Alternative boutique Managing Partners Group (MPG) has announced a change in the asset valuation model for its High Protection Fund, which invests in traded life policies.
Assets are now based on a ‘fair value’ model as required under the Alternative Investment Fund Managers Directive (AIFMD).
Previously, it applied a ‘mark to model’ methodology, which calculated the NAV on the assumption that policies would be held to their projected maturity dates based on a static IRR that was relevant at the time of acquisition.
MPG said the change will rise anticipated annualised returns in the fund from 6% to 8% to a 10-12% range, “based on internal rates of return (IRR) of between 15 and 17% per annum adjusted for necessary cash reserves, expenses and life expectancy changes over time.”
“The new methodology combines the fair market value of the assets and an actuarial model that gradually unwinds the difference between the purchase price and maturity value less expenses and the premiums expected to be paid on the policies whilst reflecting a discount rate that correlates with prevailing market pricing,” MPG explained.
Jeremy Leach, CEO at MPG, commented: “We have changed the valuation methodology because it is the progressive thing to do and brings the fund in line with AIFMD principles. The timing is also opportune: an influx of new investment in Q3 this year has meant that we have purchased a significant number of policies and valued them on the new basis, which has limited the overall impact of the change.
“The increase in size of the fund will improve liquidity and be more then welcome to our existing investors. They can also expect an improvement in performance. New investors will take comfort in the fact that the value of the portfolio will be tracking underlying values.
“The change in methodology will see valuation the policies within a range of 15% IRR to 17% IRR in the foreseeable future but we expect the returns to be lower as the fund can never be 100% invested and the cash element creates a yield drag, there are also fund expenses and the valuation methodology itself assumes LE extensions each month, which will of course draw in performance so a realistic expectation will be circa 10% to 12% per annum.W
Launched in March 2009, the fund had assets under management of $16m in September and MPG expects this figure to rise by a further $16m in October 2016.
The company expects the fund to receive the AIFMD approval within the next three to six months.
Since inception, its USD Growth Share Class of the High Protection fund has returned 70.56%. Growth share classes are also available in sterling, Czech koruna, Euros and Swiss francs.
MPG currently manages funds with a gross value of $500m.