Introduced in November 2021, Long-Term Asset Funds (LTAFs) are a relatively new category of UK-authorised and regulated open-ended fund vehicles.
They are specifically designed to facilitate investments in long-term, less liquid assets while offering access to retail investors.
This integration is achieved by aligning the liquidity of the asset with the frequency of redemptions, underpinned by robust investor protection measures and carefully considered liquidity management tools.
What are LTAFs?
LTAFs allow investments in a diverse range of assets, including venture capital, private equity, private debt, real estate, and infrastructure.
Structured as an Authorised Contractual Scheme (ACS), an Investment Company with Variable Capital (ICVC), or an Authorised Unit Trust Scheme (AUT), LTAFs are regulated by the Financial Conduct Authority (FCA).
These funds offer redemption rights related to net assets, although the frequency of such redemptions can vary, typically occurring at least annually.
The UK Government, recognising the need for more long-term investments in private markets, has backed the introduction of LTAFs to stimulate economic growth and channel more capital into unlisted UK companies and significant infrastructure projects.
How LTAFs function
An LTAF operates as an open-ended fund, capable of adjusting its size to meet investor demand by issuing or cancelling shares.
The fund’s liquidity management is critical, ensuring that investments can be adequately liquidated to meet withdrawal demands.
This management often involves a mix of listed assets, which are more liquid, and private assets, which may take longer to sell. The fund’s assets are regularly valued to reflect accurate pricing.
Benefits of investing in LTAFs
- Access to private markets: LTAFs open doors to private market investments previously accessible to a limited group of investors.
- Potential for enhanced returns: Historical data suggests that private markets can offer superior returns compared to public markets, attributed to illiquidity and complexity premiums.
- Active ownership: Investors in private assets can exert greater influence over their investments, potentially driving operational efficiencies and aligning businesses with environmental and social goals.
While LTAFs present new opportunities, they also come with risks, primarily due to their focus on less liquid assets.
Potential investors should consider their long-term investment goals and risk tolerance. The infrequent redemption opportunities mean that LTAFs may not be suitable for those needing short-term liquidity.
If you would like to learn more about LTAFs to see if they might be suitable for you, please contact our team.
