LTAF rule change welcome but scrutiny still needed

There are a number of different layers to this asset class, and no one article could ever go into all the nuances, complexities, pros or cons within one of those, let alone all.

Similarly, there is healthy amount of cynicism out there around this initiative and the risks and appropriateness for the retail sector.

But, taking a slightly more optimistic view, just as a counter to some of the concerns that we all share, I would suggest that having the ability to invest in an LTAF is an option that is good to have on the table, even if it is not always right for all.

Similarly, I am not yet convinced we will see a mad rush to new pastures, either by default funds or individual investors in new funds for a number of reasons.

There has been a real drive towards opening up investment into illiquid assets of late.

LTAFs aim to offer retail investors the potential benefits of investing in long-term assets while managing the associated risks and liquidity concerns.

While this will be a new choice for retail investors, institutions have been investing in illiquid assets for many years with benefits around returns, tangibility, risk, and cash flow matching for long-term liabilities. 

These asset classes come with a whole different type of risk management and due diligence though.

Transferring this diligence and risk management to retail to give a retail investor the same level of confidence, while securing the right level of returns without massive fees, will be no small challenge. 

I am very interested to see how the investment into infrastructure or life sciences can practically yield an income profile suitable for retail investments to be interesting and enticing.

You can have the option, but we still need rules

There has been a real drive towards opening up investment into illiquid assets of late.

The cynic in me says it is needed to provide an investment flow to support the government in funding small businesses, infrastructure development, as well as the creeping death of larger scale office, hotel and retail real estate – and where the government have no funds to divert to those critical areas.

The optimist and pro-financial choice voice is shouting that it is because the Financial Conduct Authority has recognised the potential benefits of LTAFs across varied retail investors, rather than being driven by government desire.

Recognising the changing investment landscape and the potential benefits of long-term assets, the FCA took steps to revise the rules.