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Highlights
- The Financial Conduct Authority (FCA) has confirmed that it would create a new type of Open-ended authorised investment fund.
- It will support investment in assets such as private equity and infrastructure.
- The new rules will construct a Long-Term Asset Fund (LTAF) regime.
The UK’s Financial Conduct Authority (FCA) is all set to create a new type of open-ended authorised investment fund, which will support investment in assets such as private equity and infrastructure.
The proposal will mean investors and those saving for retirement in defined contribution (DC) pension funds will have access to newer opportunities that will offer potential to generate high returns. Well-managed investment can benefit the economy by supporting the recovery from pandemic and financial stability.
Even though these assets could meet investment goals of the investors, some are still unwilling or unable to invest in long-term assets.
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The new rules will form the base of the Long-Term Asset Fund (LTAF) regime. The open-ended investment fund will be designed to support investment in assets such as private equity, infrastructure, venture capital, private debt, and real estate. As investment in this fund will take longer to sell, so the FCA came up with some rules to ensure that there is some consistency between how often and faster an investor will be able to sell the fund, and how long it will take to sell the assets.
Nikhil Rathi, Chief Executive Officer of the FCA, said that the authority is working to improve the effectiveness of the UK market while protecting standards and if this innovative fund structure is created out by rules it may offer investors with alternative routes to returns, while supporting transition to a low-carbon economy and economic growth.
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The Long-Term Asset Fund (LTAF) is directed towards DC pension schemes that may intend to invest, in line with their investment horizons and risk appetite. It will also propose investment option to strategic investors and high-net-worth individuals.
In 2022, the FCA will look into the ability to widen the distribution of the LTAF to certain retail investors and will set proposals for how this can be achieved. This may open a controlled route for retail investors to higher risk assets that other routes currently available like unauthorized funds and security would be required to ensure that investors have knowledge about the risk involved.
On 9 November 2020, Chancellor Rishi Sunak made a commitment on the LTAF regime in his statement to parliament on the Financial Services bill, which is part of the recommendations of the Productive Finance Working Group’s (PFWG) roadmap. The UK watchdog closely worked with PFWG as part of its consultation process on these rules.
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