Performance and Risks of Open‐End Life Settlement Funds

37 Pages Posted: 24 Feb 2012

See all articles by Alexander Braun

Alexander Braun

University of St. Gallen - I.VW-HSG

Nadine Gatzert

Friedrich-Alexander University Erlangen-Nürnberg

Date Written: March 2012

Abstract

In this article, we comprehensively analyze open‐end funds dedicated to investing in U.S. senior life settlements. We begin by explaining their business model and the roles of institutions involved in the transactions of such funds. Next, we conduct the first empirical analysis of life settlement fund return distributions as well as a performance measurement, including a comparison to other asset classes. Since the funds contained in our data set cover a large fraction of this relatively young segment of the capital markets, representative conclusions can be derived. Even though the empirical results suggest that life settlement funds offer attractive returns paired with low volatility and are virtually uncorrelated with other asset classes, we find latent risk factors such as liquidity, longevity, and valuation risks. Since these risks did generally not materialize in the past and are hence largely not reflected by the historical data, they cannot be captured by classical performance measures. Thus, caution is advised in order not to overestimate the performance of this asset class.

Suggested Citation

Braun, Alexander and Gatzert, Nadine, Performance and Risks of Open‐End Life Settlement Funds (March 2012). Journal of Risk and Insurance, Vol. 79, Issue 1, pp. 193-230, 2012. Available at SSRN: https://ssrn.com/abstract=2010351 or http://dx.doi.org/10.1111/j.1539-6975.2011.01414.x

Alexander Braun (Contact Author)

University of St. Gallen - I.VW-HSG ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

Nadine Gatzert

Friedrich-Alexander University Erlangen-Nürnberg ( email )

Lange Gasse 20
Nuremberg, 90403
Germany
+499115302884 (Phone)
+499115302888 (Fax)

HOME PAGE: http://www.vwrm.rw.fau.de

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