Guernsey-based EEA Life Settlements has suspended trading in its £608m EEA Life Settlements fund, after a run of investors tried to withdraw their assets.
The “unprecedented levels” of redemption requests, which put the fund’s solvency at risk, follows guidance from the FSA.
The suspension means that existing investors will not be able to get their money back until the board decides it is safe to resume repaying investors their money.
The FSA has said it does not believe that investors in the so-called ‘death bonds’ fund will necessarily lose all their money, but admits it may take some time for them to get it back.
Earlier this week, a consultation document from the FSA described traded life policies as “toxic products” and said they should not be marketed to retail investors.
It said it intends next year to ban the products – which the FSA document specifically referred to as US traded life policies.
With traded life policies, investors buy into a pool or fund which has bought life policies at discounted prices from people who are terminally ill and need cash now. Investors then share the payout when the policy holder finally dies.
However, the FSA warned that these ‘death bonds’ are ethically questionable, since investors are essentially betting on people’s life expectancy, and may not deliver if people outlive their prognosis.
The warnings have clearly provoked a rush from investors to get their money back before the products are banned.
A statement from the board of the EEA Life Settlements fund said: “Following a meeting on 30 November of the board of directors of EEA Life Settlements Fund PCC Limited, the board 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, which the board is entitled to do in accordance with the fund’s articles of incorporation and offering memorandum.”
The statement said the fund maintains levels of liquidity which the board considers prudent for normal operational purposes, but said: “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.”
It added: “The board 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.”
After the fund’s suspension, the FSA said: “We acknowledge that the publication of our guidance consultation may have prompted a number of investors to request redemptions from funds.
“We also recognise that our decision to intervene in this market may pose difficulties for existing investors.
“However, we considered that it was necessary for us to act because of our concerns about these products being inappropriately promoted or recommended to a growing number of retail customers.”
News Source: http://www.introducertoday.co.uk/
The “unprecedented levels” of redemption requests, which put the fund’s solvency at risk, follows guidance from the FSA.
The suspension means that existing investors will not be able to get their money back until the board decides it is safe to resume repaying investors their money.
The FSA has said it does not believe that investors in the so-called ‘death bonds’ fund will necessarily lose all their money, but admits it may take some time for them to get it back.
Earlier this week, a consultation document from the FSA described traded life policies as “toxic products” and said they should not be marketed to retail investors.
It said it intends next year to ban the products – which the FSA document specifically referred to as US traded life policies.
With traded life policies, investors buy into a pool or fund which has bought life policies at discounted prices from people who are terminally ill and need cash now. Investors then share the payout when the policy holder finally dies.
However, the FSA warned that these ‘death bonds’ are ethically questionable, since investors are essentially betting on people’s life expectancy, and may not deliver if people outlive their prognosis.
The warnings have clearly provoked a rush from investors to get their money back before the products are banned.
A statement from the board of the EEA Life Settlements fund said: “Following a meeting on 30 November of the board of directors of EEA Life Settlements Fund PCC Limited, the board 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, which the board is entitled to do in accordance with the fund’s articles of incorporation and offering memorandum.”
The statement said the fund maintains levels of liquidity which the board considers prudent for normal operational purposes, but said: “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.”
It added: “The board 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.”
After the fund’s suspension, the FSA said: “We acknowledge that the publication of our guidance consultation may have prompted a number of investors to request redemptions from funds.
“We also recognise that our decision to intervene in this market may pose difficulties for existing investors.
“However, we considered that it was necessary for us to act because of our concerns about these products being inappropriately promoted or recommended to a growing number of retail customers.”
News Source: http://www.introducertoday.co.uk/
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