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.
