By Huw Jones
LONDON -Britain’s financial watchdog set out rules for a new type of fund for investing over the longer term to help tackle climate change and economic recovery from COVID-19, while ruling out daily redemptions to avoid suspensions in rocky markets.
The new Long-Term Asset Fund (LTAF) regime creates a category of authorised open-ended fund for investing in long-term, illiquid assets such as venture capital, private equity, private debt, real estate and infrastructure.
“We want investment in long-term, illiquid assets, including productive finance, to be a viable option for investors… seeking the potential for higher long-term returns in return for less or no immediate liquidity,” the Financial Conduct Authority said in a statement.
It had proposed a notice period for redemptions of between 90 and 180 days in a consultation paper last year.
“So we have set a minimum notice period of 90 days and a requirement that LTAF cannot offer redemptions more frequently than monthly,” it said on Monday.
Funds that invested in illiquid property and offered daily redemptions had to be suspended last year when markets suffered extreme volatility as economies entered lockdowns to fight the pandemic.
It prompted regulators to seek a type of fund for which the frequency of redemptions better matches the time needed to sell assets to avoid lengthy suspension or destabilising firesales.
The FCA said there are no caps on fees an LTAF can charge, and there are no specific sustainability disclosures on investments in such funds.
They are primarily aimed at pension funds, but the FCA said it will include sophisticated investors as well, and consult next year on whether certain retail investors should also have access.
“If this innovative fund structure, created by our rules, is taken up by the asset management industry, it may provide alternative routes to returns for investors, while supporting economic growth and the transition to a low carbon economy,” FCA chief executive Nikhil Rathi said.
The decision to broaden LTAF access to include high net worth individuals will be welcomed, said Lora Froud, investment management partner at law firm Macfarlanes.
“However, we are concerned that setting a minimum 90 day notice period might make the LTAF unattractive to the target market, direct contribution pension schemes, who may struggle to accommodate this operationally,” she said.
Last month a government-backed report proposed that a cap on how much pension fund can invest in less liquid assets should be scrapped to encourage longer term investing.