The liquidation of the Traded Life Policies Fund (TLP Fund) was the culmination of structural risks, regulatory scrutiny, and a liquidity crisis inherent to the “Life Settlements” (also known as “death bonds”) industry.
While multiple funds have operated in this space, the most notable liquidation involving this specific name (and its manager, Managing Partners Limited or MPL) followed a pattern of “longevity risk” and a subsequent freeze on redemptions.
1. The Business Model and Inherent Risks
The fund operated by purchasing US life insurance policies from elderly individuals for more than the surrender value but less than the payout. The fund then became the beneficiary and assumed the responsibility for paying the premiums.
- Longevity Risk: The fundamental flaw was that the insured individuals lived longer than actuarial models predicted.
- Premium Drain: Because people lived longer, the fund had to pay insurance premiums for many more years than expected, draining cash reserves.
- Valuation Issues: The fund’s “smooth” growth was often based on actuarial estimates rather than market value. As longevity increased, the true value of the policies plummeted.
2. The Regulatory “Toxic” Label (2011–2012)
The UK’s Financial Services Authority (FSA, now the FCA) issued a scathing warning in late 2011, describing Traded Life Policy Investments (TLPIs) as “toxic” and unsuitable for the vast majority of retail investors.
- The regulator compared some models to Ponzi schemes, noting that because the underlying assets were so illiquid, some funds appeared to be using new investors’ money to pay out those who were redeeming—a classic “cross-subsidy” risk.
- This regulatory intervention effectively “killed” the market for new retail money, which was the lifeblood of the funds.
3. The Liquidity Crisis and Suspension (2011–2013)
Following the FSA’s warning, many investors rushed to withdraw their money.
- Fund Freeze: Unable to sell the illiquid life policies quickly to meet the wave of withdrawal requests, the TLP Fund (and others managed by MPL, such as the Traded Policies Fund) suspended redemptions.
- Trapped Investors: Thousands of investors found their capital locked in a fund that was still being depleted by the ongoing cost of insurance premiums.
4. Legal Battles and Management Controversies
The road to liquidation was marked by intense legal disputes between the fund managers, the directors, and the Cayman Islands regulators (CIMA).
- Management Fees: Investors and regulators grew frustrated that the managers continued to collect high fees even while the fund was frozen and declining in value.
- CIMA Intervention: The Cayman Islands Monetary Authority eventually took enforcement action, concluding that the fund was unlikely to meet its obligations and that the management was not being conducted in a “fit and proper” manner.
5. Official Liquidation (July 2017)
The Traded Life Policies Fund was officially placed into Official Liquidation on July 21, 2017, by the Grand Court of the Cayman Islands.
- Purpose: The goal was to take control away from the original managers and appoint Joint Official Liquidators (JOLs) to oversee an orderly “wind-down.”
- Recovery: The JOLs were tasked with selling off the remaining portfolio of life policies to return what little capital was left to the creditors and investors.
Summary of Timeline
- Pre-2011: Rapid growth and marketing of “low-risk, steady return” death bonds.
- Nov 2011: FSA declares the products “toxic”; the market for new investors collapses.
- 2012–2013: Fund freezes redemptions as liquidity dries up; “longevity risk” bites.
- 2013–2016: Prolonged period of suspension and legal disputes over management fees and valuation.
- July 2017: Official Liquidation begins under Cayman Islands court order.
- 2020s: Continued legal proceedings against former directors and managers to recover assets for the victims.
