Investors have been trapped in the ill-fated EEA Fund since 2011 when it experienced a rush of redemptions after the then-UK regulator, the Financial Services Authority (FSA), warned retail investors not to invest in what it controversially described as “death bonds”.
The fund resumed trading in 2014 after the Guernsey Financial Services Commission approved a restructure that divided shares into continuing shares for those wishing to remain in the fund and run-off shares for those wanting out.
Around 40% of investors hold continuing shares, of which more than a million have been redeemed so far.
Added costs and delays
According to the action group, more than 870,000 continuing shares, currently valued at $90m (£67.2m, €76.4m), are not subject to outstanding redemption requests. As a result, under the terms of the fund, the cash that accrues to these remaining shares in the future can be reinvested by the manager into ‘Other ‘Instruments’.
These are described as ‘US life policies similar to the existing underlying investments’.
“Once this potential reinvestment occurs then the shareholders concerned will be subjected to ongoing charges, costs and the risks of the ‘Other Instruments’, which could be significant and are not currently documents in detail by EEA,” the investor group warned.
Any future redemption requests by these investors would be subject to the valuation, returns and redemption restrictions or charges applicable to the new investment.
This could significantly reduce the total amounts and extend the timeframe of cash available for fulfilling any future redemption requests, the group warned.
Redeem not reinvest
A spokesman for EEA Investors’ Group said it has “always suggested that continuing shareholders should request redemption before any reinvestment occurs”.
“This now becomes much more important because EEA have been negotiating to sell off the remaining life insurance policies in their portfolio to Coventry Capital LLC in the USA.”
Coventry describes itself on its website as having “pioneered the life settlement industry” and “created the secondary market for life insurance in the US”.
The sale is, however, currently subject to a lawsuit filed by Coventry in the New York Federal Court, the group added.
Deadline
It advised that investors wanting to avoid these reinvestments “must request redemption of the continuing shares as soon as possible”.
The current EEA deadline is 28 December 2017 for a 3 April 2018 pay out.
Direct investors must complete a form available at the EEA Fund Management company website.
Those who invested indirectly; via platforms, wrappers, pensions or trusts, must instruct their platform or intermediary to request the redemptions on their behalf.
“Some intermediaries will require some days’ notice ahead of the EEA deadline,” the EEA Investors’ Group added.
EEA Investors’ Group
Formed in October 2013, the EEA Investors’ Group is working to improve the outcomes for EEA investors who became trapped in the EEA Fund after it was suspended.
