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Broker offers to buy out 'death bond' investors

Broker Southey Capital will buy out investors in the stricken EEA Life Settlements fund but is offering only a third of NAV in some cases.

 
Broker offers to buy out 'death bond' investors

Broker Southey Capital has tabled an offer to buy out investors in the stricken EEA Life Settlements fund at a deep discount to net asset value.

The fund has been suspended since November 2011 after the Financial Services Authority announced plans to ban traded life settlement funds from being marketed to UK retail investors.

Life settlements are life insurance policies bought from US policyholders in ill health looking to raise money.

Although marketed as lower risk, alternative investments, life settlements were criticised for a lack of transparency over returns and charges and were dubbed 'death bonds' in some quarters as investors required the underlying policyholders to die in order to receive their payouts.

Southey Capital is offering to buy out investors holding 'run-off' shares in the fund. Since it was suspended, the fund was restructured, with investors placed in continuing or run-off shares depending on whether they wanted to remain invested or now.

The price the broker is offering varies depending on the 'cell' of the fund held, which are priced in a number of currencies. For investors in the sterling cells it is offering only a third of their net asset value. The complete list of indicative prices is below:

Euro Fund Acc Run-Off Cell

36.30%

Euro Fund Class X Run-Off Cell

36.80%

Euro Fund Class Y Run-Off Cell

36.60%

Euro Fund Dist Run-Off Cell

36.80%

Meteor Senior Life Settlements Sterling Fund II Run-Off Cell

33.10%

Meteor Senior Life Settlements Sterling Fund Run-Off Cell

34.50%

Sterling Fund Acc Run-Off Cell

32.90%

Sterling Fund Class X Run-Off Cell

33.00%

Sterling Fund Dist Run-Off Cell

32.90%

Swedish Krona Fund Class X Run-Off Cell

45.20%

USD Fund Acc Run-Off Cell

49.20%

USD Fund Class I Run-Off Cell

46.90%

USD Fund Class X Run-Off Cell

45.90%

USD Fund Dist Run-Off Cell

45.70%

WAY Life Settlements Fund Run-Off Cell

32.40%

Investors who take up the offer would also face transaction charges. Southey Capital managing director Robert Southey said he was willing to be ‘pragmatic’ about fees, with sub-£1,000 holders potentially not being charged and larger transactions facing a 2% levy.

About 60% of the shareholders in the fund hold run-off shares, issued following a restructure and vote in January 2014. EEA paid a £56.1 million distribution to investors last September after it sold 188 US life insurance policies to an undisclosed buyer for £83.3 million.

The remainder of the cash from the asset sale was set aside for holders of continuing cells, those investors who did not opt for the conversion. EEA said it could be made available for further distributions or even the purchase of additional life policies.

The board said it expected to have an extra £96.1 million in cash available later in the year, some of which will be used for a further distribution in November.

However, Southey Capital managing director Robert Southey believes that investors could be locked into these run-off cells for another decade.

He said: ‘Over that time, some of the cash from maturing policies will be used to pay for further premiums. Without which the fund will “give up” the remaining policies, but this leaves little cash for distribution to holders and results in a low current price.’

Another broker, Tullett Prebon Alternative Investments, is also preparing to line up offers to buy out investors.

1 comment so far. Why not have your say?

Anonymous 1 needed this 'off the record'

May 27, 2016 at 17:12

@Jonathan Yarker: as Citywire favours referring to life settlements funds as death bonds, why does it not also use headline-grabbing alternatives for life insurance policies and annuities?

You say "dubbed 'death bonds' in some quarters as investors required the underlying policyholders to die in order to receive their payouts."

You are aware, presumably, that life insurance does not pay out for as long as the insured remains alive?

And that annuities only pay what they do after the provider has estimated for how long they expect the purchaser to live?

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