LTAF Revisited: widening scope, widening interest?

The Long Term Asset Fund (LTAF) has itself become a long term feature on the regulatory agenda. Since the then Chancellor announced, in November 2020, that he wanted LTAFs to be up and running by the end of December 2021, there has been a flurry of regulatory activity. The FCA sought to meet that ambitious deadline and ensure that the policy foundations were in place.

Little uptake
The initial policy statement was implemented in mid-November 2021, meaning that the deadline was indeed met. Unfortunately, the uptake of LTAFs since then has been somewhat muted with no current LTAF products on the market.

This is a disappointing outcome but it is understandable when considering the original purpose of LTAFs when they were first proposed. The idea was to widen access to investment opportunities in private equity and infrastructure by retail investors. In its original form, however, the LTAF was targeted only at for example, sophisticated investors, already served by other fund types (e.g. qualified investor schemes) and so the LTAF did not add anything particularly ‘new’ to the mix while missing out its real target: the retail market.

Retail access
The publication of the second LTAF consultation on 01 August 2022 is a welcome attempt to address this. The consultation is likely to have met with broad support, given that it attempts to resolve the main bone of contention: retail access. The shake up may even tempt a few firms to consider launching LTAFs of their own when the revised policy statement is issued and implemented in 2023.

The features of the new LTAF are aimed at widening access in a safe way that takes into account consumer protection and appropriateness. For example, an ‘appropriateness test’ has been proposed to ensure that would be investors understand the product they are investing in and are comfortable with the risks and redemption terms. These are set at 90 days, so investors who need to redeem sooner would be better off looking elsewhere. Where appropriateness is confirmed, investors will be able to invest up to 10% of their investible assets in LTAFs.

The new consultation paper sets out a series of additional technical details which will be required to expand the scope. Non-UCITS Retail Scheme Funds of Alternative Investment Funds (NURS FAIFs), for example, will be able to invest in LTAFs (up to 35% of the NURS FAIF’s value into units of a single LTAF and a maximum of 50% of its value in multiple LTAFs). The consultation paper also discusses the rule changes which will be required in COLL in order to make this happen, and the paper also clarifies that LTAFs will not be ISA-eligible, which had been an open question and subject to some debate and uncertainty.

Next steps
Following the consultation process the policy statement will be issued in H1 2023, with implementation shortly after that. Given the need to go through governance, authorisation, and then launch and marketing, any positive effects in terms of new fund launches may not be felt until later next year. At that point we will be able to take stock of the LTAF and consider whether the second consultation paper has done the trick.

The FCA will hope that the updated proposals will encourage firms to look again at the LTAF and reconsider whether it is something which their investors would value. Given that many of the changes proposed in this second consultation are aimed at bringing retail investors into the fold (where appropriate), this may just be the boost that the LTAF needs.