Authorised fund regime for investing in long-term assets – Law Society response

The proposals

The Financial Conduct Authority (FCA) was seeking views on a proposed regime to enable UK authorised open-ended funds to invest more efficiently in long-term, illiquid assets.

This consultation sets out proposals for a new category of authorised open-ended fund called the long-term asset fund (LTAF).

It’s designed to enable authorised funds to be set up to invest efficiently in long-term illiquid assets, such as:

  • private equity
  • private debt
  • real estate
  • infrastructure

The consultation explains proposed FCA requirements that will form a framework to protect investors in LTAFs. These include requirements relating to:

  • the governance of LTAFs
  • clear disclosure and reporting
  • the investment and borrowing powers of an LTAF
  • standards for valuing an LTAF’s assets
  • clear explanations of the tools the fund has available to manage their liquidity

The consultation proposes restrictions on the promotion of LTAFs, allowing their promotion only to professional clients and to certain types of retail client (following the same rules that apply to Qualified Investor Schemes (QISs)).

The FCA has also proposed allowing extra flexibility for investment into LTAFs by defined contribution (DC) pension schemes.

Our view

We've provided detailed comments seeking to support the introduction of practical rules and appropriate protections that will also promote the success of the new LTAF regime.

We made suggestions in several areas, including in relation to the proposed:

  • valuation requirements
  • due diligence requirements
  • fee disclosures
  • borrowing restrictions
  • annual report deadlines

We also highlight some issues that might create specific barriers to LTAFs of funds, along with potential solutions.

We agree with the consultation proposals to allow investments in LTAFs for default arrangements of DC pension schemes if the relevant conditions are satisfied.

We think it would be worth the FCA considering whether the rules could be opened up further in the longer term to allow additional DC assets to be available for investment into LTAFs.

We note the potential benefits of designing the LTAF distribution rules so that LTAFs appeal to as wide an investor base as possible, while we recognise that certain features of LTAFs may make them unsuitable for some retail investors.

What this means for solicitors

The UK asset management industry is a significant employer in the UK and a world leader in the sector.

Many of our members are involved in providing advice to asset managers who make and manage investments, who are likely to be interested in a successful and well-functioning LTAF regime.

Next steps

The consultation closed on 25 June 2021.

The FCA will consider all feedback and, subject to the responses received, it will look to publish a final policy statement and final handbook rules on LTAFs later in 2021.

Read the consultation on the FCA website

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