2. 20 years of expertise in this monopoly asset class
High Yields (Commonwealth Bond rate +5% or better)
A-AA Credit Rated assets
Rising Capital Guarantees
TEP gains carry Tax Credits at 30%
and/or Tax Exemption (Tax Rulings in place)
Unique Asset Class with 7-10 day full liquidity
Uncorrelated asset to Fixed Interest
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3. How does The Aussie TEP Fund get exclusive supply?
What are TEP’s?
Recycled old asset-based life policies
How does The Aussie TEP Fund get exclusive supply?
Supplier
Subsidiary
Recycling old Life Policies
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4. Cash + Tax credits/exemption
High Yields
Pre-tax measurement (before fund expenses)
Individual
7.30% pa
Company
6.03% pa
Tax Paying Super Fund
4.96% pa
Yields are measured just like a franked dividend
Life Company
Tax Office
30% Tax Rebate / Offset
Tax Exemption
Cash yield from
Cash + Tax credits/exemption
= Pre-Tax Yield
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5. Year 5 The fund will buy 5/10 year TEP’s each year.
TEP’s are a growth only asset.
No distributions are expected during the first 5 years of the fund. (No taxation events to report either).
From Year 5 –
Distributions are expected from year 5 as TEP’s mature.
As TEP’s mature the Fund expects to pay quarterly distributions in cash that carry a 30% tax credit/tax exemption
From Year 8 Distributions will include Tax plus Tax Exempt Income
The ratio of the Tax Exempt gains will increase from year 9 onwards.
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6. Fund Assets TEP’s are growth only
The issuing life companies provide Capital Guarantees for their TEP payouts
The capital guarantee is to pay the contracted sum on the maturity date of the TEP
Historically the majority of TEP’s (i.e. AMP TEP’s) have been rated AA or A+ by Standard & Poors.
Currently all TEP issuers have A to A+ credit rating.
The Capital Guaranteed amounts increase annually for each TEP.
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7. Liquidity
The issuing Life Company of a TEP is required by law to be Buyer-of-Last-Resort --> a daily price is set
TEPs may be cashed back to the Life company within 7-10 days
The fund has other liquidity options in this asset class;
Non-recourse loans from the Life Company against TEP value
Establishing credit lines against the TEP values with banks (capped at 20%)
Distribution Re-Investment
Quarterly redemptions are offered to Unitholders
There is an early redemption discount of 1.95% reducing to nil over 2 years
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8. Risks
Life company bonus rates may rise or fall- typically only small movements as rates are very stable.
Concentration risk is managed by buying policies from 3 life companies
Changes in Bond rates will move annual bonus rates in the same direction
Taxation Risk is managed as the fund has ATO Private Binding Tax Rulings
Competition risk is diminished by the exclusive Supply Agreement for TEPs and the barriers to entry for a new supplier
Liquidity Risk is managed with many of the TEP product features and early exit discount to unitholders
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9. Ongoing Fees Management fees are 0.80% pa
Trustee fees are 0.05% pa (subject to some minima)
Various Fund administration/accounting/actuary fees not expected to exceed 0.10%-0.15% pa (subject to some minima)
Total MER expected 1.00% pa
The Manager may get a performance fee if the Capital Guaranteed amount on a policy exceeds the forecast Capital Guaranteed amount at purchase. (Fee amount is 20% of the excess)
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10. Why Invest ?
Alternative Asset class- not correlated to Fixed Interest (Especially in a rising Interest rate cycle)
Secure high yielding predictable performance
Suits high tax-paying investors
Rising Capital Guarantees on A to A+ assets
Strong liquidity options
Annuity cashflows with a 30% Tax Credit attached from year 5
Stable predictable returns
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