Preston Ventures

ILLUMINATING THE FUTURE WITH THE PAST – RELEASING TRAPPED VALUE TO MAXIMIZE RETURN ON LIFE SETTLEMENTS

LIFE SETTLEMENTS OFFER TREMENDOUS VALUE IN TODAY’S LOW YIELD ENVIRONMENT. HELD TO MATURITY RETURNS ARE UNCORRELATED TO ECONOMIC CONDITIONS, AND THE ASSET CLASS CAN DELIVER MID-TEEN UNLEVERED RETURNS. HOWEVER, COMPLEXITIES ABOUND.

Today, multiple factors are driving fundamental changes in the life settlements market, including COI increases, LE inconsistencies, and confusion regarding mortality and morbidity. Across the industry, most portfolios are underperforming because original investor models failed to understand the dynamic nature of the asset. Some managers have intentionally taken advantage of the nuances of the asset class at investors’ expense. And service providers have slashed costs to the point that significant value is being trapped inside portfolios, risking permanent value destruction. In this environment, real opportunities exist, but management experience matters. Depth of experience and a well-informed understanding of the nuances of life settlements are required to uncover latent opportunities and mitigate unexpected risks.

Strategic Principles

There is a better way. And it’s one we can quantify. Since the industry’s beginning, and for over a decade, we’ve been one of the most active and consistent buyers and managers of life settlements– accumulating the data, building the experience, and developing the methodologies for solving the challenges of life settlements and unlocking their inherent value.

1.

Deeper Insights

The industry has a data problem, so we built a better database. We call it Life Edge™, a ground-breaking life settlements data set and analytics engine.

2.

Dynamic Asset Management

Each life insurance product is unique. Specific policy features can add value or create risks. As a result, assets require daily, policy-level management to maximize their return.

3.

Partnership

We have an attitude of ownership and pursue opportunities alongside our clientele like only an owner would.

ACHIEVING SUCCESS

ONE

Understand the real asset class risks. They are dynamic, and standard industry pricing models do not fully price in current and future risks.

TWO

An accurate and comprehensive data set, and the insight to know what the data is actually saying.

Primary Asset Risks

LONGEVITY RISK

Longevity, the risk that an insured outlives their forecasted maturity date, is the primary risk of life settlements. It’s no secret that the industry’s life expectancy (LE) reports have historically generated actual-to-expected results significantly below 100%. Even though LE providers have made multiple adjustments to their methodologies in the last decade, the industry still suffers from LE forecasts that in most cases are too aggressive, creating underperformance that reveals itself only after the investment is made.

Mortality underperformance is partially due to inconsistencies in the methodologies used by the LE companies, partially because managers and investors don’t use the LEs correctly, and partially because some important drivers of mortality are not health-related, and therefore are not captured in the LE companies’ process. Additionally, information asymmetry has been a pervasive problem, especially at the time a portfolio is originated (often buyers and sellers have differing sets of information). Finally, LEs are, by definition, averages and thus some assets will outperform and others will underperform. Because of these factors, additional information is required to gain predictability and a proper understanding of the range of outcomes that might be expected. Preston delivers this capability through Life Edge™ – its proprietary database and analytics engine.

Morbidity, the degree to which the health of an insured changes over time or remains static, is a hidden value factor that most ignore. One intuitively understands that declines in health would be predictive of future mortality, but incorporating this into a forecast of future performance can only be accomplished through accurate historical data and the experience to use it correctly. Life Edge™ shines light into the hidden recesses of a life settlements portfolio and offers investors the visibility and confidence to make informed decisions – at acquisition and every day thereafter.

Dynamic

Discipline and rigor to go deeper

simple

complex

OPPORTUNITIES AND RISKS ARE NEVER AS SIMPLE AS THEY APPEAR.  SIMPLE OR COMPLEX, LINEAR OR NON LINEAR, STATIC OR DYNAMIC ARE ALL CHARACTERISTICS THAT MUST BE UNDERSTOOD TO SUCCESSFULLY PREDICT A FUTURE RESULT. SUCCESS IN LIFE SETTLEMENT REQUIRES AN ACCURATE PREDICTION OF THE FUTURE.

COI RISKS

Investors have historically assumed COIs were fixed. Although this can be true for some policies if managed correctly, this is not the case for most life insurance policies. Since 2015, 30+ individual life insurance products have seen COI increases. Given the current interest rate environment and its impact on the profitability of insurance carriers, additional COI increases are inevitable. Preston has invested significant resources investigating COI increase drivers (there are over 600 individual life insurance products in Life Edge™ today) and that investment has revealed a range of specific carriers and products with a high likelihood of future increases.

Preston also has a highly-developed understanding of the COI vectors of each individual life insurance policy and how they impact future value. For example, certain policies have features that blunt or totally protect them against the impact of a shift in the longevity of the insured or the impact of a COI increase. With this information, Preston has developed a proprietary segmentation model which produces clarity about the “value elasticity” of each policy and how to actively manage the overall portfolio to protect it. This is all part of Dynamic Asset Management.

QUALITATIVE RISKS

In addition to these quantitative risks, life settlements present a set of unique qualitative risks that, if omitted or misunderstood, can negatively impact the expected value of certain life settlement assets. The risk of future litigation is a pertinent example. Some assets originated in specific states and/or originated in certain life settlements origination programs have a higher than average risk of litigation. In most cases, this fact does not mean the assets are not valuable; however, it is important to price them appropriately. With a proper understanding of the idiosyncratic risks of such assets, these policies can represent high risk-adjusted values in the market today.

Dynamic

Creativity and imagination to go further

linear

non-linear

FOR MORE THAN A DECADE, PRESTON HAS ASSEMBLED – ASSET BY ASSET, DEAL BY DEAL – A PROPRIETARY DATABASE AND ANALYTIC ENGINE. THE FUTURE OF ANALYTICS... INTRODUCING...

Passive management in life settlements is an incongruity. Premium costs are shifting. The longevity picture changes every day for each life in your portfolio. Market view of value is ever evolving. With each shift, change, or evolution, your investment committee and your investors will demand information and, more importantly, insight.

Preston’s unique approach is something we call Dynamic Asset Management. Policy features are often bespoke. As a result, the negative impact of cost increases or shifts in longevity may be muted with timely information and correct decision making. Expected results can be enhanced with the correct action at the right time.

Preston has proven itself as the largest asset manager in the industry. Our vantage point is unique. We know what our partners care about because we care about the same things.

Every day. Every asset. Every opportunity. Tirelessly.

Investment strategy and execution. Avoid investment and ramp-up risk.

Daily management by experienced executives who know how to enhance value while minimizing costs. Hands on management of carriers, servicers, insureds and third party service providers.

Operational procedures and strategies to avoid potential litigation; and, if necessary, litigation management to ensure success and minimize costs.

Bespoke, institutional-quality reporting, ad hoc analytics, and production of committee-level deliverables that equip and educate the deal team.

Expedited maturity claims management for enhanced IRR.

Treasury management and reporting to ease operational burdens and increase speed of distributions.

Reserve methodologies and liquidity management to avoid surprise cash needs.

Audit support and oversight, including market data for precise, consistent, and predictable values quarter to quarter.

Maintain confidence with servicer redundancy and data mirroring for real time servicing back-up.

So in everything we do, we act as true partners. Partners that manage the risk, manage the details, and look proactively into the future. Partners that want you to win.

Preston’s purpose is to maximize the return on your life settlement assets. We believe that returns can only be maximized when acting through partnerships with like-minded clientele.

The Preston partners hold material equity positions in this asset class, and we manage every investment as if we are the equity owner. Our approach to asset management is proactive and anticipatory: anticipating your needs, the needs of the investment committee, and the needs of limited partners like only an owner can.

Total commitment to maximizing returns on every policy, every day – in short, an attitude of ownership. It is the only way to extract the full value of this demanding asset class.

Our Beginning

THE PARTNERS HAVE BEEN ON AN ADVENTURE TOGETHER SINCE 1992. MEETING IN THE FALL AS SOPHOMORES AT WHEATON COLLEGE, JON NELSON AND JONATHAN HOGAN DECIDED TO MAKE THE LONG DRIVE TO JON’S HOME STATE OF SOUTH DAKOTA TO ENJOY A WEEKEND OF PHEASANT HUNTING AT THE NELSON FAMILY FARM.

Jon’s grandfather’s homestead is located just outside of Lake Preston, population 665. Jon grew up working on the farm in the summers, enjoying the lifestyle unique to a small rural community. Neighbors in this part of the country understood how dependent they were on each other and on the environment to survive. In this community, a premium was placed on honesty, neighbors supporting neighbors, a hard day’s work, and using resources wisely. At the farm, where resources were limited, the solution to any problem always called for ingenuity and entrepreneurship.

It was through their shared experiences in this environment that Jon and Jonathan became friends. With twelve-gauge’s in hand and scanning the horizon for pheasants, the two quickly realized that they both shared the same guiding principles that this small community valued above all else. Since then, they have owned several successful businesses together in a variety of asset classes. In a sale of one of those businesses the two came to know Jonathan Brooks. He also shared these same traditional values. Thus, the partnership naturally evolved with Brooks joining the endeavors moving forward. Today, the three Jons continue that partnership at Preston Ventures. Preston is a nod to that small town in South Dakota and pays homage to those principles that guide it – honesty, friendship, hard work, stewardship, ingenuity, and problem solving.

Jon Nelson

Chief Executive Officer and Senior Partner

“WE DON’T HAVE INVESTORS OR CLIENTS AT PRESTON VENTURES, WE HAVE PARTNERS. THIS IS A DEEPER COMMITMENT BECAUSE WE AREN’T JUST DELIVERING A SERVICE TO A COUNTER-PARTY, WE ARE DELIVERING A RESULT TO OUR PARTNER. IT’S AN ATTITUDE OF OWNERSHIP; PROVEN TIME AND AGAIN FOR OUR PARTNERS OVER THE LAST 12 YEARS”

As Chief Executive Officer, Mr. Jon Nelson oversees the strategic growth and development of Preston Ventures. For over 12 years he has been leading the creation and procurement of mortality-based financial products and services for institutional clientele in the life settlements industry.

Prior to founding Preston Ventures, Mr. Nelson was a principal in both North Group LLC and NorthStar Life Services and a co-owner of North Channel Bank GMBH, a group of companies acting in concert as a direct lender, investor and service provider to the life settlements industry. Preceding Mr. Nelson’s various roles as principal, Mr. Nelson held the position of Managing Director for Pacifica Group, LLC, where he established himself as a leader in the life settlements industry. In his role at Pacifica, Mr. Nelson was responsible for mergers, acquisitions, and sales within the company’s mortality-based investments division. During his tenure, Mr. Nelson led and completed the acquisition of the country’s third-largest reverse mortgage originator, launched a new corporate subsidiary within the equity conversion marketplace, and grew Pacifica’s core life-asset acquisition business from $50 million to more than $600 million per month.

Mr. Nelson began his executive career as the founder and CEO of LoanFirst Technologies, a multi-million dollar venture-backed technology firm, which was successfully acquired in 2001 by HSBC’s consumer auto division. Upon acquisition, Mr. Nelson acted as director of the company’s Strategic Alliances Group, where he grew loan originations from inception to $1 billion in originations per year. Upon his departure in 2004, Mr. Nelson’s division was responsible for more than $1.3 billion in assets across 42 states.

Mr. Nelson holds a BA in Business Administration from the University of Sioux Falls.

Jonathan Hogan

Executive Vice President and Partner

“THIS IS AN OPERATIONAL BUSINESS MASQUERADING AS AN ASSET CLASS. ONE CANNOT UNDERESTIMATE THE DYNAMIC NATURE OF WHAT IS HAPPENING EVERY DAY THROUGHOUT IN A PORTFOLIO, AND THE ASSET REQUIRES MANAGEMENT WHO IS WELL-VERSED IN THESE OPERATIONAL NUANCES AND IMMERSED IN THE DETAILS EVERY DAY”

As President, Chief Operating Officer and Partner, Mr. Jonathan Hogan oversees the day-to-day business operations of Preston Ventures, with integral involvement in both the firm’s life settlements and investment divisions.

Prior to co-founding Preston Ventures, Mr. Hogan was a principal in North Group, LLC. Mr. Hogan managed the firm’s overseas investments and was also responsible for structuring domestic and international life asset investment transactions for the firm and its clientele. During his tenure, Mr. Hogan spearheaded the successful completion of more than 30 unique life settlement transactions.

 

Preceding North Group, Mr. Hogan held various executive positions with such companies as Pacifica Group, LLC, Compass Bank (a wholly owned subsidiary of the nearly $800 billion BBVA conglomerate), and LoanFirst Technologies. Throughout his professional career, Mr. Hogan has developed a deep expertise in financial services, including financial products development, new product implementation, financial management, transaction structuring, and international life asset investments.

Mr. Hogan holds an MBA with honors from the University of Pennsylvania’s Wharton School of Business, as well as a joint BS in Mathematics and Theology from Wheaton College, where he graduated Cum Laude.

Jonathan Brooks

Executive Vice President and Partner

“THERE IS NO SUCH THING AS TOO MUCH ANALYSIS. HOWEVER THE PERFECT INFORMED DECISION MAY NOT BE AS RIGHT AS A GOOD DECISION IF IT IS MADE WITH PERFECT TIMING. LIFEEDGE COMBINED WITH OUR PHILOSOPHY OF TIRELESS ANTICIPATION ALLOWS US TO NOT ONLY DELIVER A COMPREHENSIVE ANALYSIS BUT ALSO DELIVER AT THE RIGHT MOMENT”

As Executive Vice President and Partner of Preston Ventures, Mr. Jonathan Brooks leads asset analytics and due diligence for the firm’s life settlements deal team. His responsibilities also include life settlements asset management and valuation.

Prior to joining Preston Ventures, Mr. Brooks was department head of analytical teams at North Group, Capital One Financial, HSBC, and multiple acquired start-ups. In his previous roles, including Chief Credit Officer, Director of Business Analysis, and Director of Risk, Mr. Brooks has been responsible for the management and/or acquisition of more than $13 billion in assets.

With a 18-year background in structured product analytics, Mr. Brooks has developed a variety of proprietary analytical tools, financial models, and simulation programs using Monte Carlo and statistical methodologies to meet the needs of institutional clientele. Mr. Brooks’ development resume also includes life asset swap transactions, longevity protection coverage on structured transactions, and retail investment products in the life asset arena.

Mr. Brooks holds an MBA from the University of California at San Diego and a BA in Economics from Vanderbilt University.

PRESTON VENTURE MEMBERSHIPS

Preston Ventures is a privately held asset management firm, which provides structuring, management, advisory, acquisition, disposition, and corporate finance services to investors – both institutions and family offices. Some of the world’s largest and most sophisticated investors and private equity clientele know us as proactive, data driven, and highly analytical.

The Preston Ventures partners raise and deploy institutional capital against opportunities where they can utilize their specialized market knowledge and expertise. The team boasts a history of success through a variety of economic environments, changing business cycle, and asset classes.

Preston Ventures is considered an industry leader in mortality-based financial products, including life settlements, reverse mortgages, mortality risk hedging instruments, and actuarial debt.

Our Theme
Images

Preston Ventures brings extensive data, advanced analytics and a dynamic owner mentality to what is a very complex industry.  In the office, we constantly talk about going deeper, pushing further and finding every opportunity to extract value from life settlements.

 

This spirit is captured in the imagery of divers and blue water that we use for our brand. And since we also live by the sea, we think It’s a perfect metaphor for who we are and how we do business.

Team
Preston Ventures

Jon Nelson

Chief Executive Officer

Jonathan Hogan

President Chief Operating Officer

Jonathan Brooks

Executive Vice President

Devyn Gulserian

Executive Assistant

Ryan Harrison

Vice President of Analytics

Jennifer Aukes

Senior Manager

Scott Soldan

Senior Analyst

Charles Amante

Controller

Jamie Anderson

Senior Manager

Khurram Tehseen

Vice President of Data Science

Beau Walker

Senior Data Scientist

Linda Fitzgerald

Senior Manager

Jacob Dodd

Data Science Developer

Steve Rivkin

Senior Data Scientist

Brittney Menagh

Administrative Assistant

Jenny Shoemaker

Staff Accountant

Ignacio Saldano

Senior Business Analyst

Aaron Cash

Head of Product

UNDERSTAND OUR INDUSTRY BY LOOKING AT THE PAST.

General Timeline
Industry gains in liquidity driving yields to mid-teens. Although volume in the secondary market is still sub $2b the tertiary industry continues to trade over $7-10b/ year of its available $90b of owned policies.
Risk Timeline
Multiple class action and direct lawsuits in a variety of jurisdiction are filed against Axa, Trans, Lincoln, and others for breach of contract and false advertising relating to their COI Increases.