research. As a reminder, if you'd like to ask any questions at the end of the session, you can email me at pdavitt@autonomous.com, ping me on Bloomberg, or there should be a link in your calendar request for a Q&A box in Slido. If you want to just put it in there, I'll get that on my screen as well. With that, it's my pleasure to welcome Abacus Management's Chairman and CEO, Jay Jackson. Jay, thanks for joining us this morning.
Yeah, excited. Thank you.
Perhaps to start, for investors that might not be as close to your story in this world, I think it'd be helpful to get a quick overview of what Life Settlements is, your position in that market, and why you think it's such a compelling asset class for investors.
Sure. Super interesting asset, and one thing to really take into consideration is where Abacus sits in this process is that, we're the origination company, the market maker of the asset. This is a highly regulated asset, where we're licensed in nearly every state that requires it. We're regulated by the state's insurance department. To source the asset, we typically source these from financial advisors, potentially their insurance agents, and/or the policyholder themselves. This is really just about an information campaign. It's really what it comes down to. We educate people that their life insurance policy is actually personal property, as set forth by the Supreme Court over 100 years ago. There's $14 trillion of life insurance assets in force today. 90% of those assets will not pay a claim.
Not because the insurance company has done anything nefarious, it's just that the way traditionally people have used their life insurance policy is that they use it for a certain amount of time, their kids age, their family grows up, they don't really need it anymore, and then they simply just return it back to the carrier by stop making payments. What Abacus does is steps into that process and says, "Wait a minute. It's personal property. What's the Net Present Value of that contract today?" I f you're 80 years old, you have $1 million life insurance policy you've been paying into, that Net Present Value could be as high as $300,000 or $400,000. We do that by helping them better understand how much more time they have in that contract.
That's the solve for NPV, and we aggregate their medical files, we receive their signed HIPAA. Through the medical files we use excessive amount of data to help establish what their mortality outcome most probabilistically looks like by actual mortalities that have occurred based upon the same medical profile that they have. So, in a nutshell, where Abacus sits in this is, you look at our flywheel, the core of this is that we're an origination and market maker company that also asset manages the business. We sell the data and technology. We capitalize on that through our Abacus Intel. Now we're taking that and moving that into private wealth and wealth management because we create so much wealth for our clients.
We'll pay out nearly $0.25 billion in new capital to people in retirement. How is that liquidity ultimately going to get allocated? We want to make sure that we can kind of monetize that into our own fee structure.
You talked a lot about how it is compelling for the investors selling you their life policies. How is it compelling for investors that are investing in your products securitizations as we think about it.
For sure.
Evolving to be more of a third-party business?
Absolutely. The institutional interest in this asset has really grown significantly over the last decade. In the last two or three years, it's really grown, and I would even argue the last year. We've seen some volatility in private credit type products. What makes this asset so unique are, here's three unique qualities. One is that it's typically, if this is a form of credit, it's issued by an A-rated carrier that has a default ratio of near zero over the last 100 years. You've got a very high credit-worthy type of counterparty here that has cash reserved regulatory against that contract. Now it's going, typically those contracts would trade at a much lower type of yield, but because there's some volatility around understanding the longevity of the contract, that volatility creates a higher yield profile.
In addition to that, creates a very little correlation, a very low correlation to the other markets. If you think about it, the example I just laid out, you have an 80-year-old who's going to sell his contract for, let's say, $300,000 or $400,000. Ultimately, every year this contract becomes more valuable. It's kind of like a mortality driven zero coupon. As you get closer to par, right, driven by the mortality, that's what drives your returns. Therefore, if you have market volatility, it's not subject to traditional interest rate volatility, bond volatility, or equity market volatility. Here you've got this kind of lower correlated or uncorrelated yielding products in the high to low single digits that is effectively an A-rated piece of paper.
The issue from institutional investors isn't the underlying investment. It's instead how do they get it? That's where Abacus sits, and we've been working really hard in building structured products to gain them access in a much more simplified format, like a securitization.
Great. That's helpful. So, you recently had a great Investor Day in July and kind of framed the story in a way that asked investors to stop viewing Abacus as a life settlement transactional business, a trading business. Instead, see it as infrastructure for, "lifespan-linked finance." What are the externally measurable milestones you are looking to, and we should be looking to, over the next one or two years that will prove that reframe?
For sure, because it is important to note, here is what we are not. We are not an insurance company. We do not issue policies. We are an alt asset manager. Traditionally, we had taken our tranche of assets, let us say our portfolio or our balance sheet, and sold those to third-party asset managers. It logically made sense to convert that into fee-related earnings through our own asset management. We have grown from $50 million AUM to over $3.5 billion AUM just in the last three years. That is the demand. Just in the last 12 months, almost $1.5 billion in new AUM has come into this asset, and specifically through us.
That reframing is happening actually in real time, and it wasn't something that we said, "Gosh, we hope this works out. This is what we're trying to do." It was based upon what was actually happening. When you think about the financial infrastructure that we're creating, one, we're creating financial infrastructure related to unique products like securitizations that I'm sure we'll talk more about. You've got an asset in high demand, right? There's several billion dollars trying to chase the asset, and they're just having a hard time getting it. Then the other piece that I don't want to underscore here that is super important is the data.
Think about the data I just collected on Mr. Jones, all of his medical files, his history, mortality history of everyone just like him, and then capitalizing on that longevity data to produce products that's usable in financial planning, one, right? If the number one fear is running out of money in retirement, shouldn't we think about addressing that fear by telling people how long they're going to be in retirement? We have the unique data set to support that.
Secondly, we currently sell or monetize a lot of that data to some of the largest pension funds in the United States. Some of our largest clients are literally the largest pension funds in the United States , who source our mortality data and soon to be some of our lifespan-based data so that they can enhance their outcomes. Our premise is, if I've just paid you $0.5 million for your life insurance policy, you should invest like the pension fund.
Stay in equities longer, be in alts, be able to utilize that because you can do that allocation based upon having the information of how long you're going to be there. The most important piece, how do we monetize? What does that monetization actually look like? We laid out a plan over the next five years to get to 70% fee-related earnings. That is not because we're going to see a decrease in origination. That's instead in addition to what we're currently doing. Our origination and market maker business grows at about 20% per year.
If we do nothing, we'll get pretty close to hitting our three-year target, even if we don't diversify all the revenue, right? We'll go from, I think, consensus is north of 150 this year and targeting 250 over the next three years or two years out. We'll get there alone just on that. If you think about what we're adding, right? We've seen a significant increase in AUM. We are monetizing our data already to now millions of people that we track mortalities for in pensions. When we think about the asset management piece on financial advisors, this is a tool that we're looking at monetizing in a way that we would charge a fee against all their assets just to have access to the tool. I'm not here to compete with RIAs.
I'm here to provide financial infrastructure for them so that they can help their clients make more informed investment decisions. Will we have internal RIA products? Have we made a minority allocation into Manning & Napier, which is a multi-billion dollar asset manager? Of course, we have, and we're going to launch that product directly onto their platform right away. However, we're also going to add this as a monetization product. Think about it, this should be available to trillions of dollars here. If you're making a single digit, 5+ basis points per dollar on that, you're doing really, really well on a trillion. I think that's the scale and scope we see here. I think that in the end, five years out, we've underestimated what we could be.
You kind of touched on my next question a little bit, this idea that you're moving to 70% recurring from 16% recurring now. Obviously, seeing a strong trajectory in the AUM growth. What is your definition of recurring, and how should we think about the balance of that 70% between asset wealth management, this new five kind of basis point per dollar you are talking about?
Sure. The way that I look at recurring revenue for us is not unlike any traditional alternative asset manager you see. Certainly, fee-related earnings related to management fees. One of the things, unique things that we also have, though, is servicing fees. If you think about securitization, we retain servicing fees, which has the same qualities as a management fee, right? It's the same type of annual fee that you're charging on those underlying assets that we're able to pick up because we have several different verticals within that same product line.
The other way that we look at it is that we just highlight it. If we think about the asset management fee for financial advisory, because we do have our own funds, we have ETFs that we'll be rolling out, we'll be able to acknowledge and pick up some of those fees there. Abacus Intel is a separate vehicle. What we typically do when we sign up clients there, those are three and five-year contracts. This isn't, oh, hey, it's a monthly contract on a per life basis. Yes, but these are three and five-year contracts. They graduate fee increases over time. The same thing will happen when we're providing this lifespan-based financial planning data to some of the largest RIAs in the country.
I can tell you where we haven't been able to officially announce the names of these firms yet, but we've already got two agreements done with financial firms. They are going to be using LifeARC, applying this, and more to come, right? We are receiving inquiries on a daily basis where large RIAs across the country, some of the largest out there, want to use this platform so that they can enhance their own clients' outcomes.
That would be the 5 basis points you're talking about? Or is that kind of estimated?
There are two ways to think about that. There is the 5 basis points where this is just their current clients, right?
Okay.
If you think about it, they have tens of billions in assets under management. That are going to now capitalize on this program. It will be like a scaling model. It might start lower and then scale back up. Then we generate so many new inquiries, leads, payouts we work with. In those cases, a little bit different, right? These are our clients. We will have an internal RIA team that will work with them specifically on how they can best meet those allocations. Potentially, as they graduate into maybe larger platforms, ultra high net worth. We have got some clients that have reached out to us that have north of $100 million of net worth that want to work with us on their allocation, capitalizing on lifespan-based financial planning where we have taken them through LifeARC, shown them how they can improve their outcomes.
Some of the $100 million are less concerned about their retirement income, and they are more concerned about their growth and how they allocate. Then how can they distribute that to the next generation? Then we are sitting down with their next generation and helping the next generation plan, because when you have an ultra-high net worth, you know what the next generation really wants to know? When they are going to inherit the wealth. This actually really helps them do this. Our campaign is normalizing that conversation. Because that is one issue, is getting people comfortable with the idea that says, "Hey, Mom and Dad are at 120 months." 120 months is effectively 10 years.
We tend to not talk in years, we tend to talk in months because it makes people understand how much time they really do have, which is a lot. Right? One of the first pieces of the campaign, I will be putting my number out. My number is 408 months. My gosh, if I make it, my family will probably be sick of me. But that is my target, and that is probably where I am going to land at. If I plan to that, I appreciate where I am at in my own process much better. Right? I appreciate time, I appreciate my investments, and I am going to focus on my health if I have a better understanding of what it is.
That is helpful. I imagine this is obviously a nice kind of Trojan horse into introducing your asset management products to these RIAs. Yeah.
Right. As we gain those contracts into those RIAs, naturally, we are asking them to take a look at distribution agreements for our own funds, including our interval fund.
Yep. All right. On that, let's move to some news the last couple of weeks. Got a nice proof of concept on the viability of Life Settlements as a more scaled institutional asset class with your closing of a $400 million securitization. I think that was 8x larger than the first one you did last year. How would you frame the makeup of the investor base there, the demand, the process of getting that out?
Sure.
Because I think it took a little bit longer than we were thinking. How should we think about it being a more consistent AUM contributor now that it is getting more scaled?
I think we had focused specifically on this, kind of what I would call our new distribution channel, the securitization channel. We had spent a lot of time trying to educate our shareholders and you on the impact this would have in a positive way. I think everyone appreciates and understands the impact this has on an institutional basis, right?
Right.
You have consistent capital. It is rated. It means that the access to institutions to be able to invest into the asset broadens who can invest and what part of their own investment book that they might invest through. Broadens it to pension funds, broadens it to insurance companies, broadens that investment pool to very large private asset managers. Where we had initial work through was with the rating agency, and without saying who it is, because it was a private deal, technically, it was one of the large rating agencies. It is almost like I can tell you who it was not.
It was not one of the smaller ones that has other issues. This was one of the larger rating agencies that does these deals on a regular basis. To get investment grade and better on the underlying asset was a true test to the structure of what this was. That took us almost seven months.
Yeah.
We had to run so many iterations of the underlying portfolio to provide comfort around extension risk. The extension risk was related to, ultimately, lifespan extension. How do you get comfortable with, you have a little bit of a moving target. We had to do things like improvements related to understanding what that extension risk was and having additional cash reserve there to ensure that there was a lot of comfort from both the rating agency and the investors. The result of that ultimately was a securitization that had some of the most well-known and largest investors that any of us would check a box. Some names you cover. So, it was those types of groups.
I figured, yeah.
Yeah. Also what I was very pleased with, large insurance companies came in. I mean the largest. Ultimately what happened was that this was an A, B tranche. They had an A tranche and a B tranche. Both tranches were rated investment grade or better, of course. What was really impressive to me, which really spoke to the structure and the demand, the securitization was 2X oversold. I mean, oversubscribed. We had to go back to those large asset managers, Patrick, you know this better than everyone, when you go back to them, t hey are not upset, but they are not happy. That, hey, we are cutting your allocation back.
Yeah.
But what a great story, right? We also upsized the deal because it was oversold, it was oversubscribed. We upsized, which was a pleasant surprise, and now we're preparing ultimately for the next one. I think our intent is to not flood the market. You want to flood the market, but our intent is to do this probably 3x a year, and we'll set some of those targets out on our Q3 call. But it's going to have a material impact to the amount of capital that we're raising. I think that if this should put us on track on a regular basis to be raising new capital between $800 million and $1 billion a year pretty consistently.
Yep.
Because size and scale here, yeah, they may not all be $400 million . Some might be slightly smaller in that range. But to have those level of institutional investors, they don't like to do really small deals. They need to know they have allocations on a go-forward basis. So, if we're looking at similar size, maybe some smaller, some larger, depending on the time of year, and then we're looking at doing three of those a year. You can quickly map out. The impact that this has, and as a cost of capital, it's only going to get better as you do more. The first one, you run a little skinny, and then the next ones, you just continually see that improvement as there's a lot more comfort in the market.
I assume you've done the heavy lifting with the rating agencies, so the time to market is quicker now.
Now we'd like to think it's rinse and repeat. You never know. You have certainly a map now of exactly the types of contracts that fit what types of shareholders, what they're going to want to see, and most importantly, the documents in the platform. That is now well-established, and that's why when we're looking on a go-forward basis, we're like, look, we would target doing another one in Q1 and kind of build through this, and I think we would feel pretty good about that.
How should we think about the economics for you? Is it just the management fee or are there other ancillary economics?
Yeah. I think the way to think about it, yes, there are some economics, certainly. Built in a couple of ways. One, certainly the servicing fees. We retain servicing on all the contracts. That looks and feels just like a management fee, so we will retain that, which is great. Whenever you do a securitization, you have some monetization of those economics, day one. But when you're doing your early securitizations, you're going to have less than you would maybe later, a year from now, right? You could expect when you're putting your selling policies into the securitization, you can retain some of those economics just on that sale, depending on where rates are at the time. But that's not your most significant piece while you do it.
This also frees up a lot of capital to go and buy more policies at traditional ROEs, right? That's kind of the way that we think about it. We're less concerned about those economics, but you do get a little bit of that. I would add that we kept 100% of the residual. There was a 15% resid on this. We kept 100% of that, which we are kind of over the moon about because we know the underlying economics of the policies, we know the tranche that was in there, and there is a lot of alignment with our fellow investors there. We are also excited about that piece.
Okay, great. I assume, because the last one was competitively, how defensible you think your mode is here. I do not think anybody else is doing this.
Yeah. It is very defensible in a couple of ways. You have to be able to source the right kinds of contracts, right? Traditionally, if you looked at these assets, they were originated for a very certain type of fund, a GPLP, five, 10-year product that might have had different yield mindsets. With us being the originator of the asset, we can originate new contracts that are designed to fall into that securitization. That's what is part of this mode, is that if not, when you look at a broader set of assets, let's just say you were to look at a large tranche that somebody else is selling to you may not have all the policies you need for a securitization.
We can manage that at origination and build into the balance sheet the exact types of policies that fit best into that securitization. That's why we're teed up to do another one, not that far out, right? Because we already know exactly what types of policies need to fit and all of our buying structures around that.
Okay.
That's just really hard to do for anyone else that doesn't have access to the contracts.
Right. You mentioned GPLP structures. Is there room to have a much bigger franchise there, or do you think the demand is moving in the securitization direction, and why or why not?
Yeah. I think what we will see is, I think it is a fair point, and we will see higher demand in the securitization because the numbers are so much bigger, right? I think we will see some of that. In the GPLP, from an economics basis, we do okay, but long term, we will do better in the securitization. Naturally a s a company, it makes more sense to do more securitizations. The last thing, what I think we'll see is more interest into the interval fund. Because it's just an easier access product. We're the only one out there that has this type of fund. It prices daily.
Yes, it's quarterly liquidity, but this is a product that, whether it's retail, more importantly, even pension funds and institutions truly understand. I think that over time here in the next year or two, we'll probably see more transition into an interval fund that was going to go into the GPLP because they have some liquidity. They'll sacrifice some yield for that, but I think investors are more comfortable to have liquidity against that yield.
Good. Well, you teed me up because that was my next question. You recently got approval after a long process with the SEC to launch the interval fund. I think it will be kind of the first high profile litmus test on retail demand for Life Settlements as an asset class, at least in the U.S. Can you update us on the plan for distribution of that fund? It sounds like you think there's institutional demand as well. To what extent you can update on the pipeline for new platform adoption and/or how initial uptake is tracking.
Yeah. We have been signing up RIAs as we speak. We have a few signed up already for distribution. The real step in any interval fund process is getting a custodian. It is not that we face a challenge there, but there is a process, right? Fidelity has a process of X amount of dollars and X amount of time. Schwab's is probably the most stringent process that is a year-long wait, regardless of who you are. I do not know. I think Apollo gets theirs on quicker, but whatever. We kind of have to work through the process.
To gain access there to RIAs, they typically trade or they hold their clients' assets on a Schwab or a Fidelity. That is really your initial step is saying, okay, I have gone through this huge thing. I am active. I am ready to go. We have launched this with our own capital. Now it is on Pershing as we speak today, and now we are working with platforms like Goldman and others to get that on there. Then once that is there and it is accessible to RIAs, where they can just write their single trade and just put the ticker in, that is where things really take off. We think in the next 60-90 days, we will have more feedback on those platforms. We are signing up RIAs who work on broadly, like Pershing and Goldman.
Then you will start to really see those assets kick up. I would say it is probably, even though you get approved, it is technically not approved, but you are activated by the SEC for your perspectives to put this out. You have got about a three-month process of building into custodians. We have already held our first board meeting. There is money in there now, and then you are working with RIAs who have access to some of the maybe different custodian platforms that aren't just Schwab and Fidelity.
Then you build into those, and that thing really takes off. Demand is really high. It's just making sure that demand meets access. People have to be able to access it in a really simple form.
That's very helpful color. All of this we're talking about, obviously, is contingent on your ability to source enough policies to fill the investor demand. We obviously see you on TV a lot, at least for those of us that watch the financial press. Firstly update us on how your efforts to educate advisors, investors on the value of their life policies, how that process is tracking.
For sure.
I'll start there. I have a follow-up.
Yeah. We have spent not just dollars in marketing, but that campaign pays off more than just a commercial on a calculator. We still receive 8,000- 10,000 inquiries per month from our marketing campaigns, traditionally, that you see, you're right, on commercials, digital, et cetera. We also started doing different campaigns where we're being very active on periodicals. Utilizing things like AI, so that when people are researching this through AI, we're very active within all the AI platforms so that people can learn and educate, and say, "Make that calculator available." Right? We've made it available on Anthropic. That's going to be that next stage, because you just have to remove the barriers to the education.
Right? Most people still today, and I say most, like 90%, just don't know. They recognize that this thing really does have value. The more education and the more broad we make this, the better, the more accessible we make it. Then expanding from there, that helps us drive this, what I call ancillary growth through our agent and advisor channel through national accounts. The largest firms out there that we all know, that might be financial advisory firms, RIAs, broker-dealers, we're now working with them directly at a national account level, and being, in some cases, the exclusive origination company to source these policies on their behalf. Here's where it's so fascinating, Patrick. You know what's getting me in the door? LifeARC.
Yep.
Lifespan-based financial planning gets us in the door, then we talk to them about, "Well, wait a minute, there's a dual opportunity here. We can help you source more life insurance policies that could potentially be sold that creates liquidity for your clients, and now you better understand what their lifespan is so that you can allocate those proceeds to your own clients. Utilizing our data and technology to gain access to these really large, massive investment firms who really control the largest piece of life insurance policies in relationship to the client we're seeing that happen in real time. When I think about expanding the pie, it's not just running more TV ads, it's the relationships we're able to capitalize on through our own data.
Wow. That's great. I guess longer term, you put some pretty punchy TAM numbers out there. How should we think about how much of that is really addressable when you think about what I think are stricter parameters than that whole market?
Sure. If we're really narrowing it down, I like to just start cutting things in half. If you take everyone over the age of 65, and you're saying, "Okay, how much of those policies are lapsing? Over the age of 65, it's about arguably between $230 billion and $250 billion a year. Well, let's just cut out those 65- 75, and let's just go 75 and older. That's going to take you about in half. That's going to take you from $230 billion down to $125 billion . Well, let's go a step further. Let's make sure they're the right type of policy we would want. That's going to take you down from $125 billion , cut it in half again. Cut it down to about $75 billion. By the way, that's annually.
Yep.
The whole industry does $3 billion. Even if I were to say aggressively, maybe we're not just 1% or 2% of what we think a potential market would be. We cut it down to what we think actually could happen. We're still at sub 5%, maybe 6% of what could happen. A lot of that has to do with people look at their life insurance policy and they just said, "Hey, that's just some asset that I'm going to let go away." They don't understand it's personal property.
The best way to access that is, yes, commercials that drive some things, but it's really their advisor. As we get more advisors bought into this premise that their life insurance policy is an asset, their lifespan is probably the most valuable asset they have, and we can accomplish two things: providing liquidity to their client and help them allocate those funds better by capitalizing on this data. That's what's really going to flip this switch. That's where I think you'll see us go from $1 billion capital deployed to $2 billion-$3 billion capital deployed. That was my big target. If you remember, when we first started talking, I think we were doing something like $300 million or $400 million capital deployed, and we were high-fiving and thought, "Man, that's really cool."
Now I've got very ambitious goals, right? Getting that north of $700 million I thought felt a long ways away two years ago. Now we're heading in that direction pretty quickly. I think that we've got a billion that could potentially happen too on capital deployed. I definitely think it's there. When I think about what we are doing is we are still being thoughtful and conservative around matching the capital to the origination. If you think about looking at our capital deployed numbers, it's not a stretch to then see where we did the securitization at. Because you're right, I can't come to market and not have paper. We're tracking that to where we are continuing to grow our origination at and making sure that we're meeting that.
Great. The center of this flywheel is your technology advantage, right? We touched on LifeARC a bit, a little less on MVerify. Could you quickly give us an overview of the technology business and what your competitive advantage is?
Sure. It is twofold. One is that we have a significant amount of historical data that we have HIPAA releases on, and that data is really hard to get without HIPAA. HIPAA is a very stringent laws, and that allows us to capitalize on that data and make our engine more intelligent. We do not put out any individual's information to someone else. That is not what happens. It is not shared that way. What we do is that we look at this in aggregate, and as an individual comes in, what we do is we say, "As an aggregate, this is how you compare to everyone else."
You can't run that comparison unless you have the underlying data, and it is this massive advantage. It's the type of thing that even, you look at major insurance companies, yes, they have a lot of medical files. What they don't have is the actual mortality data. Where they struggle is looking back at their population and saying, "What happened when someone turned 75?" Not when they underwrote them healthy at 55, but what do they look like today? They don't have that. Then comparing that, what happens to the actual mortality experience because of that?
We've decided to take this data and make it very accessible to everyone. The best way to do that was, yes, we are an AI-enabled. We've harnessed AI in a very positive way, and what I think AI's going to have a massive impact on is health. The first thing we do is that we allow people, first and foremost, we help them get their medical files. If you've ever dealt with a loved one that's gone to the hospital and you're trying to get their med files, it's a train wreck. It is so hard to do. Now, they can literally just say, "Here, log in. Here they are. Download them, get a summary." It'll all be on LifeARC for them, protected for them.
Thinking about access to that data and then improving someone's outcomes. If the first thing we're working on is improving their financial outcome, by understanding how long you're going to be in retirement, you can allocate more intelligently. By the way, Patrick, this is going to have a major impact on annuity sales, I think. If you're going to do an annuity where you've got $2 million, you want to earn 5% a year for the rest of your life, where I'm saying you can take down 8%-10% if you just remain allocated because now you know you're not going to run out of money, what do you need an annuity for? Right? It's a whole different take on that.
That data is going to have a massive impact on a trillion-dollar industry. Somebody teased me the other day, and they go, "This annuity company's just going to buy you and bury the data." I go, "Well, I don't know. Look, I guess that's good for shareholders." I guess we'll sort that when we get there. But that data advantage is what truly And where are you going to get that 20 years of data like Abacus has?
Yeah.
Now we've built the access to it, right? When firms come to us or when people come to us, we've made it easy. We've made it accessible. Applying that across the board, the next thing we'll do is we're going to partner with healthcare companies and say, "Hey, how can you improve your health options while you're in retirement? While you're extending your life, you can also improve your financial outcomes." The secret to this whole thing is it's not just a one and done, meaning we underwrite you once and this is what it looks like. We underwrite you every year, and that's all inclusive in the fee.
There's never a cost to somebody to come back to me the next year, which we will do, and we'll update their medical file, and we'll make sure they understand how their arc changes. It might go longer, right? Might improve their outcome. Great. This is how we update the allocation. That doesn't impact us in a negative way. If it ends up being shorter, great. We should sit down with your heirs and have a conversation what that means and how you're allocating to protect those assets maybe in a different way.
Yep. That's helpful. I think you did a pretty good job of explaining where LifeARC stands and where it's going. Sounds like we'll get some news on that soon. But the other side is in MVerify, which is tracking lives now, I think millions of lives now, but it's pretty small revenue impact. Do you expect this to be a more meaningful contributor earnings? Or is it more just support for the broader flywheel that we've been
Well, it is a little bit of both, but it is going to be more meaningful. Because MVerify is a function also of LifeARC, right? As we think about how that revenue is going to combine over time, they do go hand in hand a little bit. A couple updates. For those of you that saw my interview on Fox Business, on Mornings with Maria, I know since there's been some transition there, but I did a shout-out to Secretary Bessent, and his office replied. It was really cool, actually. Really amazing.
The MVerify program is going to grow, I think, significantly on the number of lives we track. We're going to start thinking about how we can work federally on this and help prevent Medicaid, Medicare fraud. Social Security Administration, we have calls scheduled with them. I can't say for sure how that's going to evolve, but it's certainly making progress. The way we think about the revenue there is, it's a step-up revenue over time. We sign three and five-year contracts that year one, initially, your revenue is lower.
You build into higher cost per year. You'll start to naturally see that revenue uptick just based on our current client base. You look at what's in the pipeline, and there's millions of additional lives. The program itself, one of the things that helped in that in the last bill that was passed through Congress, as they call the One Big Beautiful Bill Act, was that they're requiring states to be accountable to this data on mortality. We were already in the house when this happened, meaning that we're already working with these states. We're just expanding services.
Like for example, one of the largest states for all retirees in the entire country, we now do it for the entire state, not just one specific pension. We took on all the retirees within the state. The issues with the state isn't necessarily that they have issues with their state data. It's what happens when somebody who is a teacher in California moves to Florida. Right? How do you track that interstate data? Since we have this on a national scale basis, we're able to provide that. That business is going to continue to grow. It's going to be more meaningful, and the income's going to continue to step up over time.
Makes sense. I have a few more, but a reminder if you want to ask any questions, I have already gotten a couple through email, but there should be a link to Slido in your invite, and you can put your question in there. Let's touch on wealth management a bit. You mentioned the minority position in Manning & Napier. Just beyond the strategic access of having that relationship, what is the return profile of an investment like this? How is the path forward for building out a broader wealth management business from here?
It is twofold. First, what we would say are agreements that we already have in place allow us to provide resources to them to source insurance policies that we could potentially purchase from their clientele, which was a senior aging population. If we just are successful there, the minority investment will pay for itself in the near term. That is why this was such, for us, kind of a no-brainer, to gain that access. We get asked frequently like, "Why did not you just do that without having to make the investment?" You need a proper alignment with those firms at a very high level to get full access and to have those conversations with their clients. That is why we made that investment.
We also made the investment because we thought, "Gosh, we are going to create a lot of value for Manning on their AUM because we are going to provide all this new liquidity to their clients. They are going to invest that. You are going to see an increase in fees and an increase in revenue. It really made sense to us that if we're providing this additional revenue through additional AUM, why wouldn't we participate in that fee growth? Secondly is lead gen and certainly LifeARC. Being able to launch LifeARC on that platform gives us a lot of validation, kind of day one, as we sign up other firms.
How does that look going forward? I think that I'm less concerned about M&A on a go-forward basis around M&A acquiring and rolling up RIAs, as I am as more importantly providing financial infrastructure tools like LifeARC to all of them.
Right.
That's a much bigger play for me, and it makes a ton more sense. Then operating that lead gen that we can provide to firms. What we do know is that clients tend to like and work with people that are local to them. If we can partner with firms that are local and we generate a certain amount of leads from LifeARC or even our policy sale, our policy acquisitions or lead gen on the policies, we've now built a very coherent and cyclical relationship and alignment with that RIA, who is then going to do fees with us in relationship to, of course, our lead gen. We'll earn larger fees than just what we would on LifeARC across the board. It's truly this flywheel across all of our channels that impacts, right? We'll buy more policies because of Manning.
We'll increase our revenues and recurring revenues because of asset management, because they're going to look at these funds that potentially they would not have looked at before, but now these RIAs are really looking at things like our interval fund because they're talking about insurance and policies and how that works. Our Abacus Intel, our actual data and tech that they'll be using to enhance their own client outcomes. Manning is the first example of that, and we're seeing those economics play out in real time.
Helpful. You just authorized, or the board just authorized, a new $100 million repurchase program. I think, you have said in the past, M&A is a part of your growth plan. How should we think about how you are balancing the low stock price and the repurchase program versus growth opportunities you are seeing out there?
Yeah, I think we absolutely take this into consideration around M&A needs, debt, right? Balance that against what the stock repurchase plan was. I think for us, we wanted the market to be aware that we are very active buyers. We are going to capitalize our shareholders by buying back shares, and we are aligned with you. Going back to the board every two or three months seemed a little silly, so we said, "Look, we had done $80+ million in the prior few years. Let us just kind of make sure we have this in reserve so that we could execute on this where we find appropriate." And to give you some historical background, which I always think gives you some insight to where and how we buy.
Our historic acquisition price of shares is under $8 on the first $80+ million. It is pretty easy to see where we will be active. As you get pullbacks like this that you have seen. The math is always really simple to us. If we feel like we have got a greater ROE on the stock than we do on buying policies, we will buy the stock, right? We are very disciplined when it comes to that. We base that on this premise of, hey, if we think that we imagine the stock is some cases is 40% or 50% undervalued based upon where we should be pricing next to our peers, it makes a ton of sense to make sure that we are allocating to both those strategies.
If we are looking at an M&A transaction, when you have a stock price that is lower, it requires us to have even more discipline in that M&A. Because you cannot just use your stock as currency, right? You have got to make sure because you are going to over dilute, which means that if you over dilute, then you do not have your dilution per share as a negative number, and you cannot put that number out. It has got to be positive. You need a positive number on an EPS basis against what you are going to dilute in any M&A activity. Those two things are taken into consideration on the buyback. But more importantly, even when we do an M&A, it has got to make sure that it is non-dilutive to our shareholders.
Makes sense. In that vein, the stock recently took a leg down on the back of some founders announcing a 10b5-1 plan that has since been canceled. I think it feeds into a broader debate we have, like getting the stock more liquid would obviously help bring more investors into the fold, but tough to do it if the stock sells off like that every time you announce something. How are you thinking about the stock's liquidity as an impediment to broader ownership, what options can you explore after what happened this month?
They sold very few shares. That's what was really interesting about it. It was like, I think they sold like 75,000 shares or something. It was scheduled over time. They are retiring. They've been big believers in it, or remain massive believers in the stock. I think they were going to do something like 1% of their position. They were going to effectively leave 99% of their net worth in the company. We were all a little surprised at the reaction because we felt like, hey, this is a way to add some liquidity without punishing our shareholders, making sure that we're doing it in a very thoughtful way. That's what I love about being public. The market speaks. That's the way it went.
We said, "Okay, this is partly my fault. I need to do a better job of conveying this message to our shareholders that this is non-punitive, and we're trying to do this so we can put more shares out." I own that and accept responsibility for that, and I'll make sure that we convey that message in a very clean way on a go-forward basis. What we have decided to do to help alleviate this on a go-forward basis is that we're looking at instead with strategics that would be interested in buying that stock in a private block sale so that it's non-dilutive to any of our shareholders.
We don't want that. We don't want to give the impression that anyone is selling. We also want to leave the impression that, hey, if someone is buying the shares, it would be a strategic person who's in it for the long term and really send out that positive message to any of our shareholders over time. That's the process on a go-forward basis. We anticipate that we'll be able to get some more liquidity in the stock at some point in the near future, but we're definitely not going to do it at the detriment of our shareholders.
Yep. That is great to hear. I have one final conclusion question, but there are a couple from the audience. This one is fairly technical. I think I know the answer, but I will let you answer. Abacus disclosed the discount rate has moved from 21% to 10% over the last two years. Can you walk us through what changed in your underlying assumptions to justify that?
Sure. What is super interesting, first and foremost, on the discount rate that Abacus had produced, that was an output, not an input. The reason why that is so important is that that is just what asset managers are willing to pay for the underlying asset, and the discount rate is a result of that. If they are willing to pay more for the asset, the discount rate comes down. If they are willing to pay less for the asset, the discount rate goes up. We are not sitting in a back room setting that. I think broadly, if you just pick out two years, yeah, you could see a 21%- 10%. If you add eight months to that, so look at three years.
Look at the three-year number. It went from 12% up to 20%- 10%. What happened in interest rates over that same time period? Our CIO put out what I thought was a very impressive shareholder letter describing this. What we did is we overlaid interest rate volatility to how that discount rate moved. It is easy to pick 21%- 10%, but if you ignore the prior year when it was at 12%, all it was just a recycle back to where it was. That volatility for us, historically, we have seen this anywhere between 10% and 14% over the last 22 years.
What was really fascinating is that when it went up to 18%, 20%, we went to market with equity. Shareholders initially came at me a little bit. They are like, "Wait, why are you diluting me for equity to go buy policies at 20%?" This happened in Q4 of 2024, and I said, "Well, because look, I can buy these at such a great rate." Fast-forward to Q3 of 2025. Last year, our gross spread was 37%. We took a massive advantage of that rate move, and that is what we should be focused on. The way to think about our model, it is really cost plus. The thing to focus on is not the discount rate, it is actually our gross spread, which we put out every year, or excuse me, every single quarter of 20%, anywhere from 18%- 26%.
Cost plus, if you think about it is almost like when you see an increase in gas prices at the gas station. The assumption is that, oh, well, gas prices have gone up. The gas station did not make less money or more money, right? Just its costs went up. When you see that happen at where we are, because we are the origination company, we are able to adjust to those costs in real time. The resulting discount rate is just a result of where people are willing to buy the policies for. It does not impact how we buy, it does not impact our valuation methodology, it does not necessarily impact the underlying balance sheet. It is just where policies are transacting at that time.
Right. If you are turning the portfolio over twice a year, that is pretty good validation on that, right?
Right.
The other one's on, I think this might've been what you were hitting on the extension risk with the rating agencies, but how are you factoring in the impact on longevity from things like GLP-1s and AI? Because you mentioned AI as well as potentially extending our life.
Yeah. We're absolutely factoring it in. Remember, everyone we purchased isn't underwritten a decade ago. They're underwritten in real time in the last 24 months. You're taking a lot of these things into consideration. Specific to the GLP-1 factor is that, yeah, you can have an increase in, it looks like it could potentially reduce early onset dementia and Alzheimer's. It could obviously reduce his inflammation, can have an impact cardiovascular tasks, et cetera. But you know what else it does? It reduces your muscle mass and bone density. For seniors, this is an issue.
Let's look at the securitization, right? We took into account that we were improving mortality, meaning that people were getting healthier within the securitization automatically, which takes into account at a rate which was significantly higher than Social Security Administration or anybody else does. We were assuming the population's going to get healthier, but the average age in that population was 84 years old. Ultimately, what you see as an impact of new medical technology to someone in their 80s is going to be much less impactful than somebody in their 60s. I think the question really comes to, in 10 years from now, what's that population set going to look like? Yeah, it probably won't be 80-year-olds. It'll be 90-year-olds in the securitization.
Yep.
Right?
Got it.
We'll be able to reduce that in real time. We'll be able to make that adjustment in real time. Those are some of the things that you'll see, but we do take those into consideration on the securitization on all the stress testing now.
Great. To conclude, I have a higher level question. You framed the discussion around the idea at the Investor Day that your stock has the attributes of a "100 bagger. Which is obviously a statement that can pique a lot of interest for the people I talk to. Could you go through the key metrics that you think check the box on that 100 bagger journey and how you think that plays out in your mind?
I think that what makes 100 baggers unique is longevity in what they do. And very successful. They also control their own destiny, right? They are clearly in control of their underlying market, and then they are really, really good at building infrastructure. If you just look at those three things, right, we control our own destiny. We are an origination and market maker. Origination businesses, over time do really, really well, and we have been doing this for 24 years. Just because we have been public the last three, this is not a new idea. This is an infrastructure that has been built and improved upon for north of two decades. Then you start to look at how that infrastructure builds into much big broader solutions.
Abacus sits, the insurance industry is massive, right? $ 14 trillion, we have talked about that. But how this is now working into kind of cross relationships and how this flywheel is evolving in real time via financial infrastructure and gaining us access to real trillions of dollars here. Trillions. We talk about the wealth transfer, but this is really happening. Capitalizing on that data, that is what sets those 100 baggers apart. What set Amazon apart from everyone else was that they had the infrastructure, they had the tracks that no one else did. Ultimately, they capitalized on those tracks. We are doing the exact same thing, and it is happening in real time. That is why Matt Ankrum, who wrote that book, "100 Baggers," listed us as one of his companies because of that.
We have consistent earnings, we have great margins, we have all the typical financial attributes, but most importantly, we have the infrastructure. I'll leave you this one thought. I was presenting at the Milken Institute just recently and got to sit down with Michael Milken, and what Mike said to me was super interesting. He said, "You know, Jay, you remind me of way back when it was never an issue in the United States to have a bullet train just like Japan did. Right? The issue was the tracks. We don't have the tracks in the United States to support a bullet train, the infrastructure.
What separates your business, which gets him excited and everyone excited is that we already have the tracks. Now we're just putting the train on top.
Well, that's a great way to conclude things, Jay. That really helpful conversation, learned a lot. I hope everyone else did as well. Thanks a lot for your time.
Amazing. Thank you. Really appreciate it.
Take care.