Investors in an embattled life settlement fund may have to wait up to 10 years to get all their cash back, according to an investor support group.
The EEA Investors’ Support Group, led by David Trinkwon, said investors had been “denied access” to their money since the fund was suspended in November 2011 and face “a further five to 10 years to get the rest of their investment back”.
The group said the fund “was not in very good shape” and recent analysis showed it could take 10-15 years before all the current life policies in the portfolio matured and provided enough cash to pay investors.
“As in the past, the outstanding policies are not maturing at the rates projected by EEA and we have identified several concerns which we would like the company, the regulator and the auditor to address,” a group spokesperson said.
“At the moment there is insufficient cash to meet the September run-off redemption payment given the fund’s obligation to meet ongoing expenses of $16m per year, and to maintain a $145m cash reserve sufficient to cover two years’ premium payments.
“The EEA directors have decided to relax these limits to enable the current $14.6m payment to run off investors.”
The spokesperson added the cash balance at August 31 was $148m and it expected this to become “even tighter” by the end of the year.
The EEA fund has been under pressure after it was forced to suspend redemptions in November 2011 after comments made by the FSA’s then head of enforcement Margaret Cole, who branded life settlements funds “toxic” and unsuitable for retail investors.
In January this year, the EEA Life Settlements fund was granted permission by the regulator to restructure, allowing investors to redeem their trapped money. As part of the process, ‘continuing’ shares were launched for those who wanted to remain invested and ‘run-off’ shares launched for those seeking to exit.
The investor group is reminding investors who chose the ‘continuing’ shares in last year’s restructuring vote that they need to submit claims for the 5 per cent redemption option by November 28.
The group said EEA would confirm in January whether the redemptions would be paid, but urged investors to apply before the November deadline.
Group coordinator Mr Trinkwon said the next opportunity to redeem continuing shares would be in December 2015, with applications submitted by next September.
Mr Trinkwon said forms are available on the EEA website for investors who bought the fund directly from the company, but other investors should contact their advisers.
Life settlements – secondhand life insurance contracts sourced from the US – are notoriously hard to value as selling them in the open market can lead to heavy discounts to their maturity values.
Mr Trinkwon said investors holding ‘run-off’ shares in EEA would receive an automatic redemption of roughly 2.9 per cent of their current valuation at the end of September.
“They will also receive a further automatic redemption in January or February 2015, subject to sufficient cash being available,” he said.
Life settlement funds once again under fire from the regulator
Ever since the FSA issued a scathing attack on life settlements, funds involved in the asset class have been under pressure.
EEA was not the only one forced to suspend redemptions on the back of the regulator’s “toxic” comments in 2011, which spooked investors and caused them to rush for the door at the same time.
But now the FCA has once again targeted the asset class after it last week told financial advisers who invested clients in the EEA Life Settlements fund to review their cases for possible mis-selling, as it warned that redress may be due.
In an alert on traded life policy investments last week, the FCA told those firms that advised clients to invest in the EEA fund to re-examine their sales to ensure they followed the earlier guidance, and if they had not yet acted on it, the FCA suggested they should do so now.
EEA responded to the FCA’s announcement by saying it had never provided advice to retail investors and had only marketed it to institutional investors and IFAs.
It added if there had been instances where products had been mis-sold by an adviser, “then it may well be appropriate for an investor to consider making a claim against the IFA in the manner suggested by the FCA.”
Several multi-managers also bought life settlement funds, including Andrew Yeadon when he ran Schroders’ multi-manager funds. The company has only recently been able to agree a sale of its position in the Policy Selection Assured fund.
