The FCA has set out new rules to give retail investors and more defined contribution pension schemes access to Long Term Asset Funds (LTAF).
The LTAF is a new type of open-ended authorised fund, which the FCA introduced in 2021, designed to invest efficiently in long-term, illiquid assets, such as venture capital, private equity and private debt, real estate and infrastructure.
LTAFs are a higher risk product - that can provide greater diversification to investment portfolios in exchange for potentially higher returns but less immediate liquidity and longer redemption periods.
To help protect consumers, LTAFs will be subject to additional protections under the FCA’s high risk investment framework, including risk warnings and customer assessments.
The FCA is also seeking views on whether the protections of the Financial Services Compensation Scheme should be available for this product, or whether a different approach should be in place, before LTAFs get to the retail market.
Sarah Pritchard, Executive Director, Markets, 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. That is why people will be given clear risk warnings and customer assessments, in line with other higher risk products.'
The FCA has worked with the Bank of England, the Treasury and industry, through the Productive Finance Working Group to create an environment where investment in longer-term, less liquid assets, by investors who understand the risks, can flourish.
The ability to invest in illiquid assets, through appropriately designed and managed investment vehicles, is important for supporting economic growth and the transition to a low carbon economy.
There is also significant work underway across the whole of the regulatory regime to consider the balance of risk across the consumer investment regime. Through its Compensation Framework Review Feedback Statement, the FCA is looking at potential opportunities to change the scope of FSCS protection, including in relation to non-standard asset types.
In line with its three-year strategy, the FCA is working to provide fair value, confidence and greater access to financial markets.
Notes to editors
- PS23/7: Broadening retail and pensions access to the long-term asset fund (PDF) which includes an additional chapter seeking views on whether excluding Financial Services Compensation Scheme cover for the LTAF would be appropriate.
- The FCA’s Chief Executive Nikhil Rathi, spoke about reforms to the UK’s capital markets ecosystem at the Global Investment Management Summit in March.
- Compensation Framework Review Feedback Statement (PDF)
- We are taking this opportunity now to ask whether excluding FSCS cover for this product would be an appropriate first step toward change with a broader review of non-standard assets and the FSCS to follow – and whether this should be done at pace before LTAFs are accessed directly by retail investors. We welcome views from stakeholders on these questions and are inviting comments by 10 August. We are also willing to engage directly with stakeholders during this period to help shape future thinking.