The Financial Conduct Authority is allowing retail investors, such as those in DC pension schemes, to access long term asset funds (Ltafs).
The Ltaf was launched in October 2021 to give sophisticated investors and defined contribution pension schemes access to illiquid or long-term assets, such as infrastructure, private equity and real estate.
In a statement published yesterday (June 29), the FCA said it is seeking views on whether the protections of the FSCS should be available for these products, or whether a different approach should be in place before Ltafs are widened to include the retail market.
The regulator is planning to extend Ltaf access to retail clients, though the products will be subject to additional protections under the FCA’s high risk investment framework, including risk warnings and customer assessments.
Sarah Pritchard, executive director of markets at the FCA 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,” she said.
“That is why people will be given clear risk warnings and customer assessments, in line with other higher risk products.”
Chris Cummings, chief executive at the Investment Association, said broadening the access to the Ltaf is an "important step forward".
"These investments in turn provide a valuable source of capital for the UK economy, funding infrastructure projects and powering long-term economic growth.”
However, Richard Stone, chief executive at the Association of Investment Companies, said the decision to extend the distribution of the Ltaf could prove to be a "mistake".
"Woodford Equity Income Fund and problems in the open-ended property sector have shown how much harm liquidity problems can cause to retail investors...selling Ltafs to retail investors remains an accident waiting to happen."
He added: "As the underlying assets are hard to sell investors run the risk of being trapped in the fund in stressed markets. It could cause significant hardship if investors cannot access Ltafs held in pensions.
"The additional measures proposed by the FCA do not go far enough to secure reliable redemption and prevent these problems emerging."
Ltaf structure
The funds have a notice period for redemptions of 90 days, and must have at least 50 per cent of their assets invested in unlisted securities or other long-term assets.
Under the changes proposed by the FCA last summer, a unit in an Ltaf would be recategorised as a restricted mass market investment which would allow restricted investors to invest in them alongside high net worth and sophisticated investors.
The restricted investor category was originally introduced in 2019 to prevent retail P2P investors from over-exposing themselves to risk.
Ltafs allow investors to access private equity, private credit, venture capital, infrastructure, real estate, forestry and collective investment vehicles that invest in private asset classes.
They will also be able to hold cash, listed shares and bonds including money market instruments, and investors will be permitted to redeem their investments on a minimum of a monthly basis.
Ltafs came into force in November last year, with Schroders becoming the first to launch a product in March this year.
sally.hickey@ft.com
