Knott says that hedging currency is a possibility regularly reviewed by the managers of the fund, but points out that doing so would increase fees. “We recommend investors take a six-year view, which should be enough time to balance currency fluctuations.” Another concern expressed by investors is the potential conflict of interest that could arise from the Life Settlements Wholesale Fund’s structure of sourcing polices from two US-based dealers – Baltimore’s LSP and Florida’s CMG Surety – which together own 50 per cent of the Queensland fund’s responsible entity.

Select’s McCormick said a potential concern was that those source companies – with 100 per cent stakes in themselves – could stand to gain more from marking-up and on-selling of policies than trying to find the best value for the life settlements fund. Aware of this perceived potential conflict, Knott counters that the source companies do not currently raise funds on their own account. “There is no mark-up in between; the companies charge the market-rate 2 per cent fixed fee [for sourcing policies] and every transaction is recorded for transparency,” he says.

Morningstar doesn’t currently have a rating for the Life Settlements Wholesale Fund, but head of research Anthony Serhan says that at face value it sounds like a big liquidity risk. The fund claims it has up to 10 per cent of its assets held in cash, and a stand-by credit facility available should this not be sufficient.

There is also a healthy secondary market in the US in which the institutional investors trade policies among themselves, should a liquidity problem arise. But Knott stresses that life polices are not like bonds and heavy trading is not an efficient way of delivering returns. “We buy and hold the policies because the best return is in the maturity,” he says. Life settlement funds will receive another fillip for growth in Australia if Mark Todd, from Life Policies America, follows through on plans to launch an Australian-domiciled version of his firm’s fund.