As discussed in previous issues of the Hedge Fund Law Report, hedge funds have discovered in life settlements the potential for absolute, uncorrelated returns – a particularly attractive investment proposition on the heels of an era in which assets heretofore considered uncorrelated actually rose and fell (mostly fell) as a group. Specifically, in our October 1 issue, we provided a detailed overview of the primary legal and business considerations applicable to hedge funds when investing in life settlements. See “Hedge Funds Turning to Life Settlements for Absolute, Uncorrelated Returns
,” Hedge Fund Law Report, Vol. 2, No. 39 (Oct. 1, 2009). Then in our October 7 issue, we focused on the most salient tax considerations for hedge funds investing in life settlements, including discussions of income versus capital gain considerations, offshore versus onshore issues, implications of treaties for structuring and related issues. See “Key Tax Considerations for Hedge Funds When Investing in Life Settlements
,” Hedge Fund Law Report, Vol. 2, No. 40 (Oct. 7, 2009). This article – the third in the three-part series – focuses on the ability of hedge funds to invest in life settlements via securitizations, rather than directly. The goal of the article is to help hedge fund managers that seek to access the life settlements market determine the most efficient way to do so. To effectuate that goal, this article discusses: the mechanics of life settlements and life settlement securitizations; ways in which the risk profile of life settlement securitizations differs from the risk profile of other, more typical types of securitizations, such as those involving mortgages; real world examples of life settlement securitizations; reasons why life settlement securitizations are relatively infrequent; testimony at securitization hearings held on September 24, 2009 before the Capital Markets Subcommittee of the House Financial Services Committee; the financial, operational and regulatory benefits of life settlement securitizations; the various downsides of life settlement securitizations; salient points raised during the recent “Life Settlements and Longevity Summit” sponsored by the International Quality and Productivity Center; anticipated regulatory developments at the federal and state levels; and life settlement swaps.