Fund Suspension Update - Advance notice of closure of the OFS International Balanced broker funds

Background as to why the broker funds were suspended in July 2013 

The broker funds are managed by OFS (Asset Management) Limited and were originally added to the Scottish Provident International internal fund range for the purposes of exclusive promotion by OFS International advisers to their own client base. The broker funds currently invest directly in two Private Client Portfolio (PCP) funds: 

• The PCP Aggressive fund
• The PCP Balanced fund

The directors of the Private Client Portfolio (the "company") had to temporarily suspend the pricing of both funds due to the fact that LM Investment Management Limited, the entity through which both the Aggressive and Balanced funds invested, were placed into voluntary administration in Australia on 19 March 2013. 

During the course of 2013, the Queensland Supreme Court appointed administrators to the LM funds in order to commence the liquidation process and seek to realise value from the assets owned by the LM funds in order to pay back creditors. Based on published reports and the available information, once the total cost of the LM liquidation process is accounted for and primary creditors are paid there will be either very little or no proceeds left to pay back to individual investors. 

The Balanced fund, in addition to LM assets, also has some exposure to a traded life fund, the Aurora Defined Benefits fund which suspended redemptions in August 2013 but continued pricing to November 2014. The manager is currently working through the process of redeeming the liquid assets, with the first distribution to shareholders including the Balanced Fund expected to be complete early April. Following the receipt of proceeds the Balanced Fund will also distribute to its shareholders.

Impact of suspended funds on policies 

The OFS International Balanced broker funds have remained suspended since 26 June 2013 because the value of the underlying PCP funds could not be determined. PCP, or any administrator, would not be able to fairly price any fund whilst a large majority of its holdings are in suspended assets. Whilst the Aurora Defined Benefits fund was trading until November 2014, it only accounted for a small proportion of the total broker funds, and it would therefore not have been fair to continue to allow investors to add premiums or take withdrawals during this time. 

When a RL360 regular savings policy holds a suspended fund the policy effectively becomes ‘frozen’ meaning that the policy owner is restricted from carrying out certain transactions on their policy. This includes switching between funds, taking part withdrawals, viewing a current valuation or fully surrendering the value in their policy. 

What are the prospects for the OFS International Balanced broker funds? 

As the prospects for retrieving any value in the PCP funds are bleak, which in turn affects the value of the broker funds, we are taking the following course of action which we believe will be in the best interests of policyholders: 

• We will formally close the OFS International Balanced broker funds on 23 April 2015, and this does mean that they will be closed without value
• The funds will be removed from linked policies on this date. This will allow policyholders who also invest in other funds in their policy to once again have full access to their policy, allowing switches, part withdrawals or surrender of the policy to become fully effective. For anyone with no other fund holdings an automatic surrender will be triggered
• Although closing the funds at this stage may seem drastic, we will retain a ledger of holdings of each policyholder as at 21 April 2015 and should any proceeds be paid back from PCP from investments linked to the closed broker funds we will request immediate and full redemption. We will then allocate proceeds back to affected policyholders.

Should policyholders wish to surrender their policy after the above action has been taken, they will still have entitlement to any recovered monies from the PCP funds. It will therefore be important that these policyholders continue to keep us up to date with their current correspondence address if surrender is taken up. 

What this means for policyholders 

Once we remove the funds from linked policies any that are above our minimum permitted policy value will remain active. 

Where a policy falls below our permitted policy value the policy will immediately lapse. The permitted policy minimums which apply to the affected policies are as follows: £2,500 / US$4,000 / €4,000 / JPY425,000 / HK$30,000. In these circumstances we will trigger an automatic surrender of the policy and send the policyholder a auto-surrender request form to complete in order that we can return the residual value to them. We will waive any outstanding surrender fees that may ordinarily apply. 

Letters have been issued to affected policyholders outlining the above course of action we will be taking. A copy has been sent to their servicing adviser for information. A sample letter can be viewed opposite. 

We will write again once the funds have formally been closed to notify each policyholder whether their policy is now fully available again or has been automatically surrendered. 

To read the fund update issued on 11 July 2013 click here