Details of Long-Term Asset Fund revealed

The LTAF was proposed by the IA in its UK Fund Regime Working Group report in July 2019. The structure is aimed at allowing wider access to assets such as infrastructure and private companies which are not regularly traded. It will enable investors to access private equity, private credit, venture capital, infrastructure, real estate, and forestry assets as well as collective investment vehicles investing in private asset classes.

A LTAF will be able to hold cash, listed shares and bonds, including money market instruments to provide options for managing portfolio liquidity while awaiting opportunities to invest in less liquid asset classes, the IA said.

The association said it was important for the LTAF to be an authorised fund structure with investor protections. It suggested the existing Non-UCITS Retail Scheme (NURS) framework could provide the foundation for the LTAF structure, with the inclusion of additional rules around investment powers, valuation requirements, subscription and redemption terms to make the fund structure suitable for long-term assets.

LTAFs will be open-ended funds and rules will be set aligning the liquidity of an LTAF to the liquidity of the underlying assets which units are invested in. LTAFs will be able to be sold at set intervals depending on the investment strategy adopted, to ensure fund managers can make enough cash available to meet redemption requests.

The IA said LTAFs could be made available to pension funds as well as private wealth and retail customers with larger portfolios who have taken financial advice or are otherwise appropriately qualified.

Financial services expert Elizabeth Budd of Pinsent Masons said the announcement by chancellor of the exchequer Rishi Sunak in November 2020 of his ambition to launch the first LTAF within a year had helped concentrate the minds of those within the industry.

“The LTAF is seen as a vehicle that will assist in raising funds from pension funds for strategic infrastructure projects providing a long-term investment generating income and is seen as an important component for revitalising the economy in a post Brexit, post pandemic UK. An open-ended fund investing in illiquid assets presents challenges which the Financial Conduct Authority [FCA] addressed in its funds investing in inherently illiquid assets [FIIA] regime,” Budd said.

The IA said a regulatory consultation from the FCA was required before any LTAFs could launch. Meanwhile the Bank of England (BoE), HM Treasury and FCA’s Productive Finance Group is also working to make sure the new structure is on the market before the end of 2021.

The BoE recently released minutes from the first meeting of the Productive Finance Group’s steering committee (8 page / 459KB PDF). The group agreed to focus on demand, operational and legislative barriers to productive investment, including the capability of funds to support non-daily dealing, the current lack of suitable authorised fund structures to offer exposure to productive finance assets, and investor reluctance to invest in these types of funds.

“What these minutes highlight is that platforms, which have become an integral part of the distribution chain, need to adjust to cope with funds that do not have daily dealing. Such an adjustment is not insignificant for platforms but this additional flexibility will benefit not only LTAFs but other forms of FIIA,” Budd said.