The FCA confirmed today that that it will go ahead with its plans for long-term investment funds aimed at sophisticated investors and pension funds, potentially opening them up later to some retail investors.

The new funds, announced in principle last year, will be called Long Term Asset Funds (LTAF) and will aim to encourage more investors to invest over the long term.

The funds will come with a mandatory notice period of 90 days.

The open-ended investment funds will help support investment in assets like infrastructure, real estate and private equity. 

The FCA says investment in these assets has the potential to generate better returns for investors, including those saving for retirement in defined contribution (DC) pension schemes. The funds can also benefit the wider economy by supporting the recovery after Covid-19 and supporting financial stability, it says.

Currently, some investors are unable, or unwilling, to invest in long-term assets, even though these assets could meet their investment goals. The reluctance to invest is often down to the funds' potential liquidity issues.

The new rules create a Long-Term Asset Fund (LTAF) regime, a new FCA-regulated fund designed specifically to help investment in assets including venture capital, private equity, private debt, real estate and infrastructure. 

As investments in this type of fund may take longer to sell, the FCA will put in place rules to ensure there is a consistency between how long it will take to sell assets and how often and quickly an investor will be able to sell out of the fund.

The LTAF is aimed at DC pension schemes which may be interested in investing, in line with their investment horizons and risk appetite. It also offers long-term investment opportunities to sophisticated investors and some high-net-worth individuals.

The FCA will be consulting next year on the potential for widening the distribution of the LTAF to some retail investors. Safeguards to protect retail investors are being looked at. 

The LTAF regime was committed to by the Chancellor in his statement to Parliament on the Financial Services Bill on 9 November 2020. The new type of fund and its operation formed part of the recommendations of the Productive Finance Working Group’s (PFWG) roadmap, published in September 2021. 

Nikhil Rathi, chief executive of the FCA, said: “We are supporting fresh collaborative thinking designed to improve the effectiveness of UK markets while protecting standards. 

“If this innovative fund structure, created by our rules, is taken up by the asset management industry, it may provide alternative routes to returns for investors, while supporting economic growth and the transition to a low carbon economy.'

Steven Cameron, Aegon’s pensions director, welcomed the new funds.

He said: “We welcome the FCA’s new regulatory regime for Long Term Asset Funds (LTAF) as a means of offering defined contribution pension schemes a new route towards greater investment in long term illiquid assets.

“LTAFs are a key stage in the critical path towards DC pensions investing more in illiquids. Trustees and scheme managers may choose this approach to access illiquid investments, investing a small proportion of scheme default funds in these, rather than in individual long term projects. This will allow them to achieve greater diversification and a spreading of risk within this form of investment while also drawing on the expertise of the LTAF manager in this specialist area."

• Details of the fund are here: PS21/14.