Life settlements holdings in Schroders’ original Multi-Manager funds have been sold, paving the way for them to merge into Marcus Brookes and Robin McDonald’s MM Diversity range, Investment Adviser understands.
The group’s £56.6m Multi-Manager Cautious Managed, £40.4m Multi-Manager Strategic Balanced and £14.7m Multi-Manager High Alpha funds all had exposure to the Policy Selection Assured fund.
The illiquidity of these holdings has meant Schroders’ new multi-manager team it acquired as part of its buyout of Cazenove Capital, and which runs the MM Diversity range, has been reticent to take on the assets of the three funds.
Last year, Rob Hall, then the manager of the Schroders Multi-Manager range, pledged to take action about the exposure to life settlements, as the holdings were impacting performance due to “huge headwinds from both regulatory and asset class-specific purposes”.
Mr Hall inherited the holdings when he took on the funds. In February last year, he told Investment Adviser he had “been on a price discovery process” and had “changed the value of our holding [to] a level where we believe we can sell it in the secondary market”.
Now, 16 months since Mr Hall’s comments, it is understood Schroders has sold the holdings. Its Multi-Manager range is set to merge into Mr Brookes and Mr McDonald’s MM Diversity funds in Q4. The group stated at the time of the Cazenove purchase that it hoped to merge the multi-manager ranges in the second quarter.
The Assured fund was first bought for the Schroders Multi-Manager funds by Andrew Yeadon, who in 2008 used the new powers under the non-Ucits retail scheme (Nurs) structure to buy into it.
In May 2012, Policy Selection gave investors in its Assured fund three options for redemption. It said to redeem at net asset value (NAV) would “depend on a number of factors” including how quickly policies matured and inflows into the fund. It said NAV redemptions could take “as long as 3 to 4 years”.
It also offered a net realisable value option for those seeking to redeem without affecting investors who remained in the product, or suggested selling the shares to a third party.
Life settlements, sometimes described as ‘death bonds’, are one of the more controversial asset classes. They are US life insurance policies which the owners sell to life settlement fund managers to receive an early pay-out. The fund manager then continues to pay the premium on the policy and receives the proceeds from it when the person dies.
If the person dies when expected, the fund makes a profit; if they live longer, the fund may not make a return.
Schroders declined to comment. Policy Selection was unavailable for comment.
The struggles of ‘toxic’ life settlements
The life settlements asset class came under strong scrutiny from the regulator in its former guise as the FSA. In a statement in 2011, it said the products, which backed funds such as Keydata, were “high-risk, toxic products” that were “generally unsuitable for the majority of UK retail investors”.
The FSA said it had found “significant problems” with the design, marketing and selling of life settlements funds in the UK, and warned advisers not to sell them to individual investors.
This prompted a backlash from life settlement companies, some of which reported a wave of redemption requests, forcing them to suspend redemptions.
