Regulation  

FCA proposes opening Ltafs to more retail investors

FCA proposes opening Ltafs to more retail investors

The Financial Conduct Authority is proposing to open up the long-term asset fund to more retail investors. 

In an 87-page consultation document released today (August 1), the City watchdog said it wanted 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.

As a result it was proposing 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.

The Ltaf was launched last October to give sophisticated investors and defined contribution pension schemes access to illiquid or long-term assets, such as infrastructure, private equity and real estate. 

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. 

But under the proposed changes, 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.

The FCA said these products will facilitate greater choice and potential for investors’ portfolios. 

“The assets could provide increased diversification and therefore reduce overall portfolio risk,” it said.

The FCA added that the funds presented risks to retail investors which needed to be mitigated, including understanding that assets held in Ltafs are less liquid, and there is a vast range of them with differing risk profits.

Furthermore, the current Ltaf investor protection rules are based on those for more professional fund structures, and lack certain safeguards for retail authorised funds such as disclosure of dealing suspensions or significant changes to the fund.

When they were first introduced last year, Ltafs were branded a "damp squib".

The deadline for feedback on the consultation is October 10.

sally.hickey@ft.com