According to its promoters, a new fund investing in traded endowment policies (TEP's) could bring attractive benefits for small size institutional portfolios looking for low risk with capital growth.
The Protected Asset TEP fund, managed by Isle of Man-based Abacus Financial Services, will invest in TEPs - policies that are traded on the open market as second hand endowment policies - provided by market makers Absolute Assigned Policies (AAP).
Although so far the fund has mainly attracted interest from offshore life companies and discretionary trust managers, Lee Portnoi, executive director at AAP and a director of the fund, believes the new product will be a good option for offshore and onshore administered pension funds.
"The fund has total annual management fees of 0.975% and this is a very important feature because you will be investing in a portfolio of traded endowment policies which themselves have a very low risk," he says. "For a low risk investment this product produces very good returns and keeping costs low will improve the overall returns."
The fund has also negotiated advantageous banking facilities with the Royal Bank of Scotland - which will also act as a custodian - to fund the purchase of additional policies, the payment of premiums and provide a liquidity reserve.
"We believe that the returns over five years, after all expenses and costs, will be at least12.5% annually," he says." Also the NAV will be quoted at mid-price, so neither the buyer nor the seller will be penalised by a bid-offer spread."
Portnoi also thinks that the fact that TEPs are approved by the Superannuation Office will make pension fund trustees comfortable about this investment. A long-established endowment policy market maker, AAP has bought more than £300m (e472.1m) worth of policies since 1992. The company is the exclusive supplier of policies to BGIEF Funds, the publicly quoted endowment policy investment funds managed by Barclays Global Investors.