Protecting investors by insuring a portfolio manager
Insuring a key person
tax-free liquidity upon an early death
OTHER SUCCESS STORIES
The viability of a top performing hedge fund is highly dependent on their founder and chief executive. Because the fund uses debt, both investors and bankers need assurances against loss if the founder were to die.
The boutique nature of the hedge fund combined with the unique talents of the founder and portfolio manager created unique and costly business expenses for the fund and its investors. Between replacement costs, interest carry, and estimated loss to fund value upon the death of the founder, the company estimated its exposure at over $60,000,000.
After evaluating several options, the company decided to implement a Corporate-Owned Life Insurance (COLI) plan where the owner and beneficiary was the hedge fund. We successfully aligned coverage with three (3) highly rated insurance carriers who could issue the combined $60,000,000 of death benefit on one insured (the Founder).
Acquired significant life insurance coverage with ability to recoup the premiums plus a return
The structure allowed the insured to receive favorable underwriting treatment compared to more traditional product options
Protected investors, banks and the fund value should an early and unexpected death occur on its founder and primary hedge fund manager
For the company:
Allocated a small portion of the fund value into the general account of the insurance carrier
Combined carrier yields delivered 1.50% which provided an acceptable net return given the credit of the carrier as well as the protection from mark-to-market adjustments
Available for liquidity at anytime
For the Investors:
Along with a written plan, the insurance gave both existing and new investors assurances that the fund would continue or would have the liquidity to unwind the fund
Provided stability to current and future banking relationships
The above client case study is based on the economic results for one of TRC Financial's clients. The economics associated with each individual client are unique and impacted by the insurance product acquired, the performance of the life insurance policy, timing of premium payments, medical underwriting for the insured(s), and the actual life expectancy of the insured(s). The client case study is not intended to be opinion or advice on legal, tax, accounting or investment matters. Private counsel should be consulted prior to application of this general information to specific situations.