I’m not the first to say this and I certainly won’t be the last, but the concept of a long-term asset fund (LTAF) leaves a lot to be desired. The LTAF, recently outlined in fuller detail by the Financial Conduct Authority (FCA), would hold illiquid assets in an open-ended fund structure with a mandatory notice period of at least 90 days for investor redemptions. It’s hoped that this should help pension schemes embrace alternative assets.
The arguments against an LTAF are well-rehearsed at this point. Firstly, open-ended funds are not a good place for illiquid assets, as the Woodford fiasco and the various property fund dilemmas of recent years have demonstrated. Secondly, it seems odd to focus on building a new fund structure when investment trusts, if not perfect, are an excellent home for alternatives, from property and infrastructure to music royalties.
Other concerns remain. Various parties have noted that the 90-day notice period, although just a minimum, can be a blink of an eye when it comes to offloading illiquid assets. Just look at the former Woodford Equity Income fund, which is more than two years into the process of unwinding and still has a handful of illiquid holdings to sell. There is also the question of how popular open-ended funds holding illiquid assets would actually be. To look at the best current example, the Investment Association’s UK Direct Property sector had just £9.1bn in assets at the end of August, an amount met or exceeded by the level of assets in some (large) individual equity funds. Similarly, platforms and their customers may well shun a fund that lacks daily dealing if the LTAF were to come into wider use.