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The Golden Rules when selecting a fund manager
By Patrick McAdams; Investment Director, SL Investment
In recent years, the FCA (Financial Conduct Authority, formally
the FSA) has shone its search light on life settlement funds;
of particular scrutiny, has been the suitability of life
settlements as a retail product. SL has never shied away from
engaging directly with the FCA about this issue, supporting its
theories from a high ground of having only operated primarily
within institutional markets for over a decade.
In addition, SL has been somewhat vociferous about the need to
'flush out' any life settlement managers that do not apply the
strictest policies of good governance and transparency - no
coincidence then that SL was at the forefront of ELSA's
As an asset class the benefits of life settlement funds are well
documented, but how can investors be sure they select the right
fund manager? A mental check list of Five Golden Rules could
be a starting point at the outset of the
1. Make sure the manager concerned has proven experience of
specialist life settlements fund management. Life Settlement
(LS) funds are unique and require finely tuned expertise.
2. Look into the company's policy valuation methods. There
is currently no consistent, industry-wide methodology, even though
the accurate pricing and valuation of policies underpins the long
term health of any fund, so dig deep.
3. Find out about the firm's approach to liquidity provision in
its funds. LS funds require carefully calibrated liquidity to
meet on-going future premiums and expenses. Failure to meet
these will result in a loss of value, policies will lapse and the
long term health of the fund may suffer.
4. Be aware of the firm's mortality and longevity processes; a
manager worth its salt will have a strong in-house team of
actuaries that apply state of the art models to predicting
mortality and a policy on how frequently life expectancies are
updated. This should be on a rolling basis to reflect actual
mortality experience across a whole portfolio - not simply a
one-off calculation at the outset of the fund; and life
expectancies should be updated at least every 2 years for more
5. Finally, ask yourself; does the fund manager have the
integrity to go the distance? This may sound like a nebulous
and open-ended question, but establishing the firm's approach to
corporate governance and transparency on remuneration and fee
structure is a worthwhile exercise. In addition, find out if
the firm is a member of European Life Settlements Association
(ELSA), and where the manager and/or firm are regulated.
By applying this check list at the start of the relationship,
investors can be confident that they have picked a good solid fund
manager for the long term.