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EEA suspends dealing in life settlements fund

The board of the EEA Life Settlements Fund decided to suspend dealings in the fund after receiving unprecedented levels of redemption requests from advisers and institutional investors.

Earlier this week, the FSA labelled life settlement funds as high risk, toxic products and said it aimed to ban TLPIs from being marketed to retail investors.

The suspension follows a board meeting with the dealing suspension introduced at 5pm on November 30. A spokesman for the firm says the suspension does not affect the ability of the fund to pay premiums as usual.

The Guernsey-domiciled EEA life settlements fund launched in November 2005 and is currently £600m in size, according to the firm’s November factsheet.

Life settlement policies were the underlying investment behind Keydata’s Lifemark products. The collapse of Keydata triggered an industry interim levy of £326m, with advisers paying £93m and fund managers paying £233m.

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Comments

There are 20 comments at the moment, we would love to hear your opinion too.

  1. Got to love panicing investors pulling out of a potentially good fund (not reviewed) to make it fail….

  2. sadly loads of big firms gor caught up with these 1st December 2011 at 11:09 am

    i remember some Thinc guys had these as core holdings

    There is some way to run on the compensation i suspect

  3. May I be one of the first on here to congratulate the FSA on driving a nail into its own coffin, in addition to creating untold problems for advisers and clients alike through publicising its hysterical intentions on these funds.

    I would also like to congratulate those4 journos and investment professionals who helped fan the flames.

    I predicted a couple of days ago that the way in which this issue had been handled would lead to a self-fulfilling prophesy.

    It gives me no pleasure in saying that I told you so.

    Ian Coley
    Partner
    Medical Investment Services

  4. To be fair to the FSA, they’ve been rumbling on about Life Settlement Funds for well over a year, which should have been long enough for advisers to take the hint.

    If the valuations of this fund have been accurate (even though the performance suggests mark to model rather than mark to market) there shouldn’t be a problem dealing with redemptions.

    If, however, the assets are largely illiquid with a limited secondary market, this should have been run as a closed-ended fund.

    Regardless, advisers and clients who think they can get a steady 9% a year return (on top of fat commissions) in the current environment probably need to pay a bit more attention.

  5. Another charge from the FSCS will be the intended consequence if any investors cannot get their money back.

    The FSA has to stop ruining our industry with its ill considered, idiotic, ill informed, badly researched and totally inaccurate commentary on products.

    If we are to have product regulation and approval then let us have it, not this back door, not our problem lamentable behaviour by a so called “world class regulator”

    No wonder consumers don’t really trust the industry, it is because the regulator has no common sense, anyone with half a brain could see this coming about.

  6. I would love to have the time to research to conclusion my following statement.

    But at face value:-
    It apears the largest contributor to consumer detriment is the FSA itself.

  7. Unfortunately Clive People don’t die to order. Left alone as long as the policy has been purchased at the right price the rest falls into place over time. The FSA are a shambles. Yes steady returns despite all these ‘high charges’ etc. Is this the real reason the FSA label this as Toxic?

  8. I agree with Clive, this asset class was widely promoted as being a low risk core holding for pretty much anyone, forgive me for my old fashioned approach but I’d have thought that Equities, Bonds and Cash represent retail client investments and not Life Policies on US residents wrapped up in a structure who’s valuation model is almost impossible to understand by even the most qualified amongst us….Timber Funds, Recycling Funds, Land Funds …..watch this space advisers!

  9. Not having transacted any of these Life Settlement funds, doesn’t stop my bemusement, each side of the argument has its own merits, but I cannot stop thinking, death & taxes are the given certainties in life, we’re all very much aware of the taxes at present and of course death is inevitable. Consequently, providing the premiums are continued, which are stated as sustainable as well as being auditable, the actuaries will not be far out on life expectancy, leads me to believe the only problem is the FSA! I may be wrong, we’ll find out wont we, but I would ask you to recall the pension transfer costs incurred by our industry, I would ask are these final salary schemes doing what they said originally on the tin or is there some spillage? I will leave you to contemplate this and place the FSA in the equation in both calculations!

  10. I can’t help thinking that making a statement that was likely to induce panic was a really stupid thing to do.

    Nor can I help thinking that whoever said it must have known it was a really stupid thing to do.

  11. Andy you are an idiot to say “promoted as being a low risk core holding for pretty much anyone”. This fund is not available to retail investors and if you read the FSA’s announcement it concerns the promotion of Life Settlements to retail investors. This fund would not have been banned by the FSA. What you have here are brainless IFAs pulling clients funds from a perfectly good investment due to not understanding wht (presumably) they sold to their clients in the first place.

    All in all a pathetic shambles caused by the FSA but brought about , ultimately by ignorant IFAs

  12. Not a good day.

    Instead of the FSA applying pressure to the good practice of advising on such funds they have applied negative pressure.

    Personally I have no clients in these funds but that does not mean all such funds are not fit for purpose.

    I think the FSA should also hone in on Foreign holiday property bought via SIPPs usually by unspohisticated investors!!

  13. The FSA’s comment are nothing short of recklessness that may very well be to the ultimate detriment of those they claim to “protect”.
    This fund is unlike any other ever introduced in this asset class. It has actually provided investors a positive return (never before done in this asset class). Furthermore, it has provided consistent returns that have exceded investor expectations.
    The FSA’s actions are shameful. Yet another example of public officials attempting to demonstrate an intellect they do not possess.

  14. @ Andrew, an idiot maybe but one who speaks from some considerable experience on the subject , I would love to know how much is in EEA via International Life Cos purely acting as a rather handy layer over retail clients to make them suddenly become ” institutional “.. then there’s the SIPP’s etc, lets not kid ourselves here, this asset was ultimately sold to retail investors whether you like the fact or not

  15. Not sure if people have got the wrong end of the stick on this one. If the fund has genuinely delivered good returns to investors based on the value of the underlying investments, rather than at the expense of future investors, then there should be no liquidity problem now.

    The assets of the fund should be saleable at the value the fund manager has ascribed to them and investors can take their money out.

    If the assets aren’t worth what the valuation suggests, it’s fair to assume previous valuations were probably wrong too and in fact the returns haven’t been what has been paid out. Sadly, as with Arch Cru, current investors now have to pay for that.

    Luckily though it looks like they weren’t retail investors if this fund can’t be promoted to them, so shouldn’t be any FSCS liability.

    I’m not a natural defender of the FSA – but they’ve in fact been traiiling concerns over Life Settlement funds since at least February 2010, so it’s disingenuous to claim they’ve been rash in precipitating withdrawals from this fund. They’re slow to act, but better to have been careful on this to try and avoid this kind of issue, but 2 years should be enough notice.

  16. I think the problem here is that the reason some IFA’s are looking to get out is the fact that they have placed people who shouldn’t have been in the fund in it!

  17. In 2004/5 the Shepherds Fund was proven to be sadly suspect & the Isle of Man Liquidator is still paying premiums without 1p to be refunded to Investors.
    Despite one respected IFA reporting the suspected fraud to the Isle of Man authorities,the Serious Crimes sqad & the FSA NO ACTION WAS TAKEN!

    Isn’t strange that 1 Shepherds Director is stll running a UK marketed similar fund FSA regulated.

    What goes round goes round……

  18. I was just thinking about what Clive Moore said (I haven’t arranged any plans deemed unsuitable for retail investors, unless the goalposts are subsequently moved of course!)
    My thought is just because the product is not FSCS covered (investment sector), that does not mean the advice is not covered by the FSCS, so if a complaint is upheld against an individual by the FOS (goodness knows what decisions the FSCS will come to) and the IFA firm collapses, we’re back to a claim to the FSCS for the advice. What happens then is not good however you look at it as if the FSCS refuse to pay out (good for remaning IFAs), then the consumer will further loose any belief in FS, contrary to FSA statutory objectives.
    What a mess….. again……

  19. The effect of their crass actions is such that there are now huge numbers of investors running scared from a fund that would more than likely have continued to serve them well – whether they wear the FSA “retail” label or “Sophisticated / HNW / Experienced” label. At least some of those redeemers will be genuine ie not have been scared into redeeming by the lunatics at the FSA. I would very much like to see those redeemers take a class action against the FSA for, at the very least, giving collective bad advice. If the FSA were to inspect an IFA firm’s business and find it had disinvested all of its clients from one fund or the other for no good reason they would likely ban the firm and would certainly fine it (got to keep those big FSA salaries going somehow npow haven’t we boys?) but what will happen under these curcumstances?………..I think we all will be able to guess the answer to that. Shame on the FSA.

  20. Singapore Adviser 3rd December 2011 at 5:56 am

    No wonder the FSA is a laughing stock. Once again they make a decision based on a half arsed job carried out by a bunch of industry failures who now draw government salaries.

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