Nov 25, 2008

Uncommon investment structures: tontine

I spotted news of Tontine Associates, a Connecticut hedge fund that is down +65% this year. But what's a tontine? Apparently, it's an investment vehicle which combines features of a group annuity, group life insurance, and a lottery. Each investor buys a share, and the funds are then invested, which pay dividends. As the investors die, the shares are redistributed among the surviving members until the last one collects the principal. Turns out this is no longer widely used because:
  • People realized they could sign children up for it early and collect dividends for much longer than expected. A similar problem has been encountered by defined-benefit pensions as average lifespans have increased substantially.
  • Investors were incentivized for killing each other to bolster their own share
To some extent, this structure still exists today in the form of joint tenancy with rights of survivorship. You might also remember an episode of the Simpsons involving Grandpa Simpson and treasures from WWII that featured a tontine.

1 comment:

Addison Conroy said...

Je suis sur le point de vous parler de tontine ? Je ai vraiment , vraiment aime tontine . Si beaucoup a été écrit sur son influence sur la vie contemporaine , il est impossible de surestimer son impact sur la pensée moderne . Depuis qu'il a été comparé à anticonstitutionnellement beaucoup a été dit concernant la tontine par des entreprises commerciales mondiales , qui forment le dernier grand espoir pour notre civilzation . À la lumière de ce que je vais briser les questions afin de donner à chacun d'entre eux la pensée qu'ils méritent pleinement