Private placement life insurance's role as a wealth protector comes under scrutiny.

Media noise is rising around a wealth management area that hasn’t been making big headlines: private placement life insurance (PPLI).

PPLI hasn’t been a prominent wealth protection/risk mitigation tool but the benefits of it are starting to gain attention, not all of it entirely flattering.

An article in Bloomberg (29 May) is headlined: “Blackstone's Tax-Free Hedge Fund Pitch Woos Even More Clients.” The Blackstone group’s connection is that it owns Lombard International, a US/Luxembourg business, with headquarters in those countries, providing PPLI. The article reads: “Blackstone Group LP has an enticing pitch for the ultra wealthy: Invest in hedge funds and avoid paying taxes forever. The private equity firm’s Lombard International is leading the charge to promote exclusive insurance vehicles that can contain hedge fund investments. Lombard is urging hedge funds to sign on and working with private banks such as JPMorgan Chase & Co. and Bank of New York Mellon Corp. to market the investments to their rich customers.”

The article went on to say that a spokesperson for Blackstone declined to comment. The firm also declined to comment when contacted by this news service yesterday.

PPLI comes with a number of restrictions, such as how investors cannot control what a manager does with his/her money, and PPLI holdings must be diversified – not all put in emerging equities or a single hedge fund, for example.

The news service said that last year Bernstein Private Wealth Management created diversified portfolios designed for use in PPLIs, which include hedge funds, middle-market lending, securitised mortgage funds, and stocks and bonds. The report added that the “tricky part with these investments is that they’re frequently taxed as ordinary income with marginal rates that approach 50 per cent in high-tax US states. Inside a PPLI, they aren’t taxed at all”.

Lombard has written about PPLI in these pages

Other firms operating in the PPLI space include Swiss Life, Cohn Financial Group and Vie.