Managing Partners Ltd, manager of the Cayman Islands-based fund, said it had completed the sale of its first block of policies, which was necessary to tackle the fund’s liquidity issues. It said this has resulted in the dealing net asset value of the fund falling from $173.7m (£112.5) to $127.2m (£82.4m).
In April, the directors of the fund froze investor redemptions, citing low levels of liquidity precipitated by “increased redemption activity in previous months”.
The manager said in an email to shareholders that it could not “rule out further corrections to the net asset value of the fund” and that, as such, the “redemption gate is likely to remain in place for the foreseeable future.”
The email said: “We wish to emphasise that we are extremely disappointed that this situation has occurred and fully appreciate that such a significant reduction in the value will not be received positively by any of the shareholders but regrettably it has been a necessary part of the process to deal with the liquidity issues the fund is experiencing.
“Whilst we cannot rule out further corrections to the net asset value of the fund we will aim to avoid this if at all possible and in order to do so the redemption gate is likely to remain in place for the foreseeable future.”
A spokesperson for MPL told FTAdviser: “The correction in the Nav has occurred because we have been forced to sell policies at deep discounts in a weak market and the valuation methodology is based on holding policies to maturity.
“Whilst the disposals have been necessary to improve liquidity we have no immediate plans to dispose of any more and expect the fund to continue to deliver positive returns from now on.”
A Berkshire-based IFA, who has previously complained over the fund’s communication with shareholders and who has a handful of investors with a collective £500,000 invested in the fund, said MPL’s response “does not ease ours fears in the slightest”.
The IFA, who wishes to remain anonymous, said in his view the steep drop in value as a result of the sales could suggest the fund was “massively overvalued”. He repeated his call for MPL to provide advisers and investors with more detailed information that will “prove to what extent assets held by the fund support the stated Nav”.
MPL declined to comment on the adviser’s suggestion that the fund was overvalued.
Earlier today (14 August), another beleaguered life settlements fund, EEA Life Settlements, revealed that it had written down the value of its portfolio by around 10 per cent after re-valuing the life insurance contracts it invests in.
The move follows criticism from auditors Ernst & Young (E&Y) about the way the fund had valued the contracts previously. E&Y said EEA had overvalued the portfolio by as much as $100m.
EEA suspended dealings in fund in December 2011 following “unprecedented levels” of redemption requests in the wake of a guidance consultation from the then FSA that described traded life policies as “toxic products” that should not be marketed to retail investors.
