The financial markets were anything but stable in 2022, with unpredictable events causing volatility across asset classes. Amid this backdrop, AIR Asset Management’s (“AIR”) multi-strategy approach to longevity and private credit investing has proven to be a compelling investment option given the strategy’s consistent equity-like annual returns and low volatility compared to traditional markets.

Prior to the pandemic, investors with a healthy dose of equities in their portfolios benefitted from one of the longest, strongest, and - often overlooked­ – steadiest bull markets in modern history. However, the turbulent market swings of 2022 reminded investors of the crucial role a well-diversified portfolio plays in preserving capital and increasing risk-adjusted returns. Last year AIR’s strategies delivered on their objectives to provide equity-like returns with bond-like volatility, offering investors much-needed diversification to weather storms like last year’s.

In this article, we will explore the factors behind our success and why we believe our strategies are well-positioned to help investors navigate the unpredictable financial landscape of 2023 and for the long term.

Perfect Storm, Perfect Time to Diversify

Volatility is back, big time. Wall Street ended 2022 with its biggest percentage drop since 2008.* But equity volatility is only one component of the perfect storm that has investors on edge, and the other components will be painfully familiar to financial advisors. Inflation is hitting hard, domestic and global politics are in turmoil, and the inverted yield curve flashes recession warnings.

When storms like these occur, portfolio diversification may help investors stay true to their long-term financial plan and reduce their exposure to downside risks. Life settlements–the primary investment focus of our flagship strategy–are characteristically uncorrelated to the general markets and exhibit low volatility with their stable return profile (New to the asset class? See quick explainer in the sidebar). In addition to buying life insurance policies in the life settlements market, our strategy invests in structured settlements and private credit. The life contingent annuity streams and private credit investments provide positive cash flows compared to the negative cash flows associated with owning life insurance policies. One of the main risk factors in longevity investing is incorrectly projecting the lifespan of the underlying population. But annuities pay out more when the person who initially took them out lives longer. They thus have an inverse exposure to mortality compared to life insurance policies and can act as a hedge against life settlement assets. Similarly, the private credit activity offers yet another differentiated cashflow stream (interest and fee income) and a different risk/reward profile that diversifies the portfolio while still leveraging the manager’s core competency in evaluating longevity-linked assets.

Diversification is known as one of the only free lunches in investing, and we believe diversification within the longevity space delivers a superior risk-adjusted return. To help financial advisors, we’ve put together a helpful explainer on where to position life settlements and private credit within their portfolios to enhance their traditional allocations here.

Right Mix, Right Manager

Shelters from market storms are nice, but how they are constructed and managed will determine whether they will hold up over the long haul.

Through a combination of i) investment diversification, both within the life settlements sleeve of the portfolio and across adjacent sleeves, ii) consistently and unbiased underwriting application and; iii) an edge in investment sourcing through longstanding strategic relationships, our multi-strategy approach has produced highly competitive risk-adjusted performance. Such performance can lead to considerable capital appreciation over time. For access to the full article with performance included, please fill out the form below.

Showing clients there is an alternative.

For over a decade, investment advisors have been riding the bull market alongside their clients—a rising tide that lifted almost all boats. Now that volatility and uncertainty are back in play and clients are asking hard questions, we believe it’s a great time for advisors to prove their value by bringing new ideas to the table, such as life settlement and private credit investments. As outlined, these investments have the potential to generate returns that are independent of traditional markets and the economy. By implementing a sound strategy and executing it effectively, these investments can serve as a valuable alternative for individuals seeking to diversify their portfolios, preserve capital, and increase risk-adjusted returns.

To learn more about where to position life settlements within your clients’ portfolios, read: Incorporating Life Settlements and Private Debt in Financial Plans

Disclosures

*Source: Reuters, “Wall Street ends 2022 with biggest annual drop since 2008,” December 30, 2022.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

No assurance can be given that any investment will achieve its objectives or avoid losses. Unless apparent from the context all statements herein represent AIR Asset Management’s (“AIRAM", “AIR”) opinion. This article is provided for guidance and information purposes only. Investments involve risk, and unless otherwise stated, are not guaranteed. Consult with a qualified financial adviser and tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.

AIRAM is a registered investment adviser in Chicago, Illinois. AIRAM may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. AIRAM’s website is limited to disseminating general information about its advisory services and access to additional investment-related information, publications, and links. Accordingly, the publication of AIRAM’s website on the Internet should not be construed by any consumer and/or prospective client as AIRAM’s solicitation to effect or attempt to effect transactions in securities or the rendering of personalized investment advice for compensation over the Internet. Any subsequent, direct communication by AIRAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of AIRAM, please contact the state securities regulators for those states where AIRAM maintains a registration filing. A copy of AIRAM’s current written disclosure statement discussing AIRAM’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from AIRAM upon written request. AIRAM does not make any representations or warranties regarding the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to AIRAM’s website or incorporated herein and takes no responsibility therefor.