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Suspended EEA Life Settlements fund drops 10%

The suspended EEA Life Settlements fund has reduced the net asset value of its shares after an independent review was carried out into its valuation.

Dealing in the fund was suspended in December 2011 after it was hit with unprecedented levels of redemption requests from investors following the FSA’s labelling of life settlement funds as high risk, toxic products.

Last month, the fund’s annual report for the year ended 31 December 2011 contained arguments from auditors Ernst & Young that the portfolio could be worth as much as $100m less than the $871m valuation given by its directors.

EEA Life Settlements chairman Mark Colton then revealed an independent valuation exercise had been commissioned.

This exercise has now been completed and the maturity dates of the second-hand life policies owned by the fund have been extended. This means the original holders of the policies are likely to live longer than expected, hence increasing the amount of time it will take for money to flow into the fund.

The fund will also change the way its NAV is calculated. Previously, 12 months was added to the insured’s life expectancy when valuations were being determined, but this will be increased to double the life expectancy.

In an update to shareholders, Colton says: “The valuation of the fund’s policies is particularly sensitive to the estimates of life expectancy.

“The changes set out above, therefore, result in a reduction to the net asset value of the fund of around 10 per cent relative to the value immediately prior to the suspension of dealings.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. This really does explain why the FSA felt that these cretinous halfwits shouldn’t be looking after millions of pounds of consumers money.

    Now, in this age of so-called trolling, you might think this is mere abuse. But, no. I will explain.

    The EEA valuation assumes deaths occur equally between the date a policy is purchased, and the “expected date of death” because they use straightline amortisation. Think of that paradox! Having predicted a point average “date of death” the valuation then assumes their actual lifespan will, on average be half of that. (If this is hard to understand put soem numbers in. Assume the predicted lifespan is 48 months, then the valuation assumes deaths occur between time=0 and time=48 by which time all lives assured are expected to be dead. On average this means they are assumed to live 24 months when the actual prediction was 48)

    Then they try to ameliorate that by adding 12 months to the date of death, which adds a mere 6 months to the average date of death in the valuation. Still a massive overvaluation.

    Now, because they are total morons, would you believe it but they think that as the lives assured will live much longer than first thought they will double the original LE prediction. Ahh isn’t that nice. Except of course that within their valuation mechanism this simply implies the original LE prediction. So not actually any recogniction of extended longevity at all.

    How do people who can’t do maths get to manage $1bn of consumers money? Frankly it is disgusting.

  2. This is not the only bad piece of news to come out of the life settlements market this week.

    I see that Managing Partners Limited have had to downvalue their fund by 27% and cannot rule out further reductions. I wonder what will happen if this fund lifts the embargo on redemptions?

    How can the individual IFA undertake the necessary due diligence to accurately value such funds? It appears this particuler fund manager is not prepared to answer suggestions that the fund was over valued. Anyone remember Shepherds?

  3. A 10% drop in profit isn’t exactly the catostrophic scenario the FSA pictured is it?

    As I recall one of the risks documented in the literature was increased life expectancy.

  4. As the fund has been suspended for some time it has not had the benefit of early mortalities from recently bought policies ie 6 weeks to 6 months. The absence of which contributes to the apparent drop in Nav. This and the uncertain nature of the calculations put the -10% within the margin of error. So dont sell, hold and review in 20 years time.
    The above should not be construed as financial advice and funds go up as well as down.
    PS a Financial Advisor is someone who invests your money until you do not have any.

  5. In truth there has been a circa 20% PERCENT FALL in the NAV if you compare the NAVs published for the end of June with those for the end of May. For example from the Channel Islands Stock Exchange web site we can see that the value of the Sterling Acc Cell was 176.95 at the end of May 2013, whilst the latest provisional NAVs for June show it to be 140.67. I make that to be a fall of 20.5%. Why doesn’t the shareholder announcement make this clear and instead try to only show a 10% fall by comparing the new NAVs with the NAVs immediately prior to suspension? I smell PR spin. The NAVs are stated as being provisional but if EEA really have no faith in them, why publish them at all?

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