Wrapping Hedge Fund & Credit Allocations in PPLI for Maximum Efficiency

For Michael, managing hedge funds and credit strategies came with a price: a crushing 40% tax rate that eroded returns year after year. The solution wasn’t changing his investments—it was changing where he held them. By wrapping his portfolio inside a PPLI contract, Michael found a way to let his capital grow tax-free, unlock retirement income later, and still deliver a lasting benefit for his family.

Andrew Perez

September 17, 2025

Client profile

Age

Occupation

Family Office CIO

Marital Status

Married, two children

Net Worth

$40M

Challenge

Michael managed a portfolio heavily weighted toward hedge funds and alternative credit strategies — both generating high ordinary income and short-term capital gains. His effective tax rate exceeded 40%, which was significantly reducing after-tax returns.

Solution

Structure: Individually owned PPLI contract
Premium: $8M single premium
Death Benefit:Minimum corridor death benefit (approx. $9M)
Investments: Hedge fund and private credit allocations inside the PPLI segregated account

Why It Worked

Eliminates annual tax drag on highly taxed strategies
Allows reallocation between managers without realizing gains
Creates a large, income-tax-free death benefit as a secondary benefit
Offers access to cash value later for tax-free retirement distributions

Outcome

After 20 years, Michael’s policy is projected to grow to $18M, entirely tax-free. Beginning at age 70, he can take $600,000 per year in tax-free policy loans for retirement, while maintaining a multi-million-dollar death benefit for his heirs.

This case study is based on hypothetical situations and is provided for illustrative purposes only. Outcomes vary based on individual circumstances.

Please note that there are significant regulatory considerations with PPLI due to the investor control doctrine as well as the diversification rule. Our team is here to help manage these complexities.