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Financial Conduct Authority
The UK’s Financial Conduct Authority is granting “sophisticated investors” and pension funds access to asset classes such as private equity and infrastructure under new rules. With illiquid assets often chalking up superior returns than more conventional listed equities and government bonds, the UK watchdog is widening access while maintaining certain guardrails.
The regulator said yesterday that it is proposing to create a new type of open-ended investment fund. A Long-Term Asset Fund (LTAF) regime is being set up, designed specifically to channel money to assets including venture capital, private equity, private debt, real estate and infrastructure.
“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,” Nikhil Rathi, chief executive of the FCA, said.
A theme of recent years has been about improving access to areas such as private equity, hedge funds, forms of property and infrastructure. These assets, increasingly important with more firms staying private or taking longer to list on stock markets, are often out of reach of retail or even wealthy individual investors.
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 said that next year it will explore the idea of widening the distribution of the LTAF to certain retail investors.
“While this would potentially open a controlled route for retail investors to higher risk assets than some of the other routes currently available such as unauthorised funds, safeguards would also be needed to ensure retail investors understand the risks involved. Next year’s consultation will set out proposals for how this could be achieved,” the FCA said.