Using TEP Funds to benefit from windfalls
An Open Ended Investment Company specializing in TEP based funds is urging investors to consider these instruments as a low volatility asset class positioned to benefit from windfalls due to recent reallocation of orphan assets.
The Protected Asset TEP Fund plc (PATF) claims that TEPs can offer stable annualised returns of between 7-9 percent on initial investment. They describe their investment strategy as actively managing a carefully structured, low-risk portfolio of TEPs to deliver consistent capital growth. A spokesman said that this made them a good choice for investors trying to shelter from volatile equity markets. “By only buying the very best quality TEPs, we’re able to deliver stable fund performance with lack of volatility”.
Another aspect of this fund, and TEPs in general, is their ability to benefit from windfalls resulting from orphan assets or the inherited estate. These assets were set aside by insurance companies as contingencies and were built on surplus cash from savings policies after reasonable returns were paid to policyholders.
Recently Norwich Union announced that policyholders could receive windfalls of between £400 and £3,500. This benefits PATF since Norwich Union policies make up 15 percent of the fund. They believe this will have a positive impact on their share price, “we’re expecting this to feed through to the share price once the funds are paid to PATF next summer” and suggests investors interested in TEPs need to enter the market before that time if they are to benefit. They anticipate other insurers will follow with announcements of orphan asset allocation.
The fund is aimed at experienced investors with a minimum of £10,000 to invest and is only available through a financial adviser. Alastair Beattie of PATF said that the bonuses from orphan assets “combined with the intrinsic guarantees provide stable, attractive returns for experienced investors, and make the fund a real ‘safe haven’ in these worrying times.”
There can be issues with open ended TEP funds and they should be regarded as long term investments. Should the requirement to meet investor redemptions exceed available cash the fund is forced to sell part of its portfolio onto what maybe a depressed TEP market, or even surrender them back to the insurers.
It is also possible to enter the TEP market directly and the Association of Policy Market Makers is the first port of call for investors looking for more information and a list of brokers.
January 22nd, 2009 at 2:27 pm
Does MR Beattie know that the Abacus Tep Fund No 2 sterling class fell in value 48.3 % from October 08 to December 08. Is this the stable fund performance with lack of volatility. When does he expect investors like me to recuperate their losses. How come the share price held up so well up to October 08 then dropped in the 3 months to December 08 more than the FTSE dropped the whole year !!!!!
Looking forward to your expert reply.
January 23rd, 2009 at 1:02 pm
@Dr Joe Galea M.D – While I can’t give an expert reply a couple of points are worth mentioning. The Protected Asset TEP fund changed its valuation process to reflect policy surrender values rather than maturity values. This is meant to be a temporary revaluation and was a response to a surge in redemptions towards the end of last year. These early redemptions meant the Fund became a forced seller of policies in an illiquid market. This made it more likely the Fund would have to surrender policies rather than sell them. It seems Mr Beattie is aware of the fall in value and you may be interested to read his comments about the situation and his view that “People who stay in the fund will be fine”.
As you point out this is certainly not an example of a lack of volatility! To change the way the fund was valued seems like moving the goalposts, even if it was intended to protect existing shareholders.
Although the scale of redemptions is blamed on investors needing to access cash, other factors could contribute. Back in 2001 some TEP funds experienced a surge in early redemptions due to concerns over bonus rate cuts and even the security of insurers. This time insurers were quick to publicise their capital strength, however they made a number of announcements revealing bonus rate cuts, falls in underling fund values and even asset reallocation. The funds underlying endowment policies had big exposures to commercial debt and commercial property.
Since TEP prices fell so low some are optimistic about their future potential.
My comments are just general observations and only an Independent Financial Adviser could provide the type of information you require. I hope circumstances improve soon and you are able to recuperate your losses.
February 7th, 2009 at 5:58 am
I also have an investment in Abacus Tep Fund 2,and I fully agree to Dr.J.Galea’s comments.May I remind the expert that when I invested my money in the mentioned fund,I was assured that it is a secure investment which is not affected by the stock market volatility.What I cannot comprehend is the fact that over the years,the return on investment was around 6 to 8% per year,therefore how can you explain the drastic drop of over 48% in just three months ? In October I asked our local broker for their advice,and I was assured that my investment was safe and was not to be affected by the financial turmoil ,which had just started.Being a cautious invester,I decided to redeem my investment in December,but my application was suspended and was adviced to re-think my position as many other investors were withdrawing their money and there was the possibility of a drop of 37% which in fact increased to 48%.I think that we investors were taken for a ride,and I was never aware or adviced of this type of volatility ,being a PROTECTED FUND.
February 11th, 2009 at 7:25 am
@Philip Sammut Thanks for your comments. I also agree with Dr Galea’s sentiments and my comments were only intended to highlight some other relevent information.
Abacus said the reason for the drastic drop was largely because they temporarily revalued the fund due to a surge in redemptions. These redemptions meant they had to sell policies into a market where there were simply not enough buyers. Continuing redemptions meant the fund would have to surrender policies as it would be impossible to find buyers for them. As a result it was revalued to reflect surrender values rather than maturity values, which were used when you invested in the fund. I’m sure this must have been a great concern, especially for cautious investors who had sought to avoid volatility and find security.
I can’t comment on the financial advice you received but TEP funds experienced similar problems with redemptions a few years ago. Since you feel you’ve been given bad advice the Financial Ombudsman may be able to help. I hope you find a satisfactory outcome to your predicament and would be interested to hear how you get on.
May 7th, 2009 at 5:13 pm
Good afternoon
It there a possibility that the fund will be revalued as per the previous method of valuation rather than the NRV introduced in December 2008
Looking forward for your reply
Rgds
Philip
May 8th, 2009 at 3:57 pm
@Philip In their latest factsheet the NRV valuation is still described as “temporary” but there appears to be no indication of when this may change. The factsheet can be downloaded as a PDF file from the PATF website http://www.patf.co.im/
June 14th, 2009 at 9:54 pm
I also heard the same nonsense about the low risk, the “protected” aspect of the investment, and yes, that the revaluation was only 37% but even after most revoked their redemptions in December, it continued its fall. And that it was temporary, only a few months. All apparently a ruse.
The fund has no liquidity so it was always particularly vulnerable during any credit crunch. But no one ever said so, the hype was always how low risk, low volatility it is. They can explain it away however they want, but a 42% devaluation, allegedly temporary, is not low volatility, even when, or if, it recovers.
To Dr. Galea, Beattie of PDL is a fund promoter, a cheerleader, whose job is to get the most investors in, so relying upon the veracity of his newsletters is ill advised. They hawked it as safer than cash even during the month October 2008 when all the redemptions triggered the revaluation, and are still hawking this product as a great investment, exploiting (extending) the revaluation -42% discount to bring in more investors.
August 24th, 2009 at 4:22 pm
I see that the PATF and PATFNo.2 funds are to move back to an NAV at an as yet unannounced date and structure -i.e. they haven’t yet announced whether it will be in one go or staged. They are also considering a redemptiob charge on the PATF fund, presumably to prevent everyone jumping off like fleas from a dogs back when this happens. This was announced on their website last week.
I assume the Abacus fund which is closely related will also follow this? Does anyone have any other insights?
December 15th, 2009 at 9:20 am
Relieved Investor: my initial reaction was also one of relief but all turned out to be nothing but another scam by Abacus as the “recovery” or the progress in valuation this switch of accounting (from the Net Redemption Value to the Net Asset Value) so far brought hardly exceeded the yield an investor would have had during the times when the fund showed a “normal” performance – however, this time this performance was based on the reduced amount of the former NRW. Abacus is very well aware of the fact that if it made a proper and sudden correction, every investor who came in before October 2008 would run for the door and they would face the same flood of redemption requests again as people are itching to get out after they have been taken for this ride. Which brings me to another point: did investors really get a fair treatment? No, they did not and those who were looking for answers to their questions about how the fund determined what to pay those who redeemed in 2008 before October, what determined the valuation based on NRV and who was making sure all investors got treated equally etc. ran into a wall of BS. Those who asked the FSC of the Isle of Man for help were told that – unless there is clear evidence of wrongdoing – the FSC was not able to help since the fund is non FSC regulated. In fact, there would be enough circumstantial evidence that all is not right but the FSC was just taking the easy one out. Investors would only have got a fair deal if the fund decided to put up the gates in early 2008, closed the fund and offered the investors an immediate payout at a discount of NAV or – alternatively – a redemption over time based on the payout pattern of the funds’ portfolio of policies at the time. That they did not chose this path raises suspicion about the workings of the fund and the motives of Abacus’ management. When I protested at the change from NAV to NRV, the fund’s representatives recommended that I should compare the performance with that of other financial asset classes and funds. I kept reminding them that I bought the PATF because I did not want to take risk and that the fund’s yield certainly did not suggest that the risk was particularly high. My investment advisor was assuring me that the investment was similarly safe as a deposit in a bank. Anyway, to make a long story short, if you are in a similar situation and consoled yourself in early 2009 by looking at asset classes that performed even worse, check once how your investment would have performed now. You will most likely notice that a simple investment into an equity index fund would have by far outperformed your PATF investment, which completely takes the wind out of this argument. For new investors, my recommendation is to STAY OUT. My conclusion was that the fund did not get unwound because it was just to lucrative to be kept afloat for the fund managers and all those who financially benefit from it – except the investors. It is a scam.
December 26th, 2009 at 7:34 pm
When I invested in the Tep 2 Fund I was also assured that there was absolutely no risk in this investment.This was my mother’s lifetime savings. So I went along and invested a substantial sum of money having been assured that it was a safe investment only to learn, in these recent months, that I have lost practically half the money. But what surprises me most is that the financial advisers of the Financial Group still continued to reassure me that it is better for me to leave the money where it was as things are going to get better. What a fool I have been not realising I was being had.
What I am asking now is if it is possible to hold a meeting for all investors in this Fund to see whether we can take any action in this regard.
January 11th, 2010 at 2:35 pm
The FUND website nolonger works? Does anyone know what happend to the site? www.patfno2.co.im
January 11th, 2010 at 9:16 pm
All points noted, and indeed I’m taking action, not again the fund, but my IFA through the Financial Ombudsman Service, although what it will achieve is not yet clear. Shah, try http://www.pdlinternational.com/ They’ve moved the two websites (PATF and PATF No. 2) into one now, re-launched it, and tarted it up some.
In fact the news isn’t all bad. The fund has actually gone up a significant amount over the year (from an admittedly low base) and if the NRV was restored then things would look a great deal brighter. Losses certainly, but not disastrous ones.
What I can’t work out is why they don’t set a timetable for this, and get the investors back in to float this thing upwards again. A large number of the assets, the actual policies themselves, will start to pay out in the near future. Indeed the increasing traffic on the web (I have Google alerts out there) seems to imply they are heavily selling the TEP bond again, and a recovery like the post 2001 (or 2002) nrv seems on the cards.
BTW I’m not a plant, I am a geniune investor, genuinely hopeful of a way out of this one! Good luck to us all.
January 16th, 2010 at 5:54 am
Relieved Investor: I wish you luck with the Ombudsman. I tried that route and they referred me to the FSC. Please let us know how things go.
I have redeemed my investment at a significant loss because I do not believe in entrusting people with my money if they can just unilaterally decide one day that they owe me 30% less than the day before and they do not even have the decency to back up their decision with relevant prove or a proper explanation. These people continue to pay themselves and their organizations fees in spite of the investors taking such losses. Investors have no means to sanction – FSC/Ombudsman etc. etc. all do not want to take action.
I maintain, this is a ****. Probably the most effective avenue that is open to disgruntled investors is to alert the regulators in the jurisdictions where PATF is offered to local investors to blacklist it and to get the regulators to sanction the organizations that continue to market it to their investors.