The Financial Conduct Authority (FCA) has set out rules to give retail investors and more defined contribution (DC) pension schemes access to Long Term Asset Funds (LTAF).
The LTAF is a newly created type of open-ended authorised fund, which the UK regulator introduced in 2021, designed to invest efficiently in long-term, illiquid assets, such as venture capital, private equity and private debt, real estate and infrastructure.
LTAFs are a higher risk product – that can provide greater diversification to investment portfolios in exchange for potentially higher returns but less immediate liquidity and longer redemption periods.
To help protect consumers, LTAFs will be subject to additional protections under the FCA’s high risk investment framework, including risk warnings and customer assessments.
The FCA is also seeking views on whether the protections of the Financial Services Compensation Scheme (FSCS) should be available for this product, or whether a different approach should be in place, before LTAFs get to the retail market.
‘Good alternative results’
Sarah Pritchard, executive director of markets, said: “Longer-term less liquid real assets can generate good alternative returns for investors and, crucially, help to grow the UK economy through investments, such as new infrastructure.
“Our new rules allow retail investors, and pension funds, to invest in productive finance, but they also recognise that long-term investments can be riskier. That is why people will be given clear risk warnings and customer assessments, in line with other higher risk products.”
The FCA has worked with the Bank of England, the Treasury and industry, through the Productive Finance Working Group to create an environment where investment in longer-term, less liquid assets, by investors who understand the risks, can flourish.
The UK regulator said that the “ability to invest in illiquid assets, through appropriately designed and managed investment vehicles, is important for supporting economic growth and the transition to a low carbon economy”.