Traded life settlement provider Mosaic Caribe and distributor PDL International have defended the TLS market in the midst of the Lifemark debacle and FSA concern about the products.
US-based Mosaic Caribe and its UK distributor, PDL International, say that contrary to popular views, the TLS market can offer non-correlated, secure returns for investors seeking long-term capital growth.
But investment IFAs and even other life settlement providers have expressed fears about marketing TLS to retail investors.
Traded life settlements, also known as “death bonds”, are life policies that were taken out by Americans and then sold onto the TLS market.
Subsequent premiums must be paid by the new owner or the policies can lapse. If paid to maturity, the policies often del-iver big payouts and providers claim they are highly secure investments as the insurers tend to be at least A-rated. But IFAs have been put off by problems with Lifemark, in which Key- data placed 23,000 UK investors. Lifemark’s TLS portfolios may collapse as it has little cash to meet premium payments.
Regulators shut Keydata down when it emerged that it had failed to secure tax compliance for products sold as Isas. It later emerged that £103m of clients’ savings in Keydata investment vehicle SLS Capital had been misappropriated.
The liquidity problems at Lifemark have done little to instill confidence in TLS. But PDL International, which is owned by TIS Group, says the problems were caused by Keydata.
TIS group chief executive officer Chris Radford says: “With Keydata, there was a misappropriation of funds that has yet to be solved and they placed it within an Isa and it was not compliant.
“People have latched on to life settlements when the actual story was fundamentally about misappropriated assets.”
He says that where Keydata used a fund structure, Mosaic and PDL are launching a portfolio service aimed at IFAs in the UK that will allow them to handpick TLS portfolios for their clients.
Clients will have to pay premiums covering the insured’s entire life expectancy into escrow accounts, plus an extra 12 months and an additional 3 per cent of the value of the policy for contingency. If the original policyholder lives much longer than expected, then investors will face additional premium payments.
However, SL Investment Management chief executive Jeremy Brettell, whose firm provides TLS funds to institutions, believes that life settlements should not be sold to retail investors.
Brettell says: “The issue for me with life settlements and the way they are currently structured is that there is no consistent valuation basis used by the market.”
He says that often a portfolio of TLS can be skewed with more TLS running on until after the predicted life expectancies.Brettell adds: “The FSA is, in principle, against the marketing of traded life settlements to retail investors.”
In February, in a speech at the European Life Settlement Association, FSA head of investment policy Peter Smith said he had “significant concerns” about transparency in the industry. This led to the ELSA issuing a code of practice last week.
Senior analyst with Hargreaves Lansdown Meera Patel says: “These policies are not liquid so investors who want their money back during difficult periods may have to wait longer than they should and they may get back far less than their original investment.
“While in principal, it might be a good idea for the policyholder who needs access to their money, these policies only pay them less than their final values. There is, of course, the moral aspect of doing this as the fund is basically betting on the pol-icyholder dying.”