'I’m failing to see the point': Industry questions effectiveness of FCA's new Ltafs

'I’m failing to see the point': Industry questions effectiveness of FCA's new Ltafs

It has only been announced today but the Financial Conduct Authority's new long-term asset fund structure has already attracted considerable criticism, with some predicting limited uptake while others said they did not see the point of it.

Laith Khalaf, head of investment analysis at AJ Bell, said the Chancellor should “brace himself for disappointment” when the Ltaf launches in mid November.

He said the Ltaf has been launched so pension funds can direct their capital to the UK’s economic recovery, but the FCA “can’t and won’t” limit the investment scope of such funds to the UK.

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“Ltafs will probably prove to be a bit of a damp squib for British business therefore, given that the prevailing investment appetite is predominantly for overseas assets, so the Chancellor should brace himself for disappointment over the scale of fresh pension capital that will be directed to building back better in the UK.”

The FCA is to launch the open-ended investment fund structure on November 15 to give investors access to infrastructure and private equity investments.

It is aimed at sophisticated investors and defined contribution (DC) pension schemes, but the regulator said it will consult next year on widening the distribution of the Ltaf to certain retail investors.

The fund structure comes with monthly redemptions and a notice period of at least 90 days. Though the FCA said in many cases this will be longer. 

Khalaf said it was unlikely there would be significant demand for LTAFs from retail investors. “The prospect of waiting 90 days to get your money out of one of these funds, at an unknown price, won’t exactly draw baying crowds, particularly within funds and model portfolios which are regularly rebalanced as a matter of course," he said. 

Steven Cameron, Aegon’s pensions director, agreed there was unlikely to be an “overnight rush” in investment as members of DC pension schemes now expect their pension funds to be priced daily, as well as being able to switch or access funds without any delay. Though he welcomed the new fund structure overall.

He said: “Arrangements for arriving at a daily price between Ltaf valuation points to feed into the default fund price will all be critical. 

“Schemes will also need to explore how to manage liquidity within the default fund, when the proportion in the Ltaf is not readily realisable. 

"This will in turn require detailed scenario planning including for extreme events and a full understanding of regulatory and capital requirements.”

Ben Yearsley, investment consultant at Fairview Investing, said he could not see the point of the Ltaf.

“They’re only available for high net worth individuals or sophisticated professionals.

"Well, you can have monthly dealing funds that do that already, you’ve got illiquid funds already i.e. property, and you’ve got investment trusts.