0:00

Hey everybody this Paul Borowsky from Sealy investment securities and welcome to the latest episode of the fat pitch Podcast. I'm joined as always by my co host Clint Sorenson. And today, I gotta tell you, we got a special guest, the guy that I've known for, I think about 20 years now but I haven't seen them person in seven or eight. J. Jackson from abacus life, the

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CEO of Parkland excited, man, you know, let's get this going. I just excited to tell you all what's basically catch up over the last 20 years to Paul, what lots going on.

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I like that.

0:37

We'll take a half everybody's time and play, you know, wander down the lane. And Clint, this is your first time meeting Jay, but I knew him before he climbed the ladder of success. And we're both out there, you know, shucking and jiving trying to sell annuities to folks in various parts of the country. So Clint, I think you'll be really excited about Jays expertise.

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And what abacus does.

1:01

Yeah, I'm excited, Jay, thanks for for joining us.

1:05

Yeah, so would you give us a little history of, you know, where you're at what you're doing. I know, you're in New York today. Whereas Yeah,

1:15

in New York today, and and this is the last meeting of the day, which is nice. But you know, Abacus life is a company that has historically been an originator, effectively an alternative asset origination company, sourcing something very specific, ie life insurance policies and acquiring these life insurance policies directly from the policyholders versus, you know, traditionally, if you were an investment fund, you might buy these from other investment funds or seek other kinds of vaults. And where abacus sits is truly kind of the heartbeat of this industry. We use current and updated longevity data and lifespan data to help people understand what the actual true value of their life insurance policy is. And it's a stunning statistic. But there's $13 trillion of life insurance and force of that 90% will never pay a claim. So nine out of 10 life insurance policies never pay a claim. And I think historically, people have looked at this option as something that says, oh, shoot, if my mom really needs it, or if somebody is really in a dire situation, then this is the time that they might consider selling their policy. But in fact, it's shifted significantly to where now we're working with some of the largest high net worth family office RAs, we purchased a $58 million life insurance policy last week. And full circle on this asset. Some of our biggest investment partners are in fact, the life insurance companies now. So you know, this is truly just become about education, teaching people that their life insurance policy, like any other asset they own is exactly that it's an asset. And because it's an asset, it has a value, and they shouldn't just simply give that value away for free.

2:48

That's important. Let me ask you a question. I think that a lot of our audience, particularly financial professionals, they kind of remember the early days of premium financing, Fiat vehicles, et cetera, and the like anything, The Good, the Bad, and The Ugly. Can you speak to kind of the growth or the institutionalization, I don't know, if I just made that word up of this.

3:13

Just make up that word. I use it often. So then we both made it up. But it's truly what's happened is I reflect back on where the regulatory was and where it is today. And I think that that maybe might help somebody who had looked at this asset 10 or 15 years ago, where there was just four or five states that actually regulated the transaction. And what I mean by regulated is an acquisition, meaning that you have a policyholder, he or she might be 80 years old, and they're considering lapsing that policy, because they don't need it. And that happens again, nearly 90% of the time, and they don't seek any other financial alternative, they just stopped paying the premiums. And in that circumstance, 15 years ago, it really wasn't a regulated transaction. And there might be an individual that might send some contracts and try to purchase that contract. The alternative to that to where we are today is that it's a highly regulated transaction. It's regulated in nearly every single state. And in addition to that, because of that regulation, institutional investment has really made a large significant play here. And now this industry has grown from kind of this boutique, very small, you know, some have joked and said, It's the Wild West and some other things back 15 years ago, regulatory has really helped cure that. And I think that's a testament to where we are as a company, right abacus life went public four weeks ago. And as a public company, now we're able to offer the transparency and legitimacy and regulatory that people might seek when they're looking for alternatives to consider when they're either going to lapse their policy for free or effectively when I say for free, they're going to just stop paying premiums and not receive anything for it. When on average, we're paying eight times that value, even above the cash value on that policy and when we're partnering with financial advisors and RAs and we've partnered with nearly 30,000 advisors Oh, For our history in conducting these transactions, what we're finding on average, for those that commit to having these discussions with their clients, we're seeing an increase of 20%.

5:10

And assets under management, because of the liquidity that we're providing some quick perspective, Abacus will pay out over $200 million this year 200 million, where's that going to go? Right. And when we send those checks out, most of the time, they're going to a brokerage account. And the Advisor may not even know about it, because for the most part, many advisors aren't doing the insurance part of their business or their book, they're farming that out to XYZ, insurance BGA, or our company. And I think that's a huge mistake, not necessarily to farm it out from the origination point, meaning that if somebody needs a life, a large life insurance policy, and they need that constructed, that makes sense. But my gosh, if you're going to try to understand someone's financial plan here, understanding what that value is, is super, super important. And we can give it to you instantly. Like we provide instant calculators to RAS so they can use it on their cell phone and quickly figure out oh, hey, this thing could be worth 100 grand. Wouldn't that be a useful information to give your client when you're doing your next annual review?

6:10

Yeah, Clint, as a, you know, Chief Investment Officer and strategist for a long time, how do you view this area?

6:18

Yeah, I mean, so two lenses, right? I think Jay nailed it on on one, which is, hey, if you're not having these conversations with clients, you're missing something really important as it relates to their balance sheet, right, there's liquidity that can be tapped.

6:28

That might be a more efficient method of liquidity than other areas. So that's on one hand, and I agree with Jay, when he said, Most advisors are outsourcing the insurance, which I think is not necessarily a this is a strong statement, not necessarily a breach of fiduciary duty. But it's I mean, you got to you got to have that conversation. It's not just about investments. And then the other side of it is as an investment vehicle, right?

6:52

Anytime you can be a liquidity provider where liquidity is needed, there typically is a spread. So Jay, I'd like to turn that to you and ask that question. Right, I think, I think that's what makes it intriguing to us is, hey, you're providing liquidity when liquidity is needed most in the lives of a lot of these clients.

7:08

And I think that is super important. And I think there's always a risk premium there for providing that liquidity. And I imagine that's what you're capitalizing on. So how does it work from that,

7:19

from an investor point of view, and you consider the investors that we're working with currently, and that's one of the things that I think that when we went public, our premise was, we're going to provide access to every investor who can get in and understand have access to this asset, right. And you can do it through Of course, investing, whether it's into our company or beyond that we have some customized asset management solutions that we can spend more time on. But from a nuts and bolts of this, what we typically do is we aggregate these policies in just like a fixed income desk, we would aggregate these induration tranches, and we package these and resell these to some of the largest private asset managers in the world. Our issue has always been why are we allowing KKR to come out and I have nothing against KKR. They're a client. But the point being is that then they're going to charge a two and 20 On top of that, and I always come back to me with well, why does KKR Why does Berkshire Hathaway, why do all of these really large well known private asset managers love this asset so much, let's just take a quick step into that. This is essentially an uncorrelated asset, because it's mortality driven. I compare it very similar to a mortality driven zero coupon. And you know, you're buying at a discount, except you have some, you have capital that you have to put back in, but you have an end date. And essentially, then who is your counterparty and your counterparty in this asset is the life insurance company and the life insurance companies typically a rated, but then consider where the assets, it's on their books, which is at the highest level of credit against them, meaning that one, there's never been a life insurance policy hasn't paid to claim. But most importantly, these are cash reserves at the carrier. And what I just said, they're super, super important, because as we start to think about how this assets evolving, what we're doing is, is it we're aggregating these assets, we're putting more on our balance sheet, we're working with Ras and we're saying Hey, guys, look, let's build customized investment solutions for you that are uncorrelated, that are double digit returns in yield, that have a phenomenal counterparty that are cash reserved. But the other piece that I don't think people have really thought about or discovered, it's also very liquid. And what I mean by that is, is that we can now take a tranche of these, that 510 20 3050 or $100 million, and we can sell these, effectively t plus one. So everything is held at a securities intermediary at Wells Fargo Wilmington Trust.

9:32

And in that process, I can now pick up the phone and call Apollo and do a $20 million trade with them. And to them, it's just it's it's an insurance like security is very much similar to a duration swap. My point to that is, is that as we build these custom asset management solutions, again that are uncorrelated with these great yields. In the past, you had to hold these and then ultimately wait for a mortality and that's how you earned your investment back. That's not what we do today. And I think, Clint, that's what you're touching on is that you know, the risk premium that we're able to capture as an originator, that's probably the most important piece of our story is, is it, we're an alternative asset originator, effectively the market maker. And we can construct these portfolios and make them very liquid. So as we're putting these together for investment solutions for, you know, RAS and financial advisors, we're an actively managed fund, we're not waiting on maturation to happen. Now, it's just a trade or a swap of risk and relationship to actual duration, that what's great about our trade is it as the originator, this is a trade about information asymmetry, but we have all the information. And so when we talk about access, now you're getting access at the same level as KKR, and others.

10:38

And we'll continue to kind of see how their solutions work, because we shouldn't just be trading to them right out of the gate, we should be putting them on our own books first.

10:45

That's a remarkably different story than 15 years ago, to your point and as somebody who has had in commercial real estate, and we are faced with the challenges right now this spike in interest rates and potential landmines in the economy. From my perspective, we always talk about an operator AND operator with good information, good liquidity, and control and deployment of that what I'm hearing is the same thing, but in a completely different,

11:14

right. Yeah, it is quickly moving towards the scalability of what we do in insurance. The issue for our industry isn't assets, right?

11:20

There are so many large asset managers that want to invest in this asset for all the things we just laid out. Right now that it has a liquidity quality, that's that's changed everything, it's sourcing the contracts. And that inherently has made our company pretty valuable. Being that we have a massive market share.

11:37

There's there's there's pretty high barriers to entry to do this. But then my point still comes back to the same thing when Well, then why would I do this for Blackstone or Paul or any of these other private asset managers? Why wouldn't we just build asset management solutions for RAs and, and we've actually started that process. The other thing that we have that is really, really valuable that I think that we're going to start offering to RAs, we have now years of longevity and lifespan data. And to give some perspective on how much clients are really interested in this.

12:10

So we do run television commercials to advertise to people so that they can start to get an idea of what their policy might be worth. Right. That's all we're trying to do is educate, we run on all the financial advisor channels. And I think it would be astonishing for your audience to learn how many people actually go through the very simple process of just giving us their name data, and the size of their policy, policy type, etc, age gender, and then we give an instant calculation for them. That totals around 8000 per month, and of which about 1500, qualify another 6500. Don't write it's a massive number. And what we do is in partnership with all of our financial advisors, the first question we ask is, hey, can we speak to your financial advisor?

12:51

Do you know who that is? Let's get in contact with them and let them know, I can't tell you how many calls I have personally made to these financial advisors. Because these aren't just 103 $100,000 contracts, we're talking about a $16 million contract. I called the financial advisors, there's none in and and I don't do that business. I remember from the old days, I'm like, well guess what your client does. And they're about to receive a $4 million check. So let's just think a little more closely about all of a sudden, I got a buddy, right? Hey, wait a minute, let's have a conversation. And it's funny, because I then went to him. And I said, you know, you may want to think about how you could use this life expectancy in their future financial planning, because I don't know how you're scheduling their financial plan or estate plan. But just so you know, they have this specific person has a five and a half year life expectancy, I wouldn't be doing planning to age 95 or fire you. Right? I would be looking at this client Much, much differently. And here's why I don't know if I'm comfortable bringing that up. And I'm like, let me just be very clear. I just did this with your client.

13:54

They are very comfortable having this conversation around lifespan. And they had no problem telling me every medication they've ever taken.

14:06

In fact, they enjoyed the conversation. And I think my point back to that was it was a kind of a lightbulb moment for us. And we said we're sitting on this massive treasure trove of lifespan data. And why wouldn't we start to apply that to financial planning, right?

14:19

Imagine using target solutions in relationship to the first calculation, all of us run Monte Carlo is on Hey, this is the probability of your portfolio.

14:28

How are we not incorporating duration into that? And I think that the reason why is there's an optic of fear that I'm not comfortable having a conversation about mortality with my client. And my response to that is you're not comfortable, your clients very comfortable. You need to let it go. Right? Yes, you have a long life and a lot to live for. No one's challenging your life expectancy. But having open dialogue around someone's lifespan and incorporating that in the financial plan, and quite frankly, measuring and discussing where the gaps are saying particularly with a couple it's Say, Hey, look, you know, we've even gone a step further where we actually pay for DNA. And in those DNA tests go, well, we'll get there quicker and me. And from there, we can then tell them whether they have the longevity gene or not. And in that longevity gene profile, we can say, hey, you have this longevity gene, which means you have a 50% greater probability of living beyond age 90, you should really rethink how you're thinking about long term care, you might have to move into self funding, because a lot of long term care is planned in at 90. So there's, there's a lot that we're, you know, kind of working through here. But I think as an industry,

15:35

I find that I can tell Clint is got a lot of things going through his head from a Chartered Financial and list the sort of market technician. He's a CMT, and he's a CIO, I mean, alphabet soup over there. I'm just about from adding value to the investor.

15:53

And the advisor, you're not just creating some compelling investment solutions, you're adding information, which can help somebody's overall practice and somebody's overall investment discipline. I mean, I had a joke, you know, we all joke, hey, I want the check to the more tissue I found, I want to spend every penny right when others want to leave a legacy and leave money to others. But gosh, to have some additional information to help an advisor plan and also produce additional assets for both the investor and the advisor. You know, Clint, what are your thoughts? And by the way, Jay, you look really good in the commercials I think sweater was on CNBC morning.

16:34

It's a real

16:41

I'm dominating the 75 year old female crowd, they got a big following.

16:49

Up in my ERP newsletter, I'm,

16:52

I'm quite a thing in that demographic.

16:57

What do you think about what do you think of? Well, I mean, look, I mean, I think the future of all financial advice is customized advice to the end client, right?

17:06

Whether it's personalized investment strategies, and I've heard Jay mentioned that several times customized investment strategies for the RA that meet the client where they are. But I think you hit on something that is just profound, right? I think I hate to be too grand in the statement, but I think this type of information is what can truly revolutionize financial planning at the individual level. So instead of somebody just run into constant Monte Carlo, they always run the same assumptions.

17:29

We know how assumptions work.

17:29

It's the old Mike Tyson comment, right? Everybody's got a plan until they get punched in the mouth. And I think all these assumptions just set you up to get punched in the mouth. And when you have actual data and accurate data, and you can predict, within, you know, a confidence interval where someone's life expectancy is going to be, I think that is profound for an advisor, being able to use that information to plan adequately for their clients. And I think that the advisors that embrace that are going to be the ones that really, really dominate going forward. So kudos to you for making that available. And we need to introduce him to Alexander at table data.

18:08

So there, we interviewed a guy, if you go back and look at it. First of all, he's from Philly, like me.

18:13

So he saw my equal mug when we were drinking coffee during the thing. This guy was so cerebral, he's way smarter than me. That's why plenty. He specializes in personalized data sets and creating people in pain, or health care. And it's fascinating stuff. You guys could really have an interesting conversation. But on the other side of things, you're delivering alpha two portfolios, you mentioned non correlated, you know, that's how we all got into this. That's what attracted me away from annuities and funds into real estate. Right now. You know, a lot of folks are just rolling over six month treasuries, grab them 5% afraid to do anything else, Clint can go on for two hours about the risk premium on equities right now. And how it's a fool's errand, how do you think about returns, you know, just on an investment level, we

19:11

I mean, it's very interesting, because we're nearly I hate to say you're 100% alpha and zero beta, but that's kind of where we lie. And, you know, the challenge in our industry has always been okay, that's great. But the returns were very lumpy, because you're waiting on this mortality experience to occur. And now that we trade, so we'll turn over like, you know, if we're running a portfolio, we'll typically trade 50 to 65% of that portfolio. So you have realized revenue and smoothed out those returns. So you know, in that though, your returns might not be mid teens or higher that you might see in a buy and hold book for seven years. But we look at it saying well, fair, but we're producing returns, and you might be in that 12 plus percent range. On an uncorrelated basis. I think that that puts us in pretty rarefied air, considering that it's realized. And you know, from our perspective, we have the infrastructure already in place.

20:00

To put this in, so we don't have very high overheads. So we don't need high management fees or costs for that. And so when we're structuring these, we tend to do things like 50 basis points or less and whether it's participation or not. I mean, that's not important to us. For us, we like to retain the asset to service because that's a good part of our business. Because again, I'm coming back and I love the data. And ultimately, what if you can't hear what's happening to our company, as is it, we're getting inquiries regularly on the data that we have and how that can be used in other asset classes. We actually took feel that a call from the NIH recently that is looking to help us help them predict the next impact of a pandemic, because all of our tables, a lot of life tables, life insurance, mortality tables are five, seven year look backs, ours update every Friday. And so you can actually see the shift on what happens with comorbidities and some of these things. And so I think, you know, one perfect example, if an RA is happens to be working with an endowment, like a college endowment, which a lot of RAS do, we're doing cash analysis studies for them.

20:58

So for example, if a college wants to put up a new building, we're looking at everyone, all of their donors, showing them what the cash flow projections would be based upon current lifespan numbers, and it's really easy to get that lifespan data from their current individuals, plus, it unlocks this treasure trove of information for that advisor who's advising that endowment so they get potentially unlock some additional clients for them.

21:19

That is,

21:21

that is huge. That's really

21:23

cool. That is really unique. And you think about that, that pool of donors out there that want to leave that legacy and helping that university. I like the fact that you said returns used to be lumpy as a it's great vernacular creates a great visual, but to smooth that out for fancy liquid

21:41

Paul and the liquid. So that's what kept a lot of people away from them.

21:43

Right?

21:45

Yeah, well think about your own look into some of this type of stuff. A while ago, yeah,

21:50

it's exciting. We're, you know, I meant what I said, when I think about where we are, you know, the industry has come a long ways. It has a long ways to go. A lot of its education based, but I like the positioning as to where we are now, particularly around this lifespan data front, you know, certainly our core business, our engine is acquiring life insurance policies, we think it's a great business, there's a massive, massive addressable market still to go, there's, you know, we look at it that we're capturing less than 1% of a $200 billion a year lapsing market over the age of 65. So, you know, we're not short on opportunity here in that business. It's just was fascinating to me, as we started to utilize this lifespan, knowledge in other areas, how applicable it was, and how we can also help our financial advisors and insurance agents hopefully make better financial decisions and other areas of their practice. And with that, I think it's helped go all back to what you said, Paul, of how people viewed our industry back 15 years ago, to how hopefully they hear this podcast, and they hear what we do today. And it's just a totally different mindset. And then they're starting to have these conversations with their clients. Because at the end of the day, I really want to get to that 200 billion that lapses, because if I don't, the insurance companies well. So that's the big kind of punchline for us, or the finish for us is that our biggest investors right now are knocking on our door insurance carriers who want to buy their policies back. And they're using us to do it. And and they're optimizing their books of business by increasing their laughs rate. So we buy it, and we laugh at it on their behalf. And then they have a massive cash reserves. So typically, it could be as high as 50%, depending on the age of the insured. And if we're buying it back at 45 cents, they've just made a five cent spread on their cash reserves. So it's just a kind of a really interesting play. But you know, what's going to end up happening is if that market continues to grow at that piece, our mark is going to get very, very large, which means that it's perfect for a custom solution that I do with Ras to say, Hey, listen, let's put together a fund here that we know that effectively we have a very good counterparty who wants to buy this asset. And we can package this up and much larger sets talk to reinsurers and carriers and it becomes this truly win I think it probably is going to evolve into is is a true insurance linked securities, but it's just longevity based.

24:01

I love it.

24:01

Let's, I mean, I love it. I just want to sum up the fat pitch the way I understand it, right? I mean, think about it, you're providing liquidity to an other eyes, what would have been an illiquid market. So you've solved that being the market maker and trading and turning over the portfolio, you've got asymmetry of information, which is just allowing you to make better decisions from an investment perspective and also as allowing you the ancillary benefit of supporting the advisors, right, the potential distribution channel, you're supporting them with ways to improve their business overall, which is a home run, and you've already got size and scale. So you're already working with the big players to kind of capitalize on that information and continue to put that back into the business and offer great solutions and a great need by providing liquidity where people need it. And you got the back of wind in your sales is demographics at the end of the day. So that's a bad pitch.

24:53

From a individual company perspective. Not the industry just went public. So congratulations. Um, that really creates legitimacy transparency, even more. So. So, you know, we named this the fat pitch because Ted Williams famously waited for the fat pitch, didn't swing it everything. And he does, I forget how many sections he designed the strike zone into.

25:17

And then Buffett came along and applied it to investing. So we'd love to expose the listeners of the podcast to different ideas to say, Hey, do you feel like this is a fat pitch? With that in mind? And that backdrop, are there a couple things that you as the CEO of a leading company would like to see more advances in your industry, or things that you have kind of set up there is more what are a couple of key things that you'd like to see your business grow?

25:44

The biggest, probably key area of growth that we'll see is utilizing this lifespan data in all areas. In fact, Abacus life is a company, our tagline is now know the value of your life. And it's a kind of fun play on words. But you know, life is more than just life insurance, right? It's everything that you have and utilizing lifespan. As a key component to that. I think it's a very hot topic you're hearing about people on related to longevity. And so you know, if people are thinking about whether it's our company, or where we're think that we're going to go, I think that's where we're all evolved to insurance will always be a major piece to what we do, because it's there's so much correlation to lifespan and mortality driven analysis. However, applying this to other financial assets, that's going to happen in the next year. And I think that that's one of the things we're probably most excited about.

26:34

That's fantastic.

26:34

What else Clint, anything else you want to cover with? Jay?

26:37

This is awesome. You've taken time out of New York City.

26:41

This is this is the most fun and best call I've had, like, you know, sitting with equity analysts and investment bankers all day for three days.

26:49

As you know, this is awesome.

26:52

Actually. This was a good time.

26:52

I've never met more people that speak in acronyms. Like I need an acronym diary to surmount our dictionary rather to understand

27:07

you and your army of CFAs can fall into that.

27:11

Yeah, we creep into space occasionally into the acronym rabbit holes.

27:17

Wall and these guys like I have no idea which he just

27:20

I literally owned it non today through an acronym and it was the first time I had heard it. And I just said, like, I was gonna tell you I'm not familiar with that acronym. Come find out they made it up. They were just messing with me. And, you know, yeah, which was good.

27:32

I guess. I guess I passed the test. I'm willing to admit that.

27:35

I don't know what I don't know.

27:37

Well, that's good.

27:38

Well, let's see J I messed up. I'm so excited for all the success and I think Clint and I are both really excited that we got to learn more and our audience gets to learn more and I have no doubt that there's some firms for instance, that I do a lot of work with that not be excited to tell them to go check out what you guys are doing. So how do people find abacus learn more about you, whether they're advisors and clients insurance holders, how do they first step

28:06

easiest step Abacus life.com. And if they want to learn anything that I've said from an investor point of view, we actually have an investor's tab and they can see any press release any securities data. You know, a particularly the advisors are Ken might be concerned about due diligence and their own compliance teams.

28:20

You know, I've got a 600 page proxy that is more than enough due diligence to get everyone comfortable. So all of that online, our calculators online, they can reach out to me or any one of our staff through abacus.

28:32

life.com. So, you know, again, we are so thankful for the opportunity to come and chat obviously catch up with you Paul and Clint, but share our story with your listeners.

28:40

Well, if you make your way back to Dallas anytime.

28:45

It's I don't know, back in Africa, even got married and did the whole listen, I'm going to be in Orlando so we can catch up there. Next. I enjoyed this thoroughly. Clint, thank you as always for being the smart guy on here.