{"id":16314,"date":"2024-05-23T09:16:56","date_gmt":"2024-05-23T09:16:56","guid":{"rendered":"https:\/\/iqeq.com\/?p=16314"},"modified":"2024-05-23T09:39:27","modified_gmt":"2024-05-23T09:39:27","slug":"understanding-long-term-asset-funds-ltafs","status":"publish","type":"post","link":"https:\/\/iqeq.com\/insights\/understanding-long-term-asset-funds-ltafs\/","title":{"rendered":"Understanding long-term asset funds (LTAFs)"},"content":{"rendered":"
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By Vasantha Rajasooriyar, Head of Technical Advisory<\/em><\/p>\n

Private markets in general, and venture capital and private equity in particular, have historically shown high risk-adjusted returns over the long term. Seeking to broaden access to these products, the FCA introduced a new authorised fund regime in 2021 for investing in long-term assets. Access was broadened to retail investors in 2023<\/a>, subject to a number of measures designed to reduce the risk of harm to those investors, making LTAFs an exciting opportunity for a larger segment of the investor base.<\/p>\n

In this post, we\u2019ll discuss the impact and ramifications of long-term asset funds (LTAFs) as a restricted mass market investment (RMMI).<\/p>\n

Setting the scene: the rationale for LTAFs<\/h2>\n

Access to long-term and less liquid assets such as property, venture capital, infrastructure, and private equity has been available through unit trusts, open-ended investment companies (OEICs), and investment trusts for many years.<\/p>\n

However, retail investor experiences<\/a> have been mixed\u2014particularly during crises like the credit crunch, Brexit, and the Woodford fund scheme<\/a>. These events highlighted the inadequacies of open-ended structures in handling large redemptions, market moves, or changes in liquidity under stressed conditions.<\/p>\n

Investors usually prefer the comfort of trading at Net Asset Value (NAV), leading to a preference for fund structures inappropriate for illiquid assets. In general, open-ended structures that trade at NAV have anticipated limited redemption applications over any period, assuming favourable market conditions.<\/p>\n

Despite the inherent uncertainty around the exit price relative to NAV, which can be exacerbated at times of uncertainty or when certain asset classes are out of favour, investment trusts often offer greater liquidity than the underlying portfolios, which is sufficient for most investors (except the largest institutional investors).<\/p>\n

Most institutional investors have used structures such as limited partnerships and other closed-end structures with a finite lifespan to invest in long-term assets. Generally, these structures were only suitable for the wealthiest individuals and institutions.<\/p>\n

Introducing LTAFs<\/h2>\n

LTAFs are designed to facilitate access to long-term, less liquid assets for a broader investor base, including retail investors<\/a>. They provide a higher level of investor protection than was previously available for long-term assets, aligning the liquidity of the asset base with the redemption frequency through liquidity management tools.<\/p>\n

As outlined in COLL 15<\/a>, the FCA allows LTAFs to invest in a wide range of assets, ranging from real estate and infrastructure to venture capital, private equity, and private debt<\/a>. All authorised funds must be open-ended so investors can exit at a price \u2018related to\u2019 NAV, so fully closed-end LTAFs are not currently available.<\/p>\n

Available structures for LTAFs include:<\/p>\n