Every MBA student and most people who work in wealth management can tell you about modern portfolio theory. With a reasonable level of diversification into some 50 or so non-correlated assets, you can reduce your portfolio risk to be that of the market. Diversification, in short, allows investors to maximise returns for a given risk.

But what happens when we are in “long tail” moments like we are now? This rule becomes essentially meaningless. On 11 September 2001, all markets everywhere dived achieving a near perfect correlation of 1. Lately the price slumps in the markets have been seen not only in financials or resource stocks but also in traditionally defensive stocks such as tobacco companies and across markets as a whole.

Is there any asset class that is not correlated in these troubled times? According to some people, there is. It will not light a fire under your portfolio and will never dazzle, but these days single digit stable growth looks appealing. The asset class is life settlements. Historically this sector returns about 6 – 8 per cent per annum and rarely sees a significant fall in returns.

What about those who feel that it is unethical to profit from successful predictions of peoples’ deaths? Well, there is now a synthetic market in life policies which avoids the need to pay premiums whilst also avoiding the concept of benefiting from any individual’s demise. A study by the Cass School of Management in London and the UK’s Pensions Institute published in July of this year, concluded that there is no difference between relying on the statistical predictions of death rates for this type of investment and calculating that for the purposes of writing the policy on an individual in the first place.

More and more institutional investors and hedge funds are investing in the sector (which may increase the risk as it grows with little formal regulation). Is it time for private bankers to be suggesting this to their clients?

Some people clearly think so. Simon Mansell of Mansell Partners, a UK-based financial consulting firm, is one. “It is not for a large percentage of a portfolio, but for diversification of risk using an asset that remains diversified even in long tail moments,” he says. Just so long as the insurance industry does not collapse, he may have a point.

Mr Mansell has worked with Credit Suisse to create a 7-year capital protected structured product linking 200 synthetic life policies with a capped return or 100 per cent profit. He thinks that the time is ripe for this pedestrian investment concept which, he believes, is the first of its kind. It is accessed through an Isle of Man Protected Cell Company.

“Given the uncertainty of the markets we believe that there is significant potential for this investment product,” Mr Mansell says.

Well, with banks proving to be only as safe as houses, the famous quotation from Benjamin Franklin comes to mind – “In this world nothing can be said to be certain, except death and taxes.” Maybe wealth managers should remember that.