The Hedge Fund That Tries To Predict Your Death

by Phillip Morton, Investors Offshore.com

08 March 2005

An unusual new hedge fund has been launched which specialises in buying life assurance policies from wealthy, elderly Americans, the Financial Times reports.

The Lorenzo Tonti hedge fund, which was opened to investment last month, seeks to make a profit by holding the life assurance policies (and paying the premiums), which are bought from individuals at an agreed price, and then cashing the policies in when the original holder dies.

The fund tends to buy policies from well-off individuals in the 80 to 85 age bracket who would otherwise let their plans lapse, basing its buying decisions on calculations of the person’s expected lifespan.

“I know it sounds morbid but it’s actually a very ethical (investment),” commented Jean-Michel Paul, who runs the fund for Axis Capital Management.

“Maybe these people would like some extra money. Remember: they’d ordinarily just let (the policy) die and lose out completely,” he added.

The firm usually targets policies with a value of $1 million. It then commissions an underwriting company to carry out extensive research in order to establish how much longer the policyholder has to live by examining factors such as where they live, lifestyle, and medical history.

“A lot of old people stop paying the premiums at the time when they’re becoming valuable,” adds Mr Paul.

“It’s an industry secret but it seems that a lot – maybe as high as 80% – of life assurance policies are lapsing,” he observed.

The fund, which aims to make a return of 12% a year, is mostly available to institutional investors, although it is also open to individuals.

At present, only American policyholders are targeted by the fund. However, Mr Paul expects the fund will expand its global reach.

“I predict that in five years time, it will become a standard retirement option for many middle-class Europeans to use life assurance as a valuable asset,” he predicted.

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