The idea of investing in a collection of life insurance policies which pay out when their unlucky American owners die of ill health seems a little bizarre. However, that is the opportunity that Fortress Group International aims to offer UK retail investors.
Essentially, the fund invests in policies where the owners are aged between 78 and 82 and have multiple health complications. Clearly, the age bracket coupled with the health position is a near guarantee of early death from the point the policy is purchased.
The fund was launched in November 2003 with a class A share but the fund promoter has seen good institutional demand which has led it to create a B-share class for UK retail investors. It is domiciled in the British Virgin Islands and for the purposes of promotion to retail investors is deemed an unregulated collective investment scheme. In practice this will limit the market, as will the £56,000 minimum investment.
The standard charges are 0 per cent initial and 1.5 per cent annual. No commission is payable if these terms are opted for but IFAs can levy up to a 5 per cent initial charge which would result in 4 per cent initial commission payment and Fortress retaining 1 per cent.
It is too early to determine whether IFAs and retail investors will generally accept this type of invest-ment. After all, the proposition does not seem palatable when you are effectively promoting something whose profits for the investor are derived from death, even if the target return is a healthy 12 per cent a year.
James Dalby is head of investment strategy at Bates Investment Services