I was running late last Wednesday morning as I hurried down 44th street in Manhattan. While I jostled past the tourists walking out of their hotels, fastening their fanny-packs and securing their cameras, I wondered to myself why on Earth anyone would want to stay in this section of the city; a kaleidoscope of theatres, strip clubs and chain restaurants where a $16 cheeseburger is “today’s special” every day of the week. But as I got farther East, towards 5th Avenue, tidy neo-Georgian brick buildings emerged and began to line the streets.
The neighborhood, a long-time the home of many of New York’s more prestigious clubs, seemed to arise out of nowhere and I found myself at the front door of the vaunted Harvard Club.
I was there to attend the Life Insurance Settlement Association’s (LISA) 2nd Annual Institutional Investor Conference. It struck me as mildly incongruous that a conference based on such a relatively new financial instrument would be held in such a historic building, but that was just my mind ambling through the morning. Inside, the dark mahogany and crimson décor was dotted with Harvard memorabilia that could have entertained me for hours if I was not aching for the coffee that I knew would be served inside the conference room.
Taking my seat in the back with who I assumed were fellow journalists (based on how feverishly they were typing) but later found them to be hedge fund managers prospecting new investment opportunities, I watched the conference begin.
Darwin Bayston, Executive Director, LISA, made the opening remarks to a receptive and cheerful audience before he introduced Craig Seitel, CEO and managing member of Axis Thought Capital, LLC, a boutique investment firm focused on alternative investments. That, I quickly learned is the preferred nomenclature for life settlements; alternative investments. And that they are. Life Settlements and the companies and individuals involved with them have been trying to sell themselves as legitimate players in a legitimate marketplace and they have not had an easy time doing so.
The sticky residue from the days of viatical settlements and associations (real or imagined) with stranger-owned life insurance has dogged the life settlement business for years. These are issues that have faced the life settlement industry pretty much since its inception and its public relations campaign has not been able to defuse them.
Seitel was direct enough to mention the tough time the industry has had with separating themselves from the unsavory elements of the practice. He spoke of how at the turn of the century life settlements were still trying to escape the shadow of viaticals and become their own unique asset class.
He continued to explain the brief history of institutional investors in life settlements. In the early 1990s, it was British and German funds that were getting involved, they served, somewhat as the toe for other institutional investors who were not yet sure if the temperature of the life settlement pond was warm enough. Next, international investment banks in the mid 1990s who primarily acted as intermediaries and liquidity providers. Currently, the main institutional investors are hedge funds and pension funds. The latter struck a chord with me as way for the life settlement industry to use a new class of institutional investors to legitimize themselves and finally be free from the weirdly conjoined reputation it shares with STOLI and viatcals.
Mark Flaherty took to the podium next. Flaherty was Controller of Allegheny County PA, where he was responsible for a $700 million “midsize public fund” of seven trustees. When things started to unwind in 2008 he realized that they would need to look into alternative investments, but he was not even aware of what life settlements were (another public relations failure for the industry) until an associate brought them up to him. At this time, many of the alternative investments that Allegheny County was looking into, such as commodities and real estate ventures, were all somehow correlated with the market, which was spinning out of control. Life settlements, however, began to look more and more like an appealing option for his pension fund. Mark had found a perfect fit that would provide healthy returns for his fund and workers of Allegheny County PA that depended on it.
We have seen over the last four years many villains born out of the loose parameters of the financial planning and investment world. Operations that were once seen to perform a valued service quickly became seen as greedy, cartoonish characters reminiscent of robber barons of 19th century American business exploits. Maybe the life settlement industry, which was always looked at with a raised eyebrow by investors with a strong moral aptitude could capitalize on the demise of their alternative investment compatriots and fashion themselves as the option that is assisting the sympathy magnets that decimated pension funds had become during the crisis. The life settlement industry had just had quite possibly the most effective public relations campaign imaginable dropped in their lap and the best part is, they can make money at it, too.