Thousands of Britain's richest investors stand to lose as much as 25 per cent of what they believed to be a "low-risk" investment, after a run on an AIG investment fund forced the troubled insurer to take emergency measures to close the portfolio down.
The television presenter Jeremy Clarkson is known to be one of those who may lose out, after he was advised to transfer a large sum of money into the troubled fund, just weeks before it ran into trouble.
The fund in question – AIG Life's Enhanced fund, which was available to its Premier Access Bond customers – was closed to withdrawals during the middle of last month, after AIG, then the world's largest insurer, ran into financial difficulties. The company was eventually bailed out by the US government, which now owns most of the company.
However, even after the bailout, the AIG Enhanced fund remained closed, as it had insufficient liquid assets to pay out investors at short notice. The £5.5bn fund invests primarily in corporate bonds – including those of the troubled bank HBOS – many of which have lost much of their value in recent months, and would be worth much less than they were bought for if cashed in at short notice.
As a result, AIG has told investors in the fund that they can get 50 per cent of their money now, but will have to wait three years if they want to get the remainder back without incurring a nominal loss. If investors decide they want the remaining 50 per cent as soon as possible, they will have been warned that they will have to wait until December and will still get much less money back than they originally invested.
According to AIG literature, the Premier Bond, in which the Enhanced fund was an investment option, is a "Life assurance bond that offers investment in a choice of low-risk funds", and which aims to "allow quick and easy access to your investment which is normally free of charge". Investors are now faced with the unenviable choice of leaving their money with an institution which has let them down for another three years, or cashing in their investment and realising a loss.
Colin Jackson, of advisers Baronsworth Investment Services, said the customers in the AIG bonds were high net worth clients with hundreds of thousands of pounds in the funds. Martin Bamford, of advisers Informed Choice, said he had not put any of his clients into the funds. However, he said UBS had recommended it to several of their clients – including Mr Clarkson.
In a recent newspaper article, Mr Clarkson vented his fury about the situation. "I made strenuous efforts to get my money out of AIG as soon as the scale of its problems became apparent. But it wasn't possible. Inwardly I was screaming. It's my money. I gave it to you. You've squandered it on a Mexican's house in San Diego and a stupid football team and that's your problem. Not mine."
Not puttin' on the Ritz: Insurer cancels retreat
British bank executives beware. When your company gets bailed out with taxpayer money, expect much greater scrutiny of where you are spending your budgets. Fresh from one scandal – where it was revealed that its top salespeople were treated to spa treatments and golf outings at a Californian retreat – AIG was yesterday engulfed in claims it is spending its taxpayer money profligately.
This is the AIG, remember, that was given an $85bn government loan when its collapse threatened to bring down the financial system last month. Yesterday, the company cancelled plans to sponsor a similar event at the $400-a-night Ritz-Carlton hotel in California's Half Moon Bay. The event had aimed to "motivate and educate" about 150 independent agents who sell AIG coverage to high-end clients, a spokesman said.