Pacific Global Investment Management (PGIM) is one of the world’s leading investment management firms with over $1 trillion in assets under management. Recently, PGIM has entered the life settlement secondary market, following other major players like Blackstone, Apollo Global Management and PIMCO. This highlights the growing interest of top asset management companies in this alternative asset class. In this article, we will look at the reasons behind PGIM’s entry into this market, and the implications for the wider life settlement industry.
With its strong brand recognition and extensive global reach, PGIM’s move validates the potential of life settlements as an asset class. It also brings more mainstream investor attention and capital to the space. For consumers looking to sell their policies, competition among institutional buyers may lead to higher offers. However, there are concerns over potential price inflation. Overall, PGIM’s entry is a positive sign for industry growth and maturity.
PGIM sees life settlements as attractive fixed income assets with low risk
PGIM has over $1 trillion in fixed income assets under management. The firm likely views life settlements as an attractive addition to its fixed income portfolio. Mature life settlement policies provide steady cash flows similar to bonds, but with much lower risk of default. The mortality profiles of insureds can be accurately modeled using actuarial methods. This makes the returns on life settlements highly predictable over the long term.
With bond yields at historic lows, PGIM is looking to life settlements for higher returns. The firm has stated that it is focusing on policies with extremely low mortality risk. This conservative approach aligns with PGIM’s overall reputation for prudence and risk management. By diversifying across hundreds of policies, the idiosyncratic mortality risks can be minimized.
Institutional capital brings more efficiency and transparency to life settlement investing
The influx of institutional buyers like PGIM is positive for individual investors in several ways. Firstly, it brings more price discovery and transparency. Established firms have the analytics resources to accurately value policies. This reduces information asymmetry between buyers and sellers.
Secondly, institutional players promote higher standards and best practices. With deep compliance expertise, PGIM will ensure diligent vetting of policies to prevent fraud. Stringent risk management procedures will also be implemented.
Finally, large asset managers have the scale to streamline operations. They can negotiate better deals with service providers, creating cost efficiencies. Lower fees and expenses could potentially be passed on to consumers. Overall, institutional participation fosters a more robust, efficient marketplace.
However, some are concerned about the impact on life settlement pricing
Despite the benefits, there are concerns that institutional capital could inflate prices. Critics argue established firms like PGIM have access to cheap financing, allowing them to pay more. This could drive up bids for new policies coming to market.
Smaller investors may find it hard to compete on price with large asset managers. While higher prices are good for sellers, it may lower returns for buyers. There are fears a pricing bubble could form.
However, others contend there are constraints on how much institutional buyers would be willing to pay. The upside for sellers is capped by the policy face value. And buyers need adequate returns to justify the investment. There are natural limits to how much prices could realistically rise in a competitive market.
The impact on pricing will become clearer as more capital enters the space. Overall, PGIM’s entry is an endorsement of life settlements as a maturing asset class. But the industry must continue working to strike the right balance between buyer and seller interests.
Demand for alternative investments creating opportunities in niche markets like life settlements
The surge of interest in alternative assets is a key driver drawing institutions like PGIM to life settlements. With conventional assets like stocks and bonds offering low yields, investors are searching for uncorrelated and higher returning opportunities.
Life settlements provide returns in the 10-15% range, with minimal correlation to financial markets. This makes them an appealing diversifier. Additionally, the demographics of an aging population provide a strong supply tailwind for the foreseeable future.
As the universe of traditional assets gets picked over, asset managers are venturing into more esoteric corners of the market. Niche alternative asset classes like litigation finance, royalties, and rare wines are seeing heightened interest.
The demand backdrop combined with positive structural factors underpinning life settlements make it a particularly attractive niche. With over $30 trillion in life insurance policies in force, it remains an overlooked and underserved market. The entry of firms like PGIM will spur further growth and unlock more of this value.
The entry of leading asset manager PGIM into the life settlement secondary market is a positive sign for the industry. It brings mainstream investor attention and validates life settlements as an attractive fixed income alternative. While there are concerns about the impact on pricing, overall institutional capital should improve efficiency and transparency. The demand for alternative investments is creating opportunities in niche markets like life settlements. With its vast size and growth potential, the influx of major institutions serves as a catalyst for the next stage of evolution in the life settlement asset class.