Volatility in equity and property markets will not stop traded life policies from making positive returns in 2008, delegates at a roundtable sponsored by Managing Partners Limited concluded earlier this month. This view was mirrored by two IFAs who told the debate they were increasing their clients’ exposure to TLPs. 

 Jeremy Leach, Managing Director of MPL, told the debate: “2008 offers a stellar opportunity to TLP fund managers because investors have lost faith in equities but interest rates on deposits are so low. Investors need to consider an asset class that delivers 8-10% year in, year out.” 

TLPs are whole of life policies issued in the United States. They are sold before their maturity dates to allow the original owners to enjoy some of the benefits during their lifetimes. 

Two IFAs who attended the debate pointed out that they have been increasing their clients’ exposure to over the last couple of years. They agreed that the majority of their clients, for whom most of their assets were in substantial pension savings, were happy with steady returns of cash-plus 2% combined with capital preservation, which are typical of TLPs.  

Nigel Newlyn, Director of Argent Personal Finance Managers, told the debate: “We constantly look for alternative classes of investments that provide an anchor to the portfolio. TLPs are an anchor asset class as far as we are concerned. TLPs deliver greater returns than cash and as long as we can underpin a portfolio with this kind of asset class then we are free to do something a little more exciting with other parts of the portfolio.” 

David Chinn, Partner in the Financial Services Division of Oury Clark, commented: “Provided we can look to provide an 8% growth rate and not lose capital then clients are very happy with that. That is why TLPs feature as an asset class to us.  “We started investing in TLPs funds about three years ago but it was toe in the water stuff. But since we became discretionary advisers a year ago and have been putting together our own portfolios, we have used TLPs much more.” He said that Oury Clark’s cautious, balanced managed and absolute return portfolios had between 10% and 15% exposure to TLPs. 

Professor Merlin Stone of the Bristol Business Sc hool told the debate that an asset class offering steady, predictable returns could act as a replacement for with profits and provide some certainty for people saving for pensions. This certainty was a key tool in addressing the increasingly important issue of longevity risk. He said: “The dream of a reasonable return with the investor staying invested for a reasonably long period is what with profits was meant to be about. It is desperately unfair that there is a whole generation of people with money sitting in with profit pension funds who might have their retirement sullied because some of the life and pensions companies messed up, while the government has no idea what to do about pensions. People are worried because they just do not know what to do.” 

Gary McLelland, Managing Director of Jersey-based Corinthian Financial Services, said Corinthian had been a promoter of with profits in the past but that since 2003 the company had been looking at alternative strategies for clients. He said:  The advisers of clients who invested in with profits have been bitterly disappointed by their performance and lack of transparency. We have been let down by insurance companies and the all-singing, all-dancing investment strategies that we have known for 40 to 50 years and which have now failed to deliver.   “We have a duty of care to our clients to protect their assets and deliver solid returns without shooting the lights out. And in that we have been living the dream for the last two years that we have run TLP funds. They do work. What you see is what you get with them and clients can achieve the investment targets they set themselves.”  Key conclusions by attendees at the debate included:

• TLPs constitute a new and substantial asset class that should be recognised as such
• Volatility in equity and property markets will make 2008 an ideal time to invest in TLPs
• TLPs, which offer steady, incremental returns, are an ideal replacement for with profits – whether savings or pensions, which have left savers bitterly disappointed in recent years
• Many IFA clients with substantial pension pots are looking for steady returns of cash-plus 2% combined with capital preservation, which TLPs can offer
• There are risks to managing TLP funds but these can be controlled by buying policies with life expectancies on the lives assured of 5-6 years and by using prudent actuarial analysis to value funds

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