In its only new external mandate for the year to date the New Zealand Superannuation Fund (NZS) has flicked a further $200 million towards the US life settlements market.
The $35 billion NZS made the allocation in May via the Apollo Global Management Financial Credit Investment III fund – its third go around with the New York-headquartered life settlements manager.
NZS’ previous two investments with Apollo awarded in 2012 and 2014 were valued at $65 million and $271 million respectively as at the end of June last year.
Life settlement investors cash-out life insurance contracts from policy-holders at a surrender value discounted below the death benefit. Investors continue to pay premiums on purchased policies betting the insured parties will die before costs outweigh any death benefit payout.
The life settlement market is confined to the US where a 1911 Supreme Court ruling confirmed policy-holders could sell their life insurance policies to an unrelated third-party.
According to research from US publisher The Deal, life settlement transactions were up almost 50 per cent in 2016 compared to the previous year “as small-face policies gained traction and marketing efforts began reaching consumers”.
“The number of policy sales grew to 1,650 in 2016, from 1,123 in 2015, while the total face value purchased increased to $2.14 billion, compared to $1.65 billion the previous year,” The Deal reported earlier this month.
Corwin Zass, principal of US firm Actuarial Risk Management, told Financier Worldwide in April that the life settlement market should “see a few large securitisations go through in 2017 which is good for the institutional investors looking for predictable return profiles above the current fixed income bond yields”.
“In 2018 we should not be surprised if there is another attempt to create a life settlement index which will allow for the creation of investments pegged to such an index,” Zass said. “Underwriting will continue to transition to more automated approaches, much akin to the life insurance industry.”
The Apollo program is the sole external manager appointment for the 2017 calendar year, according to the latest NZS update.
NZS dished out seven new mandates in the latter half of 2016 including a handful of ‘smart beta’ factor investments, allocations to three NZ-based private equity fund specialising in small-to-medium companies, and a distressed credit exposure.
In April this year the NZS also contributed its share of a $247 million top-up – along with the Accident Compensation Commission (ACC) fund and NZ Post – to Kiwibank after some of its convertible bond instruments were ruled below statutory bank capital standards by the Reserve Bank of New Zealand.
NZS paid $263 million for a quarter share of Kiwibank last October while the ACC fund purchased 22 per cent of the NZ government creation for $231 million.