View more on these topics

EEA slams “reckless” FSA over life settlements

EEA Fund Management has hit out at the FSA after the regulator described traded life policies as “high risk, toxic products”.

In a written response to the regulator, EEA says the use of the term “toxic” in relation to traded life policy investments as an asset class “is without merit and reckless”.

In the letter signed by chairman Simon Shaw, the firm claimed the word “toxic” implied the products were harmful to investors.



It also objected to the word “Ponzi”, which was “commonly understood as being fraudulent” and “highly damaging, will undermine market confidence and potentially lead to consumer detriment”.



The firm agreed that traded life policies should not be mass marketed to retail investors. However, it did believe the products are suitable for some retail investors, such as sophisticated investors and “certain high net worth individuals”.

The firm claims other investments investing in alternative assets could be as risky as traded life policies, adding that any ban or sale would deny sophisticated investors an “opportunity to diversify risk where this is suitable”.

The company says it did not believe there was “any sound basis” for the regulator to treat the fund any differently to any other unregulated collective investment scheme.

EEA says the FSA could have taken other measures to ensure IFAs do not recommend the investments to mass market retail investors, by increasing the minimum investment level, introducing a limit to the percentage of a total portfolio, or limiting the level of fees paid to advisers.

EEA Fund Management is the marketing agent for the EEA Life Settlements fund.

The fund was forced to suspend redemptions at the end of November after receiving large numbers of redemption requests from advisers and institutional investors.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. fair play to EEA standing up to the FSA but I fear they will get bullied into submission over this & severe consequences will follow. Does anyone out there still recommend offshore funds anymore?

  2. i wouldn’t want to be in EEA’s shoes if it is found out that their products ended up in the hands of retail investors. the big TCF dog will come calling.

  3. I agree with anonymous and the EEA are very bold to contest the FSA who appear to be a law unto themselves.

  4. The FSA are supposed to protect the interests of the consumer. I gather that the government came within a gnat’s crotchet of closing down the entire NHS on the news that Harold Shipman had been convicted

  5. The FSA are supposed to protect the consumer but their history demonstrates that they are most successful at empire building, self preservation and spending other people’s money.

  6. there is no doubt FSA’s approach has harmed investors, should have really gone about it another way. Hope they learn from that.

  7. It is a pity that a professional body such as the FSA cannot just stick to the facts but feel the need to resort to producing media soundbites which are totally inapropriate. Best of luck EEA, but don’t expect an apology whatever the outcome!

  8. What I can’t understand is how ‘Rosa Klebb’ Coles has kept her job after meddling in the market place so perniciously.
    She recklessly put the poisoned boot into the sector, which seems to be dying on its feet.
    I’m sure she’ll be in line for another fat bonus. (No doubt ‘Spectre’ will be pleased with their disciple)

  9. Of course the EEA life settlement fund was marketed to retail investors. Why were EEA so keen to cosy up to the compliance support organisations? The beauty, of course of fund management is that its the IFA who kops for the firing squad when things go wrong!

  10. I would love to know how the FSA’s use of such language instills market confidence?

  11. I’ve never advised any client to invest in funds of this type, not least because our network made clear that they aren’t approved. That having said, it would be interesting to see some clear data showing the track records of a representatively broad sample of such funds. Some of them may be very good, notwithstanding that by their very nature they may be high risk.

    If the FSA is going to make dramatic and damning statements of this type, it would be interesting to know on what basis. Did it, in time-honoured fashion, commission at vast expense some outside organisation to undertake a rigorous examination of this particular investment medium? Or did one of its own internal teams conduct its own analysis and decide that all life settlements funds are high risk and toxic? How much data did the team gather? How long did they spend on the task? How comprehensive was the team’s report? Was input sought from the likes of EEA Fund Management who, one may presume, has a pretty good idea as to just what these types of funds are all about?

    On the basis of broadcasting its opinion that all life settlement funds are high risk and toxic, the few possibly good ones might end up being flushed away along with those that genuinely should be avoided. Perhaps, if I can be bothered, I’ll have a trawl round the fsa.gov.uk site to see what I can find.

  12. The $64 million is WHY. Why have the regulators, here and abroad annihilated an asset class for retail customers? Who exactly is now buying the billions of dollars worth of life settlements every year? My bet is Hedge Funds and Banks. I believe EEA worked on a 14% IRR, I also believe that only a tiny % of maturities did not make those returns and more.

    The ONLY way to make the FSA listen and take responsibility for their actions is to take legal action against the people themselves NOT the organisation

  13. This is worth a read: http://www.fsa.gov.uk/pages/library/communication/speeches/2010/0224_ps.shtml, even if it doesn’t specify the data on which it was based.

  14. The good news is that clients shouldn’t be losing any money here…unless of course EEA’s valuations have been stretching the truth a little. Based on the absurdley steady performance they reported and the huge management fees, it’s not unrealistic for the FSA to have had some concerns. The fund is non-UK domiciled and not regulated by the FSA, so to protect UK investors, they spent over a year highlighting their concerns over Life Settlement funds. I’m not sure what else they were supposed to do.
    I’m sure EEA won’t have any problem dealing with redemptions, they just sell the assets at the value they’ve been showing.
    One of the defining features of a Ponzi scheme is that it relies on new investments to pay out people withdrawing money. I’m sure EEA will be able to demonstrate clearly that they can repay investors without relying on new money. In fact, I can’t see why they have suspended dealing, unless they’ve been valuing illiquid assets at more than their worth to generate huge fees.

  15. Clive Moore is always making snide little comments about this fund. I am not suggesting that there is no basis for his spiteful comments, but perhaps he could post some convincing evidence to support them, rather than his constant tedious innuendo.

  16. It is important for any advisers who have any involvement with this issue present a united front in relation to the FSA’s outrageous action.

    It is of crucial importance that the Treasury Select Committee, MPs, IFA groups, the media, whoever is made aware of the situation and the FSA is forced to be accoutnable.

    The EEA stance is one which helps and I will be raising the issue with any relevant party who could provide support and influence.

    Ian Coley
    Partner
    Medical Investment Services

  17. In response to anonymous, I suggest a quick read of the EEA factsheet which is evidence enough of the steady performance and high fee structure. 75% performance fee on growth above 8% means if investors get 9%p.a., the performance fee must be 3%p.a. – on top of the 1.5% annual management fee. When half the performance fee goes to the people who value the policies (the investment adviser – it’s in the offering memo) I’m a little concerned.

    Nevertheless, I really hope this does end well for investors and advisors as I think they’ve invested in good faith in an asset class that should deliver good returns.

    As I’ve said before, if the valuations are accurate, there should be no problems, but if investors lose money here, it won’t be because of FSA action – they’ve done their best to protect investors by warning of potential risks.

    Remember, the FSA have no jusrisdiction over this fund, just over people wo market it, so they couldn’t take any action against the fund.

  18. @ Ian Coley. Which bits of Peter Smith’s speech on SHLS funds on the 24 February 2010 do you disagree with?

    Personally I think it makes a reasoned case, looking at all the relevant issues pertaining to these types of ‘investments’

Leave a comment