Bottom Line: Unsuitable Portfolio for investors

CHARTERHOUSE Tilney, the stockbroker, has done well to find institutional buyers willing to hold 35 per cent or so of the shares in Policy Portfolio. For although the company performs a useful service making a market in unwanted life insurance savings policies, there are doubts about its prospects.

The placing of shares at 130p values Policy Portfolio at just pounds 10.4m. It is a tiny, family-run company offering a single product. A 50 per cent jump in staff numbers has given it a total of 12 employees. Isaac Rubin, the managing director, is 67. His deputy is his son Sammy Alexander, a credible presenter but only 26 years old. Charterhouse Tilney has beefed up the team by recruiting the requisite baronet with City connections, Sir Stephen Waley- Cohen, a former financial journalist and Euromoney publisher who has spent the last decade working in the theatre.

Policy Portfolio buys with-profits endowment policies by paying policyholders more than the surrender values offered by the life insurers. The firm then sells the policies on to investors prepared to hold them to maturity. Second-hand policies have traditionally offered their purchasers a good and reasonably safe return.

But the rapid growth of this market in recent years has attracted increased competition. Although Policy Portfolio's pre-tax profits have grown to pounds 817,000 in the year to March, gross margins have fallen sharply, from 26 to 17 per cent in two years.

Moreover, with widespread cuts in with- profits bonuses, the price investors will pay for second-hand policies is likely to fall. Yet the price at which Policy Portfolio buys in stock is propped up by the demands for better surrender values from the financial regulators, the Office of Fair Trading and consumer lobbyists.

With the end of the recession, the supply of suitable policies may contract. Mr Alexander insists the lack of awareness of the second-hand market means there will still be plenty of room for expansion, but Kleinwort Benson has taken its time to find enough suitable investments for the endowment investment trust which it launched last year. In the longer term, the life companies' move towards unitised with-profits policies could further diminish the supply.

For all its merits, Policy Portfolio is not a company that should have a stock market listing.

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