Life Settlement Firm Gears Up To Launch Hedge Fund

Jul 28 2006 | 4:32pm ET

Life Settlement Solutions —which originates, purchases and services life settlements for institutional investors —is launching a hedge fund that will invest in life insurance policies of high-net-worth individuals who no longer need or want their life insurance plans, according to Larry Simon, president and CEO of the San Diego-based firm.

The new offering, which is slated to be unveiled in September, is being domiciled in Dublin because of tax benefits. It will be marketed to institutions, funds-of-funds and high-net worth individuals.

The firm has previously managed a hedge fund for a sister company, "so this is not our first hedge fund," Simon said.

He added that the terms of the fund are still being hammered out, though the minimum investment will likely be $500,000 and fees will be "less than the typical 2/20 structure."

A portfolio manager has yet to be chosen for the fund, but Simon is in talks with various candidates, all of whom have experience both in the hedge fund and life settlement industries. The firm is also planning to hire a marketer to tout the new offering.

According to a recent report conducted by Bernstein Investment Research and Management, the life settlement business is currently around $13 billion and is projected to grow to $160 billion within 25 years, partly driven by aging baby boomers looking to fund their retirements.

In a life settlement, a person who no longer wants his or her life insurance policy, sells the policy to a third party, gaining more than he or she would if it were sold back to the company backing the policy. The third party then continues to pay the premium on the policy, and when the original holder dies, the third party collects the insurance payout.

"[The life settlement industry] is still in its infancy," said Simon, who hopes to roll out more hedge funds as demand grows. "It is our feeling that a financial advisor has an obligation to make their clients aware of different opportunities…and selling a life insurance is one of those opportunities."

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