Suspended life settlement fund reports on liquidity

Marketing director Peter Winders said the $995m fund was receiving sufficient levels of liquidity from ongoing maturities of its traded life settlement holdings to remain solvent.

The EEA fund announced that it was suspending - preventing investors from exiting the fund and preventing new investors from buying in - last year after the FSA said it was planning to ban the sale and marketing of life settlement products to retail investors. The FSA also spooked the fund’s investors by branding life settlements products as “toxic”.

The FSA statement triggered investors to call back their money, leading EEA to suspend to prevent the fund from running out of liquidity.

A similar situation took place on the Luxembourg-based Lifemark fund, into which investors were placed by UK distributor Keydata, when it was directly suspended in 2009 by regulators. Due to the lack of new investor inflows Lifemark then fell into a liquidity crisis, and has continued to teeter on the brink of insolvency since.

But EEA’s Mr Winders said there had been 36 traded life settlement policy maturities on the fund since it was suspended in November last year, a higher number than the fund requires to match premium payments on the remainder of its holdings.

The policy maturities were so great that the EEA fund has built up cash since suspending, he said. At the end of January the fund had $84m in cash, according to its latest factsheet.

Mr Winders indicated that EEA would look to lift the suspension on the fund when the FSA’s response to the consultation on the ban is published.

He said: “Once the FSA publishes its findings on the consultation into traded life investments the fund directors will be able to decide how to proceed – investors and their advisers will have greater clarity about their options and be able to make an informed decision as to whether to redeem or not.”