The Power of Non-Correlated Assets

October 2014

In last week’s Wall Street Journal, an article entitled “Misery Widespread at Hedge Funds” discusses what it calls a “bloodbath” in the stock market and the losses that hedge funds have endured as a result. The article sites all sorts of reasons for the losses, and states that the losses are the worst since 2011.

This underscores the power of non-correlated assets. Life Settlements do not react to global issues, the Fed’s buying of bonds or fundamentals of large S&P companies. Rather, this asset class’ returns are based on mortality.

While many investors will continue to have exposure to the broader equity markets in their portfolios, we believe it is important to have a portion of one’s asset allocation invested in assets that will not react in unison with the markets. While it is easy to forget such diversification techniques when the stock market is having a strong year, months like this past one remind us of the power of alternative assets.

In fact, in an article last Friday, authors specifically discuss that the volatility in the stock market could come “roaring back”, and urge investors to keep some money in “hedge funds whose performance isn’t linked to the stock market’s direction”.

Dan Young is Vice President of Portfolio Management at Vida Capital and an adjunct professor at the University of Texas Law School. Vida Capital is a vertically integrated asset management company with more than $250 million in assets under management, and the majority of the firm’s backing is provided by Austin Ventures, a $4 billion private equity firm based in Austin, Texas. Vida specializes in the structuring, servicing, financing and management of life settlement assets, asset-backed securities, and customized portfolios. Vida is a board member of the Institutional Longevity Markets Association, the institutional trade group for the asset class founded by Credit Suisse and others.