Friday, November 20, 2009

Deutsche funds hurt by rising life expectancies

Posted on FT Alphaville by Stacy-Marie Ishmael:

Betting on life expectancy, as investors in so-called life settlements do, is fraught with risk - not least that people will live longer than models suggest they will.

Investors in two Deutsche Bank funds — db Kompass Life 1 and 2 – that invested in US life settlements have learnt this lesson to their cost. According to a report by Spiegel Online,

Deutsche Bank collected some €500,000 ($750,000) from customers…But the fund quickly turned into a mega-flop. So far, not one investor has received even a single dividend payment and some may lose their entire principal.

A handful of investors in the Deutsche funds have filed or intend to file criminal complaints, according to the report. One of the complaints, filed in Frankfurt, according to Spiegel, argues thus:

There is cause to suspect “that from the very beginning, the promised dividends were not achievable using any realistic suppositions,” [attorney Gerhard Strate]wrote in his complaint. In addition, he says, investors in the two funds were not adequately informed about one aspect of the scheme’s structure: that both funds invest to a large degree in the same policies, thus “making risk management practically impossible.” Thus, he argues, the funds may have crossed the line into fraud or at least breach of trust. “Finding out exactly which is a job for the public prosecutors,” Strate said.
While Deutsche Bank has declined to comment on the complaints, they have attributed the non-performance of the funds — as compared to what was offered in the prospectuses — to the recent increase in US life expectancy:

As a result, they wrote to investors, “fewer policies matured than expected.” Mortality tables, upon which the funds are based, have changed since 2005, the bank explained.

Life settlements are already an emotive subject, and the industry is not helped by the whiff of scandal which seems to cling to it.

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