The lack of guidance on including long-term asset funds in Isas has been criticised after the Financial Conduct Authority decided to expand the products to more retail investors.
Yesterday, the FCA revealed proposals to open the fund structure up to investment from restricted retail investors.
The regulator wants investment in long-term illiquid assets to be a viable option for retail investors with long-term investment horizons who understand the risks of these products.
But Lora Froud, investment management partner at Macfarlanes, said it was "unfortunate" there was no clear direction on how Ltafs can be included in Isa wrappers.
“The tax incentive would encourage individuals to lock up their savings for a longer term with a better prospect for investment returns. However, the FCA indicated that HMT and HMRC are responsible for the matter.
"We hope that they will move ahead with this."
The original Ltaf launch in October last year was met with confusion by the industry.
The structure was called a “damp squib”, with commentators saying they didn’t expect a “overnight rush” for the products.
Yesterday the FCA proposed that the funds should become available to retail investors categorised as 'restricted'.
Restricted investors are those who sign a statement agreeing not to invest more than 10 per cent of their assets into non-readily realisable securities - a category originally introduced as part of the FCA's regulation of peer-to-peer investing.
Many have reacted with criticism as no Ltaf funds have been launched since the structure was introduced last year.
Pensions director at Ageon, Steven Cameron, said some people may have been surprised to see the FCA give priority to this consultation.
“While it was on the FCA’s ‘to do’ list, to date no Ltaf has actually been launched even for institutional investors, making this consultation particularly hypothetical,” he said.
“If the aim is to boost overall investments in long-term illiquids, this is unlikely to move the dial.”
The change shows “clear recognition” from the FCA that the Ltaf structure has not been as Andrew Poole, director at ACA Group.
“While the extension of “restricted investors” to include Ltafs could conceivably open up the investor market and the “demand” for these products, the inevitable liquidity mismatch between monthly redemptions, even with a 90-day notice period, and the process to sell private assets probably remains too great a hurdle for managers,” he said.
Poole added it is “no secret” that the private equity sector is looking at a democratisation of the investor base to include retail investors.
“Structures that provide for the inherent liquidity of the market, engage with investors to clearly state the investment horizons and allow retail investors to invest alongside institutional investors are more likely to gain traction than tinkering around the edges of something that may have fundamental issues."