Longevity assets are life contingent and do not rely on the movement of any other financial event to achieve a return.

Investing in Longevity

Investments in longevity linked assets through life settlements provides investors with double-digit yield, high predictability, low correlation to broad financial markets, and the security of an asset-backed investment.

High Yield

Annualized double-digit returns on Life Settlement Investments provide investors a new source for long term growth and income in a new asset class.

Asset (5/2011-7/2020)Annualized Yield
S&P 500 (SPY)12.84%
LONGEVITY11.88%
Real Estate Investment Trusts (SCHH)5.49%
Master Limited Partnerships (AMLP)-6.09%
Investment Grade Bonds (LQD)5.79%
High Yield Bonds (HYG)4.90%
US Treasury 20+ (TLT)8.59%
60% Stock / 40% Bonds (BAGPX)7.79%
Gold (GLD)4.90%
Line Chart of Total Return for different asset classes
Asset (5/2011-7/2020)VolatilityBeta
S&P 500 (SPY)13.781.00
LONGEVITY3.61-0.01
Real Estate Investment Trusts (SCHH)17.120.54
Master Limited Partnerships (AMLP)28.830.31
Investment Grade Bonds (LQD)6.110.77
High Yield Bonds (HYG)7.641.42
US Treasury 20+ (TLT)13.26-0.43
60% Stock / 40% Bond (BAGPX)11.230.93
Gold (GLD)16.390.10

Low Volatility

Compared to some of the most traditionally popular equity and fixed income investments, longevity has some of the lowest market volatility. The consistent return profile ensures a steady appreciation of the assets and the value of the investment.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security as movement in price or value (up or down) is less consistent or predictable.

Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole.  Generally, a high Beta indicates systematic risk similar to the market while a low Beta implies risk much lower than the market.

Bar Chart of Asset Class Volatility

High Predictability

Unlike traditional investments in stocks, bonds, or REITs, where returns come from unknown future financial performance and overall economic growth, life settlement returns are based on mortality events which are predictable. Investment performance is projected using actuarial science, mortality data,  third-party expert medical underwriting, and trends in longevity.

Line chart of probability investment in longevity exceeds a certain return (CAGR)

The below Monte Carlo Simulation demonstrates the expected distribution of annualized returns for investing in SPY for ten years compared to investing in a portfolio of life settlement policies (Longevity).  While results from investing in SPY are broad given the randomness and higher volatility of historical observations and financial markets (1993-2020), investing in Longevity illustrates the relative predictability of mortality (which drives returns) with its much higher concentration of observations around the mean (average) return.

Chart of Monte Carlo Simulation Results by Number of IRR Observations
PROBABILITYS&P 500 (SPY)LONGEVITY
95%2.65%9.90%
90%4.01%10.13%
75%6.55%10.52%
50%9.71%11.00%
25%12.90%11.49%
10%15.56%11.96%
5%17.04%12.24%

We may also calculate the confidence intervals or probability of exceeding a certain annualized return from the Monte Carlo model.  With confidence intervals we can illustrate the confidence level an investor should have in obtaining an annualized return equal or greater to the calculated result of a stated interval.  For example, using the table of calculated confidence intervals, an investor should expect a 75% probability that their investment in Longevity should meet or exceed 10.52%  Similarly, an investor should expect that 75% of the time their ten year investment in the S&P 500 (via SPY) should meet or exceed 6.55%.

Line chart of US life expectancy versus S&P 500

Low Correlation

Since returns are dependent on mortality events rather than financial ones the performance of the longevity asset class has an extremely low correlation to domestic and global financial markets.  Like a truly alternative asset should.

AssetSPYLONGEVITYSCHHAMLPLQDHYGTLTBAGPXGLDSLV
S&P 500 (SPY)-0.0190.5630.5950.1730.725-0.4420.9550.0170.197
LONGEVITY0.019-0.087-0.0210.116-0.0120.0550.0320.0090.063
Real Estate Investment Trusts (SCHH)0.5630.087-0.3260.5270.6090.110.5690.1250.222
Master Limited Partnerships (AMLP)0.595-0.0210.326-0.1970.591-0.1880.5470.0610.179
Investment Grade Bonds (LQD)0.1730.1160.5270.197-0.5070.590.2380.360.318
High Yield Bonds (HYG)0.725-0.0120.6090.5910.507--0.1970.7720.240.34
US Treasury 20+ (TLT)-0.4420.0550.11-0.1880.59-0.197--0.4350.220.018
60/40 Funds (BAGPX)0.9550.0320.5690.5470.2380.772-0.435-0.1070.305
Gold (GLD)0.0170.0090.1250.0610.360.240.220.107-0.825
Silver (SLV)0.1970.0630.2220.1790.3180.340.0180.3050.825-
Table of asset correlations as of 8-31-2020

Asset Backed

Investments in Life Settlements through LifeToken are asset backed by the life insurance policies that the fund (which issues LifeTokens as partnership interests) owns.  This provides token holders and investors the security of marketable assets backing up their investments in LifeTokens.  Furthermore the life insurance policies the fund holds are generally issued by insurance carriers with investment grade ratings providing high yield on high credit assets.

John Hancock Logo
S&P Rating AA-
Lincoln Financial Logo
S&P Rating AA-
AXA Equitable Logo
S&P Rating A+
S&P Rating AA-

Bring it all together now.

May 2011 to Aug 2020CAGRVolatilityMax DrawdownCorrelationAlphaBeta
SharpeSortino
S&P 500 (SPY)12.84%13.78-19.43%1.0001.000.931.47
LONGEVITY11.88%3.61-2.94%0.0211.55%-0.013.0018.97
Real Estate Investment Trusts (SCHH)5.49%17.12-30.21%0.56-1.82%0.540.370.52
Master Limited Partnerships (AMLP)-6.09%28.83-72.82%0.60-10.42%0.31-0.09-0.13
Investment Grade Bonds (LQD)5.79%6.11-6.38%0.17-4.310.770.911.49
High Yield Bonds (HYG)4.90%7.64-11.61%0.73-13.191.420.600.93
US Treasury 20+ (TLT)8.59%13.26-18.03-0.4413.41%-0.430.681.32
60/40 Funds (BAGPX)7.79%11.23-16.360.57-4.19%0.930.761.16
Gold (GLD)4.90%16.39-42.910.170.54%0.100.230.36
Chart of all investment metrics for various assets

Compound Annual Growth Rate (“CAGR”) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. Investors can compare the CAGR of two alternatives in order to evaluate how well one stock performed against other stocks in a peer group or against a market index.

CAGR does not reflect investment risk.

Volatility represents how large an asset’s prices swing around the mean price – it is a statistical measure of its dispersion of returns. There are several ways to measure volatility, including beta coefficients, option pricing models, and standard deviations of returns.

Volatile assets are often considered riskier than less volatile assets because the price is expected to be less predictable.

A drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund. A drawdown is usually quoted as the percentage between the peak and the subsequent trough. If a trading account has $10,000 in it, and the funds drop to $9,000 before moving back above $10,000, then the trading account witnessed a 10% drawdown.

Drawdowns are important for measuring the historical risk of different investments, comparing fund performance, or monitoring personal trading performance.

Correlation is a statistic that measures the degree to which two securities move in relation to each other. Computed as a correlation coefficient, assets that have a -1.0 coefficient move inversely with the market while a +1.0 coefficient indicates movement in perfect tandem.  An asset with a coefficient at or near 0 does not move at all in step with the market.

Correlation can measure the movement of a stock with that of a benchmark index, such as the S&P 500 and measures association (but not cause).

Jensen’s Alpha (the Greek letter α) is a risk-adjusted performance measure that represents the average return on a portfolio or investment, above or below that predicted by the capital asset pricing model (CAPM), given the portfolio’s or investment’s beta and the average market return. This metric is also commonly referred to as simply alpha. Alpha is used as a measure of performance, indicating when an investment has managed to beat the market return relative to its risk over some period.

A high alpha would indicate a high rate of return and lower risk relative to the broad market.  Likewise, a low or negative alpha implies the investment or strategy has a low rate of return and higher risk than the market.

Beta (the Greek letter β) is a concept that measures the expected move in a stock relative to movements in the overall market and describes the relationship between systematic risk and expected return for assets.

For example, a beta greater than 1.0 suggests that a stock (or other asset) is more volatile than the broader market, and a beta less than 1.0 indicates a stock with lower volatility.

The Sharpe ratio adjusts a portfolio’s past performance—or expected future performance—for the excess risk that was taken by the investor.  That is it helps investors understand (and compare) the return of an investment compared to its risk.

A high Sharpe indicates a higher rate of return for a lower amount of risk relative to other investments.  Likewise, a low Sharpe ratio would indicate a low rate of return given the high amount of risk.

The Sortino ratio is a variation on the Sharpe ratio differs in that it only considers the standard deviation of the downside risk, rather than that of the entire (upside & downside) risk as the Sharpe ratio does. Because the Sortino ratio focuses only on the negative deviation of a portfolio’s return from the mean, it is thought to give a better view of a portfolio’s risk-adjusted performance since positive volatility is a benefit.

The higher the Sortino ratio, the better the downside risk adjusted return.

Investing in life settlements on the blockchain through LifeTokens brings all the benefits of alternative longevity based insurance linked securities to the mainstream.