An investor in EEA’s Life Settlement’s fund has branded the FSA ‘irresponsible’ for labeling traded life insurance policies as ‘toxic’ and prompting a wave of redemptions which forced the fund to suspend dealings.
George Groves, an adviser at The First Choice Insurance Consultants, hit out at the regulator saying it had ‘destroy[ed] a fund that was running the right way by using a broad brushstroke that tarred a whole sector.’
He says the $955 million (£606.9 million) EEA Life Settlements fund, which invests in expiring US life insurance policies, was ‘completely transparent’ despite the FSA calling such products ‘complex and opaque’.
According to Groves, his clients are relaxed about the course of events after EEA’s marketing director Peter Winders assured investors that he still sees the fund continuing.
‘I don’t believe my clients will lose their money but I can’t guarantee it. EEA has the ability to pay redemptions in the usual manner. They are not going to have a fire-sale, instead it will self-liquidate,’ said Groves.
On Monday Margaret Cole, FSA managing director, announced plans to ban the promotion of such traded life policy investments (TLPIs) to UK retail investors.
The regulator reasoned that the underlying investments ‘lack sufficient liquidity’ and that ‘if the firm needs to sell the assets and cannot find a buyer quickly, this could also mean that investors find their money locked into a TLP investment for longer than expected.’
This warning became a self-fulfilling prophesy today, when EEA announced it was suspending the fund due to a high level of redemption requests following the statement.
‘My clients won’t see their money for over eight months or longer,’ said Groves, ‘people say liquidity is an issue with these funds, but if there was a run on a property fund you would have the same thing,’ he added.
EEA 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.
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.