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Life settlement investors to lose 5% under restructure

by Daniel Grote on Oct 31, 2011 at 11:20

Life settlement investors to lose 5% under restructure

Investors in the troubled ARM life settlement fund will lose 5% of their holdings in fees to fund manager Catalyst Fund Management under the terms of its proposed buyout by investment firm Insetco.

Insetco has launched a bid for ARM, which is fighting Luxembourg regulator the Commission de Surveillance du Secteur Financier (CSSF)'s refusal to grant it a licence.

The fund has been subject to criticism from advisers for paying out more than £20 million in pre-paid commission, while the fund now does not having enough cash to meet redemptions.

Investors are now set to lose a further 5%, which will be paid to fund managers Catalyst Fund Management (CFM) if Insetco's buyout goes through. Insetco said in a statement to the market the proposed fee was in recognition of 'the significant influence and resource devoted by CFM to the Insetco transaction'.

Insetco argued that its acquisition of ARM would represent a better deal for investors than a liquidation of the fund, which could be enforced if ARM failed in its bid to fight its snub from the CSSF.

'The current managers of the ARM portfolio have built up the necessary experience over the last five years and it is highly likely that this expertise would not be available to the liquidator,' it said.

Insetco said if the buyout went through, it would seek to restructure the ARM portfolio to provide a more steady cash flow. It would look to sell parts of the portfolio and reinvest in life policies with lower life expectancies, enabling it to make coupon payments. It added it would also buy policies with substantially longer life expectancies than the current average for the portfolio as a hedging strategy.

1 comment so far. Why not have your say?

James Button

Jan 26, 2012 at 16:06

My reading of the Insetco proposal (not an offer) includes:

Use of the funds for general trading rather than just SLS's

Purchase of SLS's with higher (not lower) expected life expectancies.

Remember - SLS's were to have 2 to 12 year expectancies to match the original 10 year investments, and 2012 should be 4 or 5 years into that 2 - 12 years, so there should be payouts to fund premiums

A rough calculation indicates that even selling 20% of the SLS's @ 25% of face value should fund the current and next years premiums and leave enough ongoing income to mature in 10 years at over 100% of the capital invested.

So what of the 'expertise' that got the fund in this situation is needed?

AND

The Insetco bonds would appear to be perpetual, so may never payout.

The Insetco proposal is that investors should (may) get back 100% of what they invested, including coupons already paid, and any possible new coupons issued at 7.5% of the 20% devalued investment in ARM bonds

So Investors get back what they invested, perhaps at 6% pa

Isn't that just allowing Insetco the interest free use of their money for as long as Insetco want, and maybe, eventually, paying them back their own money ?

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