Millions May Be Lost In Super Fund Blow

The Age

Thursday December 4, 2008

By RICHARD BAKER and NICK McKENZIE, AGE INVESTIGATIVE UNIT

VICTORIAN public servants' superannuation is under threat after the state's investment arm ploughed more than half a billion dollars into an obscure Gold Coast "death fund".

The fund buys life insurance policies from elderly Americans in the hope they will die more quickly than expected.

Up to $150million could be lost from a $600million investment - made by the Victorian Funds Management Corporation using public-sector superannuation savings - in the Life Settlements Wholesale Fund.

Sources say the value of the $600million investment is at risk because the fund relied on flawed calculations about the life expectancies of people whose policies it bought.

This means the Life Settlements Wholesale Fund, which owns 568 insurance policies and has $1.1 billion under management, will be forced to pay insurance premiums for longer than expected. It will also face delays in receiving payouts.

The Victorian Funds Management Corporation made the investment in August last year on behalf of public-sector superannuation fund ESS Super.

The man who made the $600million investment, chief VFMC investor Leo de Bever, was previously a principal figure with one of North America's biggest life insurance companies.

Before coming to Melbourne in 2006, Mr de Bever was executive vice-president of Manulife Financial Corporation and its subsidiary, John Hancock Life Insurance - which provides the largest number of policies to the Life Settlements Wholesale Fund.

Mr de Bever resigned from VFMC in April, accusing the State Government of too much interference in investment decisions. He was paid up to $749,000 in his final year, making him Victoria's highest-paid public servant.

The problems facing Life Settlements Wholesale Fund can be attributed to its reliance on a US underwriter, 21st Services, to provide life expectancy data.

In September, 21st Services rocked the US life settlements sector when it released revised mortality tables that increased the life expectancy of policy holders, sometimes by several years. American industry sources told The Age that 21st Services had predicated shortened life expectancies based on outdated 2001 mortality tables.

The full impact of the incorrect life expectancy predictions on the value of the Life Settlements Wholesale Fund's assets will not be known until its directors lift a three-week ban on withdrawals and new applications.

But sources suggest the fund's unit price could drop by 25 per cent when it reopens for business.

VFMC chief executive Syd Bone declined to comment on whether the value of Victoria's $600million investment was at risk. "We just don't know. It's inappropriate to speculate at this stage," he said.

Life Settlements Wholesale Fund directors would not answer questions. A spokeswoman said the company's website would inform investors of when the trading ban would be lifted.

Opposition Leader Ted Baillieu said the value of Government investment assets managed by the VFMC had fallen by $5billion in the past year.

Got a tip? - email investigations@theage.com.au

KEY POINTS

- $150million from public super savings at risk.

- $600million invested in miscalculated insurance policies.

- The investor was the state's highest-paid public servant.

© 2008 The Age

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