The Case for Unconstrained Income

The Case for Unconstrained Income

Mike Kiley, President and CEO of Chamberlain Group, speaks at the International Wealth Management Forum (targeting single and multi-family offices) to discuss the case for unconstrained income.

Even the ultra-affluent are scrambling to find yield in this persistent low interest rate environment. The key, according to Mike Kiley, is not to overreact and take on too much risk. We thought it would be helpful to share the highlights of his presentation, which are summarized below.


With interest rates at historic lows in the US and negative in many countries around the world, investors are either abandoning traditional fixed income or utilizing alternative and more tax efficient options.  This presentation will provide a current examination of the styles listed, as well as an in-depth look at how to combine each with the tax efficiency of private placement variable annuities and private placement variable life. 

·         Distressed Debt – Weak global growth and financial institution de-leveraging has created distressed debt investment opportunities in northern Europe and in the US energy market. If investors are willing to deal with illiquidity they should be rewarded with strong returns in this area of the market.

·         Mezzanine Debt and Direct Lending – Since the great recession, banks have been unwilling to be competitive in the small to middle market private company lending space and the real estate market lending space, creating an opportunity for nontraditional lenders. This has caused spreads to widen on these types of loans and lending standards to become more stringent. That in turn has pushed yields out to anywhere from 7% to 12%.

·         High Yield Bonds – The high yield bond market has been volatile over the last year and reduced liquidity has only added to its fickleness. This is creating opportunities within the high yield market to capture capital appreciation along with an attractive yield. Currently yields in the high yield space are in the 7% range.

·         Master Limited Partnerships – MLP’s have traded down significantly over the last 24 months as the price of oil has declined dramatically. MLP’s are backed by hard assets (usually pipelines and transportation equipment) and are not as highly correlated to commodities prices as typical energy companies. MLP’s are currently yielding around 7% but offer upside as well if commodity prices rebound.

·         Private Placement Variable Annuities and Life Insurance - For affluent investors it is really about what they walk away with, not necessarily how much they earn. A great performing investment can become very mediocre once taxes are taken into account. This is sometimes the case with the hedge funds. While some hedge funds might produce stellar returns, their investment strategy may be very tax inefficient, resulting in less than stellar results once that money reaches the investor’s pocket. There are, however, ways of mitigating the tax bite from a variety of different types of investments. In the case of hedge funds, for example, a highly effective way to mitigate taxes is to use private placement life insurance (often referred to by its initials: PPLI). “For over two decades, one of the best-kept secrets in tax planning has been private placement life insurance, which makes it possible for a hedge fund investor to capture returns tax-free. A tremendous appeal of private placement life insurance is that the investment options can be tailored to a high-end client’s needs and the cost of insurance per dollar of coverage is much reduced.” (Edward A. Renn, Private Client Department of Withers Bergman)

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