Where Have All the Alternatives Gone?

At a time when traditional equity and fixed income investments are subject to an array of geopolitical and economic shocks, institutional investors, financial advisors, and their high-net-worth clients may be seeking a safe harbor in assets whose price movements and returns are independent of traditional markets. They will likely discover that truly uncorrelated assets are hard to come by.

Although the S&P 500 hit a record high in early August 2026, that followed a period of considerable volatility in June and July, including a sharp sell-off in AI-related and other tech stocks. At the same time, while bond yields have recently benefitted from elevated interest rates, the fixed-income market has been buffeted by economic crosswinds, including the Middle East conflict, the related impact on oil prices, and persistent inflation.

Until fairly recently, private credit was seen as an attractive alternative for investors looking to diversify away from the vagaries of the stock and bond markets. Private credit surged to more than $2 trillion in AUM as of the second quarter of 2026. But, the asset class has been under pressure since late 2025 due to borrower defaults and credit losses, initially caused by exposure to sectors such as automotive, food/beverage, and retail.

Subsequently, in early 2026, fears arose that agentic AI could disrupt software-as-a-service providers, triggering the “SaaSpocalypse,” which sent publicly-listed SaaS stocks plummeting and simultaneously raised concerns about private credit’s over-concentration in that sector. Redemption requests from investors in retail-focused private credit funds reached an all-time high in Q1 2026, causing a liquidity crisis as prominent fund managers responded by gating withdrawals – proving that private credit is more correlated to equities than many investors had once believed.

Growing Interest in an Uncorrelated Asset Class

As qualified investors seek alternatives to stocks, bonds and credit, a growing number are turning to life settlements in search of a historically stable asset class whose returns are actually uncorrelated with more traditional investments. A life settlement is a financial transaction whereby an investor acquires a life insurance policy from an insured person at a discount to face value. The sale of the policy unlocks liquidity for the seller, and is often part of their overall financial management strategy. The investor assumes responsibility for making premium payments and receives the death benefit upon the passing of the insured.

The annual volume of life settlements worldwide was estimated at $5.8 billion in 2025, and is projected to grow to $11.4 billion by 2034. According to the insurance industry investment management firm Conning, Inc., the average annual gross market potential for life settlements is $224 billion. Investors that have allocated capital to life settlements include pension plans, insurance companies, university endowments, foundations, sovereign wealth funds, family offices, and other qualified purchasers, such as ultra-high-net-worth individuals through their Registered Investment Advisors (RIAs). Reflecting the institutional acceptance of life settlements, investment management firms such as Apollo and Blackstone have invested in the asset class.

Investors are gravitating toward life settlements in large part due to the category having zero market correlation: returns are unaffected by stock market volatility, interest rates, or broader economic cycles. Portfolios of life settlements have historically delivered attractive returns; a 2026 Conning report, Unlocking Value: Insights into Life Settlements Investment Trends, noted that most investors surveyed (60%) are targeting returns from their life settlement portfolios ranging from 7% to 13%. In addition, the underlying payouts are considered to be highly secure, as death benefits are backed by reputable life insurance carriers. The life settlement industry is also considered to be well-regulated by 43 U.S. states and Puerto Rico, and by various European governments.

From “Niche” to Investment-Grade

For investors and RIAs who are new to this class, it is important to distinguish among the types of life settlement investments on offer. Life settlement structures can vary and include open-ended funds, closed-end funds, and other vehicles. Also, certain managers focus only on higher quality life settlements, acquiring larger policies and basing investment decisions on extensive due diligence supported by an in-depth analysis of actuarial data and policyholders’ medical records. When constructing a life settlement portfolio, it is important to select assets whose return, duration, risk, and other characteristics align closely with one’s investment goals.  

Life settlements are certainly not the only asset class that is uncorrelated with public markets. Investors can choose to allocate to a wide array of alternatives, such as real estate, precious metals, private equity, venture capital, and litigation finance, to name just a few, though each of these has a unique risk profile that should be carefully considered. That said, life settlements represent a formerly “niche” investment strategy that has evolved into an institutional-grade alternative, and one that is garnering increasing interest.

Disclaimer:

Past performance is no guarantee of future results. Investment returns are significantly influenced by mortality assumptions and actuarial analyses. There can be no assurance that the life expectancy, mortality trends, medical conditions, or other factors affecting policy performance will prove accurate. Small deviations from projected life expectancies may have a material adverse effect on returns. Life settlement investments are speculative and involve substantial risks, including the risk of loss of invested capital. The performance of life settlement investments depends largely on the accuracy of life expectancy estimates for insured individuals. Investments in life settlement contracts may experience extended holding periods, uncertain cash flows, and limited liquidity. Accordingly, such investments are suitable only for investors who can bear the economic risks associated with a long-term, illiquid investment.