Trends in Viatical Settlement Investing

Money Marketing, Sept 23, 2004 p32(1)

by James Coney

COPYRIGHT 2004 Centaur Publishing Ltd.

Consumers who have shunned traditional investments after losing out in the prolonged bear market are being offered increasingly quirky schemes.

New alternative investments are the latest in a line following such offers as a managed wine investment plan launched in 1994 which aimed to provide a return of between 15 and 20 per cent a year and each portfolio was invested in wine from the top 25 Bordeaux chateau.

In the late 1990s, John Govett offered a classic car fund which invested 3.2m [pounds sterling] in classic cars and banked on them increasing in price but the fund closed within a year.

Other variations on traditional funds have included schemes dealing 100 per cent in equities in the first year and then gradually increasing the weighting towards bonds and becoming 100 per cent invested in bonds over a six-year period.

Hargreaves Lansdown investment manager Ben Yearsley does not see the appeal of new investment schemes. He says: "People do at least sort of under stand what a fund is all about. They knew they are giving money to a manager who will invest in certain equities in a certain place. There is some reassurance from that. But for these leftfield schemes, it is difficult to see what the market is and there is a risk. With anything new, there is a risk for the investor."

Many think there is already too much diversification in the industry--after all, there are more unit trusts than there are stocks. Combine this with the growing number of investment trusts, multi-manager funds and funds of funds that are being developed and the market is awash with investment opportunities.

Keydata is the company behind a new scheme investing in Polish privatisations. Its research shows that privatised Polish firms have an average of 20 per cent growth on share price between initial offer and opening trading price and 75 per cent average growth in share price since privatisation.

Poland's privatisation programme began in the 1990s and has brought in over 12bn [pounds sterling] for the state coffers. When Poland joined the EU in May 2004, Keydata saw this as an opportunity.

Keydata managing director Stewart Ford says: "We saw a similar thing that has happened in France and investors there were able to make some good sums of money. It is different but that is what people want at the moment. It has been a difficult time in the markets.

"Do not invest in this if you have not got money to lose. We do not think that you will lose money, we think it will offer great returns but there is a certain degree of risk involved."

Another alternative product being launched is the assured fund from Secured Assurance Marketing. The fund deals in traded life insurance policies and the firm says the investment is relatively low risk.

It believes that viatical traded life policies are becoming accepted as a meaningful and viable investment vehicle. US brokers buy life insurance policies from individuals and sell them into a fund. This results in the fund buying a deeply discounted asset against a known event--the death of the policyholder.

SAM's marketing would have you believe that the assured fund could be a replacement for with-profits. IFAs who heard about the product for the first time at the Senate Conference in Monte Carlo recently reacted positively.

SAM marketing director Graham Hooper claims the fund is low risk since the variables are the age that policyholders will die and the failure of the accountancy firm backing the scheme.

He jokes: "Because we set the age of death higher than it needs to be, it ensures that returns are smooth and steady over time."

But some asset managers are wary of the risk posed by such alternative investments.

Gartmore communications manager Vee Montebello says: "Traditional investments should also be part of a portfolio. You get diversification with a mixed portfolio and that spreads the risk. There is clarity in a traditional investment scheme and it is clear what stocks and what the policies of the manager are. When you have all your money invested in one thing, there is risk that if it goes wrong you would lose all your money."

journal abstracts

Viatical settlements: effects on terminally ill patients

The Viatical Settlement Industry: They Bet on Your Life

Congress takes closer look at overhauling insurance regs

Life settlement training? Basic and homegrown.