The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Insurance Dedicated Funds

  • From Vol. 9 No.8 (Feb. 25, 2016)

    Insurance Products Provide Tax-Efficient Means for Investors to Access Hedge Funds

    Certain life insurance products permit policyholders to invest the cash values of their policies in various investment products, including hedge funds. A key benefit of those policies is that such investments can grow on an income tax-deferred or tax-free basis. Katten Muchin Rosenman recently hosted a panel discussion on the use of private placement life insurance (PPLI) and private placement variable annuities (PPVA) as tax-efficient investment vehicles for high net worth individuals. The program, entitled “Tax-Efficient New Products for Sophisticated Investors, Family Offices and Alternative Asset Managers,” featured Katten partners as well as representatives from insurance brokers, investment firms and a Big Four accounting firm. This article examines the key takeaways from the discussion. For more on PPLI and PPVA, see “Insurance Dedicated Funds Offer Hedge Fund Exposure Plus Tax, Underwriting and Asset Protection Advantages for Investors” (Jul. 18, 2013).

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  • From Vol. 7 No.41 (Oct. 30, 2014)

    Tax, Structuring, Compliance and Operating Challenges Raised by Hedge Funds Offered Exclusively to Insurance Companies

    Insurance dedicated funds (IDFs) are hedge funds offered exclusively to insurance companies and indirectly capitalized by the insurers’ life insurance or annuity policyholders.  For hedge fund managers, IDFs offer tax advantages, a niche marketing opportunity and a resilient investor base.  In connection with a Hedge Fund Association Symposium on the topic being held today in Fort Lauderdale, The Hedge Fund Law Report recently interviewed Greenberg Traurig shareholder Scott MacLeod on structuring, operational, tax, compliance, marketing and related considerations in connection with IDFs.  Specifically, MacLeod addressed salient tax considerations from the perspectives of investors, insurance companies and managers; hedge fund strategies that lend themselves to IDFs; relevant control and diversification requirements; redemption and liquidity issues; consequences of insurer insolvencies; material terms of governing documents; differences between IDFs and reinsurance vehicles launched by hedge fund managers; IDF platforms; private placement variable annuities; and compliance challenges specific to IDFs.  See also “Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part One of Two),” The Hedge Fund Law Report, Vol. 4, No. 11 (Apr. 1, 2011).

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  • From Vol. 6 No.28 (Jul. 18, 2013)

    Insurance Dedicated Funds Offer Hedge Fund Exposure Plus Tax, Underwriting and Asset Protection Advantages for Investors

    Variable universal life insurance enables policy purchasers to invest the cash values of their policies in different investment products.  A primary benefit of such policies (in addition to the insurance) is that the income the investments generate can grow tax-free, and the death benefit on the policy is not subject to income or capital gains tax.  Because those investments are considered securities, most offerings of variable life insurance are registered with federal and state securities regulators.  Private placement life insurance is variable life insurance that, as its name suggests, is only offered through private placements to sophisticated investors.  Purchasers of private placement life insurance can get exposure to hedge funds through funds known as “insurance dedicated funds” (IDFs).  Because these IDFs may provide tax benefits for investors, they present an opportunity for managers willing to organize such funds to raise capital from investors desiring tax-efficient strategies.  However, managers aiming to organize IDFs face some strategy and liquidity constraints and must be sensitive to other structuring considerations.  To help managers understand IDFs, Kleinberg, Kaplan, Wolff & Cohen, P.C. recently hosted a webinar that provided an overview of the structure of IDFs, their benefits to investors and the requirements for setting up IDFs and assuring favorable treatment.  This article summarizes the key take-aways from that discussion.

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  • From Vol. 4 No.12 (Apr. 11, 2011)

    Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part Two of Two)

    Variable insurance policies are an often utilized structure through which family offices and other high net worth investors invest in hedge funds and other private investment funds.  One of the primary advantages of investing in hedge funds and other private investment funds through variable insurance policies is the deferral of income taxes.  However, policy holders must first satisfy two important tests – the “diversification rules” and the “investor control” rules – in order for the policies to qualify for favorable income tax treatment.  This article is the second in a two-part series.  The first article in this series described the mechanics of investing in an insurance dedicated fund through variable insurance policies and offered a roadmap for satisfying the two tests to ensure the variable insurance policies maintain their tax-advantaged status.  See “Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part One of Two),” The Hedge Fund Law Report, Vol. 4, No. 11 (Apr. 1, 2011).  This article describes in detail a recent restructuring transaction in which the authors participated (the “Transaction”) and provides the key terms in the Transaction documents applicable to the diversification and investor control rules.

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  • From Vol. 4 No.11 (Apr. 1, 2011)

    Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part One of Two)

    Variable insurance policies are an often utilized structure through which family offices and other high net worth investors invest in hedge funds and other private investment funds.  One of the primary advantages of investing in hedge funds and other private investment funds through variable insurance policies is the deferral of income taxes.  However, policy holders must first satisfy two important tests – the “diversification rules” and the “investor control” rules – in order for the policies to qualify for favorable income tax treatment.  This article is the first in a two-part series of guest articles in the HFLR by James Schulwolf and Peter Bilfield, both Partners at Shipman & Goodwin LLP, and Lisa Zana, a Senior Associate at Shipman.  This article describes the mechanics of investing in an insurance dedicated fund through variable insurance policies and offers a roadmap for satisfying the two tests to ensure the variable insurance policies maintain their tax-advantaged status.  The second article in this series will describe in detail a recent restructuring transaction in which the authors participated and provide the key terms in the transaction documents applicable to the diversification and investor control rules.

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