Performance and Risks of Open-End Life Settlement Funds
Journal
Journal of Risk and Insurance
ISSN
0022-4367
ISSN-Digital
1539-6975
Type
journal article
Date Issued
2012-03
Author(s)
Abstract
In this paper, 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 dataset 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.
Language
English
Keywords
Life Settlements
Open-End Funds
Performance Measurement
Risk Analysis
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Wiley-Blackwell
Publisher place
Malden, Mass.
Volume
79
Number
1
Start page
193
End page
230
Pages
38
Subject(s)
Division(s)
Eprints ID
57652