Low interest rates in the last years have forced investors to accept higher risk and have incentivised the search for alternative investments, unlisted assets and generally non-traditional investments with the aim of obtaining
larger profit margins.
According to a survey carried out by Preqin for SEI (2017), alternative investments have increased by 40% during the last four years, reaching a value of 7.7 billion dollars. The same trend in witnessed by a survey conducted by GFM Research for Intralinks (2017), which confirms
that more than a third of investors have increased
their exposure to this type of investments by at least 10% in 2017.
This trend is not foreign to portfolio managers, conscious of the need to obtain higher profit margins
and satisfy the demands of their clients, especially those more sophisticated, by incorporating alternative investments
and unquoted assets to their portfolios. Achieving higher profit
margins through investing in non-traditional assets is possible by subscribing to a unit-linked insurance plan and gaining the benefi ts that it brings. Certain limits need to be respected in the context of the plan but generally life insurance is a fl exible structure for high net-worth
clients especially when offered by insurance providers.
"Life insurance is a flexible structure for high net-worth clients."
Upon issuing the life insurance, the insurer will designate a manager to discretionarily manage the portfolio linked to the insurance policy
based on a strategy that is pre-selected by the client. If the strategy includes investments in alternative assets
, the manager will carry out the investment, which will become the property of the insurer, not that of the client. The client, through his/her insurance policy (to which the investments are connected), will however be the one who assumes the risk of investment
and who can therefore benefit from possible future returns.
Investment in non-traditional assets through a unit-linked life insurance
gives portfolio managers access to a wider variety of assets as some of these investments are only eligible
for institutional investors such as insurers, and would otherwise not be directly accessible to clients.
In addition, life insurance can offer tax deferral
of the income, that such investments would otherwise generate for personal income tax purposes, whenever a liquidity event or disinvestments occur. The client’s reporting obligations
and tax scheme are thus simplified regardless of where the investments are located. The remaining advantages of the insurance are of course applicable, such as the possibility of tax optimisation with regards to inheritance and gift tax (UK), succession planning opportunities and asset protection.
By Simon Gorbutt
Director, Wealth Structuring Solutions
Lombard International Assurance