Leveraging Tangible Assets – Project Funding Collateral or Exit Strategy
To clearly and concisely understand the optimal asset type, it is helpful to first describe better known instruments for comparison. Securities (Stocks) are corporate debt obligations, subject to fluctuating market, economic and political forces, which give uncertain yields. Certificates of Deposit (CD) are term deposit instruments, as debt obligations of banks, subject to low capital reserve ratios (commonly 7%) of banks, and subject to capital and liquidity crises of banks, which give yields of 3-5%. Treasury Bonds (T-bills) are government debt obligations with no capital reserves, subject to government deficits and crises, which give minimal and recently even negative yields. Medium Term Notes (MTN) are debt obligations of Fortune 500 companies issued through and guaranteed by banks, subject to economic recession and bank failures, which give yields of 8-12%.
The most advantageous and secure type of investment asset is Senior Life Settlement (SLS) insurance policies, generally sold in portfolios. Insurance companies are based upon the time-tested conservative concept of physical economy by concentration and distribution of wealth. They collect more money in insurance premiums than they might need to pay out in benefits, and thus build real wealth and asset backing of tangible value.
They are rated by S&P, Moody’s and other authoritative rating agencies to indicate the strength of asset backing guaranteed by the insurance companies. Insurance companies, which are founded upon wealth and assets (and not merely upon debt as with banks), are generally “immune” to market forces, political events, economic downturns, or banking crises. Instruments issued by insurance companies are not “debt obligations”, but rather guaranteed and asset backed tangible assets, usually in the form of“annuities” or other certain guaranteed tangible benefits with no risk.
Life insurance is a tangible commodity, that pays full face value of the policy upon the death of a person. All humans are naturally mortal (as created by God), and all life insurance policies must and do pay out at full face value.
The expected term of payout of these policies, calculated by insurance companies based upon many scientific and statistical factors, is called the Life Expectancy (LE) period. The policies are called “Senior Life” because they are older policies for seniors with a short LE period.
Statistically this category of life insurance policies in any given portfolio pay out with about 90% certainty by the end of the LE period, with up to 10% paying reasonably soon after the LE period. This results in regular payouts throughout the term of the SLS assets, serving as “annuities”, with most of the maturity concentrated closer to the LE period. For this reason, SLS assets are generally considered to be in the strongest category of financial instruments with guaranteed payout that is fully compatible with traditional “asset backing” practices which rely on tangible assets.