Jeremy Leach - Traded Life Policies Specialist




	Thursday, 23rd August 2012
	Who will remain in the Euro?
	At the beginning of this year I predicted that there would be at least one country exit from the Euro in 2012. That has yet to happen but over that time the Euro has fallen in value versus Sterling from 1.15 to around 1.27. That weakening reflects the growing lack of confidence in the Euro. From here the US Dollar will find more value while sterling will find its value somewhere between the two. Europe’s economy is in a mess and will be for a long time. The economies that are likely to get out of this recessionary cycle with the least amount of damage are the UK and some of the Scandinavian countries that protected their localised economies by not adopting the Euro. The big question is: who will remain in the Euro? The UK will keep its own currency. It has a massive financial commitment to Europe because of its political relationship and debate continues whether it should exit the European Union. After all, Switzerland can still trade with Europe even though it does not have the same responsibility to put money into the EU. it has been particularly galling to the British people watching French farmers strike and Spanish fishermen complain even though they have received substantial subsidies while their own fishermen and farmers have not had anywhere near the same support. The financial crisis in Europe is coming to a head. Politicians prefer to avoid risk and therefore do nothing if they have that option. But something needs to happen now. Whatever the logic was to put so much into Greece it is delusional not to expect the country to default given it defaulted five times in the last century. While Spain does have an economy it is weak. It was forced to improve its infrastructure to meet standards imposed by the EU and now it is weighed down by debt it does not have the financial resources to service and which is never going to be generated by its own economy. Rules imposed generally by the EU have in fact just cost Europeans more money. The UK – a small country with a massive financial commitment to Europe – now needs to seriously consider whether staying in the EU really is worth it and if its European levy would not be better spent supporting its own economy.




	Friday, 1st June 2012
	A sea change in sentiment will drive property and equities higher
	My prediction at the end of last year that a partial break up of the Euro would be inevitable in 2012 is looking ever more likely. I thought Greece was the most likely candidate to depart although Spain is looking wobbly too. The Euro was always going to be tested in an economic downturn and we are certainly seeing that now. However, despite the widespread worries, I do believe that we are not far away from a rally in equities. It is quite possible we could see it this year. A recovering property market will encourage the banks to raise their lending levels and just the first signs of recovery are needed to spark a return of optimism, with investors drawing on substantial cash reserves that are earning little or no real interest to seek higher returns in equities. Banks only make money when they are lending so they cannot continue at the current low levels for long. As soon as they see the beginnings of a house price recovery they will start to lend again, albeit cautiously. And as soon as investors see that they will pile into equities. We have been through a long recessionary cycle and at some point money must start to go back into the economy. The longer the downturn, the greater the bounce will be and investors will not want to miss out on that. As soon as there are signs of recovery, positive sentiment will drive assets higher. Given current market sentiment the view expressed above is highly contrarian. Europe is certainly in a serious position. But investors should remember the darkest hour is always just before dawn. And looking for returns in assets that other investors overlook has often been a wise strategy.




	Wednesday, 9th May 2012

	Traded life policies, or life settlements, constitute a relatively young asset class so without wishing to sound arrogant, I do take every opportunity to offer some clarity on the subject. Just such an opportunity presented itself earlier this month when I was selected to take part in a roundtable debate on the best way to structure offshore funds that invest in them. The discussion was one of the presentations at the International Life Settlement Conference held at the Hilton Metropole Hotel in London. Given the prevalence of North Americans at the conference it was interesting that the event was held on this side of the pond (but the location was certainly more convenient for me). Anyway, I was keen to press home the view that an open-ended structure with assets valued on a mark to model basis constitute the fairest structure for such funds. This might confuse some readers but it is really quite simple. Whereas ‘closed-ended’ funds have a pre-set life of say, five or more years, an ‘open-ended’ fund has no closure date. This means investors can invest in and out of a fund at any time, subject to daily, monthly or quarterly trading stipulations. The mark to model valuation basis means that life policies held in a fund are valued on the assumption that they will be held to maturity and their values are discounted accordingly. A ‘mark to market’ approach would value a fund using the prices that the policies could be sold for on the open market (which are invariably much lower than the mark to model valuations). So why is the above approach best? The ‘open-’ versus ‘closed-ended’ issue had prompted a major debate for the life settlement fund industry and both approaches do pose their own challenges. But for me, closed ended funds have a major problem in that they have to liquidate at the end of their fixed term any policies in the portfolio that haven’t matured, which means disposing of a lot of policies on the market at one time, usually at deep discounts. Open ended funds can keep policies to maturity, meaning they avoid such discount issues entirely, giving investors much better returns. However, if investors are to invest and redeem at any time then managers of such funds must be able to manage the subsequent cash flows. This is not easy. Indeed, we have seen some good funds close for no other reason than the investment horizons of investors have not been matched against the maturity flows of policies. The reason a mark to market model is less fair is that those divesting from a fund will get unfairly low redemption values while new subscribers will get valuations that are heavily discounted. Under the mark to model basis, investors can buy and sell units at higher –and fairer - prices. Needless to say, MPL’s Traded Policies Fund is an open-ended, mark to model product! And I am proud to say that it has delivered steady, incremental returns for investors of around 8-10% per annum, year in, year out since it was launched in 2004.

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