The Secured Life Fund (SLF) intends to generate income by lending money to terminally ill cancer sufferers in the US who can offer life policies as collateral.
SLF has been developed by the same team behind Policy Selection Limited, the provider that operates the Assured Fund, which invests in the broader US traded life settlements market.
The Financial Express Three Crown rated Assured Fund is a more traditionally constructed collective investment vehicle, which differs from SLF in that it buys life policies outright from those looking to sell them.
The purchases are made at a discount to the face value of the policies, with heavy reliance on actuarial estimations of mortality rates required to make such investments profitable.
Performance of traded life settlement funds
Source: Financial Express Analytics
Thus, one of the key differences to the broader market in traded life settlements is that SLF focuses on life policies of the terminally ill, rather than those who simply wish to trade an asset. This reduces risk associated with investing in life policies because the mortality rate is more securely quantifiable within a shorter time frame.
SLF targets a different market too in that it relies on cases being referred its way by charities working with those who are seeking to raise cash from what may be their last remaining key asset, said finance director Andrew Walters.
Because SLF only lends up to a maximum of 50 per cent of face value of the policy, there is not only a considerable buffer for investors, but it also creates scope for any remaining value to be returned to the estate of the deceased.
SLF is initially targeting institutional and pension fund investors with a minimum investment requirement of €250,000, but it is actively seeking to roll out the fund to a broader investor base via a UK plan manager – as yet unidentified.
Investors will be able to buy three different notes structured around the assets: a five-year paying a coupon of 7.5 per cent; a seven-year paying eight per cent, and a 10-year paying nine per cent.
The income is generated by the repayments on the loans, but also investing in cash and cash equivalent assets. The collateral – life policies – acquired via the loans will be held by a special purpose vehicle.
Surpluses can be returned to estates because the life policies involved are paid out via a trust arrangement.
The notes will be issued by Deutsche Bank, which also is responsible for administration and management of cash and investors' funds.