Investments  

Investors in suspended fund offered a way out

Investors in the closed Traded Policies fund (TPF) have been given the option of switching into a new version by the fund’s managers, Managing Partners Limited.

Investors had been prevented from exiting the fund, which invests in US life settlement policies, or so-called “death bonds”, since April 2013 due to fears that redemptions would have caused a liquidity crisis in the fund, forcing the managers to sell assets at a very low market value.

The fund, along with other life settlements products, was impacted in 2011 when the FSA, then the regulator, warned the products were “toxic” and not suitable for unsophisticated investors.

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This sparked a rush to exit the fund which caused MPL to prevent redemptions to preserve the value of the assets.

The Traded Policies fund is not the first life settlements fund to have to resort to a restructure following problems with redemptions.

In January this year, the EEA Life Settlements fund was granted permission by the regulator to restructure, allowing investors to redeem their trapped money.

Jeremy Leach, chief executive of MPL said he did not know how long the restriction on investors leaving the TPF would remain in place.

However, the company has now launched a separate fund, the Traded Life Policies fund (TLPF), into which current investors in TPF have the option to switch.

The investors have the option to invest in the equity of the new fund or invest in a bond secured against the assets in the fund.

Bondholders will have to hold onto the bonds for five years, at the end of which they will receive a 33 per cent return, which is guaranteed against the assets held in the fund.

Equity investors are being encouraged to hold the shares for five years before they redeem them. If they wish to cash out during the five years, MPL will have to sell assets at the current low market price, meaning that anyone wishing to cash out early is likely to take a large hit to their investment. Investors must also give a three-month notice period.

There will be no cost to convert, but investors in both the TPF and TPLF will still have to pay the 1 per cent annual charge. MPL wrote to investors outlining their options in December 2013 and Mr Leach said the firm had had a “significant” number of requests to convert to the TLPF.

Mr Leach said the TLPF had been created both to provide a solution to investors trapped in the old fund with no exit in sight, but also to attract new investors into traded life policies.

Mr Leach said US reinsurance companies were still interested in buying life settlements products, as well as US pension funds and hedge funds.

New money will assist the TLPF both because new assets are very cheap to buy on the open market right now, according to Mr Leach, but also to add to liquidity in the fund.