AIG policyholders who withdraw early face 25.2% loss on illiquid funds

AIG Life enhanced fund investors who cash in the illiquid half of their investments will lose around 25.2% of the face value of these funds, according to independent valuations.

Cairn Capital, which was hired by AIG Life to independently value the assets in the enhanced fund, estimates that the market value of the assets in the portfolio would trade at 74.8% of their value if sold in today’s markets.

But Cairn said that the funds should be worth 90.1% of the face value in today's money if retained.

Policyholders have been given the chance to cash in 50% of their assets at face value but many have delayed their withdrawal decision until they are given a better indication of what the illiquid half of their assets would be worth if cashed in, given the complex tax issues surrounding withdrawals.

Investors can either withdraw the illiquid portion of their investments and face market value reductions or stick with the fund for another three years and receive at least the value of their investments at 13 December 2008 when assets will be transferred to a protected fund.