorrelated nature of Life Settlements. They have resonated equally well with our existing investors.
Finally, we believe that current market dislocations promises to provide a number of unique opportunities to source policies at larger discounts to market prices starting Q4 this year which we aim to capitalise on.
We believe that in the long-run supply with remain a concern and some funds will be limited in their capacity to generate alpha. To that end, since years we have accelerated our efforts to have better access to the market including our sourcing network expansion, hiring some of the best talents in the space as well as working with direct to consumer marketing initiatives to further increase the supply.
Given increase in market volatility and generally gloomy economic outlook for the foreseeable future discerning investors will be focusing their attention on fully transparent, properly regulated structures with top tier infrastructure, management team and solid track record. In other words, the best in class managers will stand substantially out. Carlisle is extremely well positioned to maintain its edge.
Contact Details
Oleksandra Polishchuk
sashapol@cmclux.com
Carlisle Management Company
+352 268 453 5937
www.luxlf.com
