The EEA Life Settlements Fund has been suspended after a wave of redemptions from investors.
The suspension follows the Financial Services Authority's announcement of its plan to ban the marketing of life settlement funds to retail investors.
The board of the EEA Life Settlements fund has declared an immediate suspension of the valuation of the net asset value of all classes of participating shares in each cell of the fund and of the issue, sale, purchase, redemption and conversion of shares of each such class. The fund is around $955 million (£606.9 million) in size.
The firm was keen to stress that the fund will maintain levels of liquidity which the board considers prudent for normal operational purposes, including payments of premiums on policies.
In a statement, the board noted: 'The UK Financial Services Authority (FSA) draft guidance on Traded Life Policy Investments issued on 28 November 2011 has led to cancelled subscriptions and redemption requests significantly above normal redemption levels. As the current liquidity levels of the Fund are insufficient to satisfy such redemption requests in full and the Board has determined that it is not reasonably practicable to realise or dispose of its investments to satisfy such requests, the Board has decided to suspend dealings.
'The board will keep shareholders updated and will resume dealings as soon as it considers it prudent to do so. Shareholders should be assured that the suspension of dealings will in no way affect the ability of the Fund to pay premiums on insurance policies in the usual manner.'
During the 10 months to the end of October the fund has returned 7.2% and has posted an annualised return of 9.55% since inception.
On Monday the FSA said it intended to ban traded life policy investments (TLPIs) from being marketed to UK retail investors, arguing they were 'high risk, toxic products'.
It said that evidence of its work to date showed there were significant problems in the design, marketing and sale of the investments, which were typically 'complex and opaque'. The FSA added the underlying assets exposed investors to high levels of risk, potential liquidity problems with limited or no recourse to the Financial Services Compensation Scheme.