When a fund makes its return by estimating the date of someone’s death, marketing it is always going to be tricky.
Add to that a nice juicy dose of fraud in the middle of the last decade, and selling traded life policy (TLP) funds into Britain was always going to earn marketing managers their crust.
The TLP market has certainly come a long way since the American viatical marketmaker, the Mutual Benefits Corporation (MBC), was found guilty of fraud. After a two-year court case MBC was found guilty in August 2006 of understating the life expectancies of policyholders, which therefore increased the value of their policies.
Despite this blow, in the years afterwards several funds have been launched to British investors, with the promise of returns uncorrelated to that of equities or bonds. The sector has also evolved markedly in terms of the way funds are run. However risks still remain. This week, Merlin Stone a visiting professor at Oxford Brookes, De Montfort and Portsmouth universities, published his third report on the sector, The market for traded life policies. The report says while the sector is showing signs of growing maturity, it warns investors must guard against a new wave of high-risk TLP products. (article continues below)
The main risk, he says, is the growing use of securitisation. As Stone says: “The horrific fallout from the securitisations of mortgages seen in the US is a clear warning of the risks.”
As a result, the report, which is commissioned by Managing Partners, has drawn up a list of fund types to avoid. Some would say Managing Partners, as a TLP provider, has an interest in doing so, but Stone’s point is to draw attention to fund types where the risk of policy holders exceeding their life expectations and delaying payouts is greater.
One thing the sector could do without is more negative headlines.