Schroders has received regulatory approval from the Financial Conduct Authority (FCA) to launch the first Long-Term Asset Fund (LTAF).
It is the first officisl launch of the new category of open-ended authorised funds enabling investors with longer term horizons to put money in illiquid and private assets.
Schroders Capital, the private assets division of Schroders, said it will focus on providing defined contribution (DC) and other eligible investors with the opportunity to access private companies.
The FCA, the Bank of England, the Treasury and financial industry worked together through the Productive Finance Working Group. It aimed to create an environment where investors aware of the risks have opportunities to invest in longer-term, less liquid assets.
It became particularly important after the collapse of Woodford Investment Management. Former star manager Neil Woodford was forced to suspend his funds after breaching the regulator’s limit on unlisted assets and was unable to meet large redemptions.
The regulator said that investment in illiquid assets have an important role to play in supporting the economic growth and the transition to a low-carbon economy. Yet, it stressed it has to be done through appropriately designed and managed investment vehicles.
Sarah Pritchard, executive director of supervision, policy and competition in markets at the FCA, said: “We made these rules to create an environment where investors that wish to invest in productive finance assets can more easily do so.
“It was for market participants to make this a reality and it is good to see this product innovation now taking place.”
The FCA created a new regulatory regime that came into force in 2021 and enabled this innovation.
It first published a Policy Statement in October 2021, noting that some investors with long-term investment horizons were not investing in long-term assets due to barriers or perceived barriers.
The regulator then set out proposals in a Consultation Paper for broadening the retail distribution of the LTAF to more categories of retail investors while also offering further investor protections.
The FCA is now seeking views and ideas about how to further improve asset management regulation with a more modern and tailored regime which should take into account developments in technology and supports innovation.
Going forward, LTAFs may also have a role to play in the UK wealth market. However, much will depend on the outcome of the ongoing FCA consultation on broadening access to long term asset funds.
David Seex, Head of Private Asset Solutions, Schroders Capital, said: “It is important for investors and their advisors to be clear as to the long term nature of private investments and when and how they will be able to access their funds.
“Key considerations should be the liquidity profile of their investment and how this fits with their investment horizon.”