Lombard International, whose parent company is Blackstone Group LP, is offering a new form of investment to ultra-rich clients: private-placement insurance plans, which offer nearly tax-free investments into elite hedge funds and other instruments.
Lombard is working with top-flight investment banks and encouraging them to offer their hedge fund products to its customers.
Of the $3 billion invested in 2017 in such funds, Lombard took the lion’s share. Super-rich clients like celebrities, sports superstars, top-flight executives and family-owned funds are lining up to take part in private-placement life insurance plans (PPLIs). Insurance funds have long been used to protect private wealth from legal action, and in the case of PPLIs, individuals are shielded from many forms of taxation, too.
Insurance funds are increasingly popular following changes to the tax code that came as part of President Trump’s reforms. Many deductions of long standing have been cancelled and wealthy individuals are searching for ways to compensate. PPLIs are only suitable for unusually rich individuals as the minimum investment is an eye-catching $2 millOther powerful firms like Prudential Financial and Zurich Insurance Group are offering these products and generating a surprising amount of business, totaling around $18 billion. With markets peaking and interest rates nearly frozen, PPLIs offer appealing returns. Investments that would normally be taxed as ordinary income are tax-free when offered under the aegis of a PPLI.
PPLIs offer great flexibility in terms of product selection, but stringent rules must be followed. Diversification is required and clients have no say in investment decisions – the fund managers alone call the shots. It’s important to understand that the money is no longer directly available to the investor, although loans can be taken on the amount invested without paying any extra tax.
Fears are growing that this golden goose may soon be cooked as it catches the eye of government regulators. But for now, PPLIs offer considerable benefits to those who can meet the investment hurdle.
Life Insurance and Wealthy Clients
For more information, please read:
Blackstone’s Tax-Free Hedge Fund Pitch Woos More Clients | ThinkAdvisor