AIG warns on protected fund distributions
US insurer AIG has warned that investors in a £2bn (€2.2bn) protected recovery fund it set up last year to shift clients from troubled money market investments, could receive as little as zero by way of distributions prior to the fund's maturity date in 2012.
The protected fund is the rump of AIG's enhanced money market fund which ran into trouble last year as a result of the falling value of certain of its investments, previously viewed as safe.
Investors in the enhanced fund were able to cash in half their money late last year. Around 95% of them agreed to roll the funds into the protected fund rather than withdrawing their cash at a loss.
In its February news letter to investors, AIG blamed the low interest rate environment for reducing the size of likely distributions. More money will have to be invested until maturity to hit return guarantees: "This in turn has had a knock on effect to the distributions and will mean that we will have much less to distribute prior to maturity on 1 July 2012."
The letter goes on to warn that distributions could be "modest or possibly nil".
However, AIG sources say that it is still hoping to continue with some distributions, including one planned for May. It has provided an underpin, so that investors who stay in place until 2012 will get 100% of their original investment back. Those who choose to cash in their chips now will suffer a discount of 23% to full value, against the 27% struck in December.
A spokeswoman for the AIG confirmed the underpin agreement was in place.
Future distributions may also depend the attitude of any third party who chooses to buy American Life Insurance Company, the holding company for AIG's UK operation. A global insurance combine with assets under management of $100bn, American Life has been put up for sale by AIG, to raise funds to finance AIG's recent rescue by the US government.
A deal is believed to be imminent.
--write to mfoster@efinancialnews.com
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