UK regulator the Financial Conduct Authority (FCA) issued Friday proposals for a new category of fund — the long-term asset fund — designed to invest efficiently in long-term, illiquid assets.
These funds “would be open-ended and would be able to invest in assets such as venture capital, private equity, private debt, real estate, and infrastructure” — referred to as productive finance, the FCA said.
The regulator explained: “The aim of this new long-term asset fund would be to provide a fund structure through which investors can invest with appropriate confidence in less liquid assets because the fund structure is specifically designed to accommodate relatively illiquid assets.”
Nikhil Rathi, FCA chief executive, said: “It is important for overall economic growth that the financial system supports investment that may take time to deliver a return.” He said the proposal “would enable the establishment of authorised funds that are appropriate for both professional investors and sophisticated retail investors that want this type of investment risk and opportunity”.
The Chancellor of the Exchequer Rishi Sunak announced in his November financial services statement that the UK’s first long-term asset fund be set up “to encourage UK pension funds to direct more of their half a trillion pounds of capital towards our economic recovery”.
Rathi said: “This new type of fund may also be more attractive to [defined contribution] pension schemes that have long investment horizons and who, under current fund structures, find it difficult to invest in these types of assets.”
The Productive Finance Working Group, set up by the FCA together with the Bank of England and HM Treasury, “is considering how to ensure that the wider ecosystem can operationally support the [long-term asset fund] as a non-daily dealing fund”, the FCA explained. It added: “This could lay the ground for other similar funds in the future.”
— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.