Insurance policies with a wealth management angle come in a variety of names, and the unit-linked model can be of value when private market investments are involved, according to Utmost Wealth Solutions.

Private market investing is all the rage, so much so, in fact, that in parts of the world such as the US there is a level of caution starting to take hold as to where this will lead.

Whether it is private equity, private credit, infrastructure, commodities, property, venture capital or hedge funds, the trend of more action in the space is clear. HNW clients and their advisors say they want more of it. With fewer firms listing on public markets or taking longer to go to an initial public offering, restricted ability to enter private markets means that people cannot tap into drivers of return as much as before, raising the need for wider and simpler access. That’s not just a financial problem – it is arguably a problem in terms of equality of opportunity.

One route to these asset classes is in the form of unit-linked life insurance solutions. Typically, part of the premium a client pays is allocated to life insurance, while the remaining amount is invested in various funds chosen by the policyholder.

With insurance-based structures, there are tax and investment advantages that deserve wider understanding – all the more important as governments turn up the tax heat, argues Utmost Wealth Solutions, a London-headquartered group. (In December 2024, the Utmost Group completed its acquisition of Lombard International, a prominent player in insurance-linked solutions for wealthy individuals.)

“In the UK, until a few months ago, there was very little appetite in the advisor space for unit-linked life insurance solutions as a vehicle to hold private market assets. The private banks have been using such structures for many years, and we are now seeing increasing use of such structures in the IFA space,” Stephen Atkinson, global head of sales and marketing, Utmost Wealth Solutions, told this publication in a recent interview. 

In certain countries, Atkinson said, the use of unit-linked solutions has been around for some time. 

“In France, in the upper mass affluent and lower HNW space where certain advisors are able to provide investment advice, we are seeing increasing use of unit-linked life insurance solutions to hold private market assets,” he said. In Continental Europe, particularly Italy, clients tend to be very cautious and invest in government bonds or guaranteed investments. In Sweden, there is a lot of interest in technology and in France, there is more appetite for looking at interesting structures to enhance returns e.g. private market investments. 

Atkinson noted that in the UK, the pace of interest in this area is picking up. 

“There does seem to be quite a lot of upward momentum in the space, which is hardly surprising given the amount of marketing from the private market investment houses. In addition, advisors are always looking for investments to enhance yield and increase diversification and private market investments have a compelling proposition. As private banks are increasingly using such investments, independent financial advisors are having to play catch-up to compete,” he said. 

Globally, this is a large sector. The unit-linked insurance market was valued at $906.9 billion in 2023, and is estimated to reach $2,309.7 billion by 2032, growing at a compound annual rate of 10.9 per cent from 2024 to 2032. (Source: Allied Market Research, 9 October 2024.)

The intersection of wealth management and life insurance is considerable. In the case of Lombard International Assurance â€“ now part of Utmost – it is a prominent player in what is called private placement life insurance. PPLI policies, which come with tax advantages are linked to the performance of specific assets chosen by the policyholder, often managed by a regulated fund manager. PPLI tends to be used for functions such as preserving and transferring wealth, often across borders.

Insurance policies with a wealth management angle come in a variety of names. One potentially difficult area is understanding the limits as well as benefits of policies known as “wrappers.” With some wrappers, the investments held in a policy are no different in structure from a mutual fund, in which case any tax mitigation benefits might be lost or reduced.

Evergreens
There has been a rising level of activity around what are called evergreen, or perpetual, fund structures for the holding of private market investments. These are open-ended funds that offer monthly or quarterly liquidity, subject to caps. Advisors particularly like clients' ability to invest monthly rather than commit episodically based on private market fund closings – making the process smoother and more predictable. There aren’t the capital calls, drawdowns and specific exit points that come in a conventional closed-ended fund. 

The model has its benefits, but there are no free lunches in business.

“Evergreen funds are a game changer in the market, offering liquidity, albeit with restrictions such as maximum fund redemptions of 5 per cent a quarter and withdrawals paid out on a pro-rata basis. However, clearly this liquidity will impact returns as funds need to hold more liquidity than traditional private market funds,” Atkinson said 

Atkinson warmed to the theme of how insurance-linked approaches can be tax efficient. 

“Investments within the fund grow free of all income and capital gains tax,” he said. Assets benefit from gross roll-up. (As a caveat, he points that there may be a small amount of unrecoverable withholding tax.)  

“Clients can buy and sell assets within the structure with no immediate tax liability. Clients are in complete control over where and when they pay tax, and with the use of assignments, and by whom. In most countries, there are tax advantages on exit, and in several countries, there is no tax on policy gains,” he said. 

Another point, Atkinson said, is that in a world where capital is mobile and different jurisdictions’ rules vary, unit-linked life insurance solutions can remove a layer of complexity. 

Index-linked solutions are “recognised on a global basis, unlike trusts or family investment companies. They are highly portable and adaptable. In addition, they simplify succession planning as all the underlying assets are in one jurisdiction (where the policy is issued) and death benefits are paid out to the client’s nominated beneficiaries upon production of a death certificate. There are no probate issues,” he said. 

“We are seeing increasing adoption, on a global basis, as other traditional planning vehicles are seeing their advantages eroded. The most common retort from clients when they are told about such solutions is: 'why has no one told me this?’ The reason is a lack of knowledge, and at Utmost we are committed to educating the market,” he added.