Zombie Fund

What is Zombie Fund?

A zombie fund (more formally known as a closed fund) is a colloquial expression for a with-profits life insurance fund that is closed to new business.

What do zombie funds like Pearl do?

They run a number of funds, pooling together their assets and managing them to get higher returns. They also tend to outsource back-office functions so their overheads are lower. As zombie funds don't take on any new business, they also spend little on advertising costs.

Why are they so popular?

A growing number of companies no longer want the headache of managing pension funds. People are living longer and pension assets are volatile, reflecting stock market moves. Deficits, or surpluses, of defined-benefit pension schemes must also be included in company accounts.

Why are they so heavily criticised?

Zombie funds are sometimes criticised for underperforming as there is no incentive to attract new business. Investors also have to pay a fee, known as a market value adjuster, if they want to move their money somewhere else, which can run as much as 20pc. Analysts claim policyholders can sometimes become trapped in an impossible position, constrained by conservative investment strategies.

Why would Pearl want to list on the London Stock Exchange?

Pearl says it wants to list so it can acquire new businesses without taking on debt. By listing, the company would be able to raise funds by issuing new shares for cash or parting with equity, rather than increasing its debt burden.