Client Background: A high-net-worth, onshore US taxpayer with a keen interest in alternative lending emerging manager investments and PE secondaries approached Worth Venture Partners (WVP) with specific investment goals. The client desired exposure to high-yield opportunities within the lending space, as well as PE secondaries (GP & LP), but wanted to avoid the complexities of sourcing and conducting due diligence on managers. Moreover, they sought to enhance their returns by obtaining favorable tax treatment on the ordinary income produced by these alternative investments.
Challenge: The client was clear in their mandate: find new emerging managers with a strong pedigree capable of delivering the targeted minimum return of 8% without taking on too stock market exposure. Additionally, the client was attentive to the tax efficiency of his investments.
Solution: WVP proposed the utilization of Private Placement Life Insurance (PPLI) in a managed account structure. This approach not only sought to meet the minimum return target of 8% but also offered a structure conducive to favorable tax treatment upon the death of the client. WVP embarked on a meticulous process to identify opportunities within the emerging manager universe, with relatively low correlation to equity markets.
Execution: Launching PPLI within a Managed Account structure:
- The culmination of WVP's strategic planning and due diligence was the launch of PPLI within a managed account structure.
- This solution was tailored to the client's needs, providing a pathway to achieving the returns sought, while navigating the tax complexities associated with inheritance tax.
- The PPLI structure brought a range of tax benefits, including tax-deferred growth of investments and tax-free distribution upon death, aligning with the client's desire for tax efficiency.
Note: The tax, financial, and legal aspects of an investment in PPVAs, PPLIs or IDFs are complicated. Nothing herein is or should be misconstrued as legal or tax advice. This summary is included for general information only. Each person considering such an investment should consult with and rely solely upon its own tax, financial and legal advisors to understand fully the possible federal income and other tax consequences. Investment in alternatives, including hedge funds and private equity, can introduce increased risk of investment losses.
"The PPLI structure brought a range of tax benefits, including tax-deferred growth of investments and tax-free distribution, aligning perfectly with my desire for tax efficiency. By sourcing and vetting private markets and credit strategies, WVP was able to select a diversified portfolio that met my risk objectives and has, to date, well exceeded my expectations."