FTM works by splitting the portfolio between a diverse range discounted medical accounts receivables. The fund has anywhere from 90 – 95% of the portfolio in discounted medical accounts receivables which are secured by an average of $3 worth of receivables against every $1 invested. To reduce the risk even further the receivables are held by a range of insurance companies generally limiting the maximum exposure of any one company to 10% thereby lessening the risk of default or adverse effects on the portfolio.
Then there is a cash component which can fluctuate between 5 and 10% of the portfolio. Together this makes up the entire portfolio and has absolutely no exposure to market forces.
To understand the concept of these receivables which utilizes the inefficiencies of the US healthcare system when it comes to the timely payment and processing of personal injury claims. Consider the following example: There is a car accident, and as a result one of the drivers will require back surgery. The receivables will conduct thorough due diligence and if feasible the company will fund the operation now allowing the injured party to resume a normal pain free life sooner and collect from the insurance company at a specified time later. The receivables company holds a lien on the insurance proceeds in the interim.
This is similar, in principle, to accounts receivables factoring, but with a critical difference. In traditional factoring a company buys a large pool of debt and simply hopes that enough will be paid to ensure a profit. In our case, the Medical Accounts Receivables Company pick and choose the cases they wish to fund and, on average, 4 out of every 5 cases reviewed are rejected, as investor safety is paramount. It should also be remembered that the payer is an insurance company, not a patient or hospital.
It should also be noted that the payer is an insurance company, not a patient or hospital. Furthermore, the underlying investment strategy utilized by FTM has been in use since 1997 and due to stringent underwriting criteria, the worst outcome to date was the return of the money used to fund the receivables.
Since FTM's launch in March 2010 we have notched up an average annualized return net of fees of 8.88%.
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