In this rapidly changing financial landscape, when did you last find the time to catch your breath? Look around celebrated innovations and optimisations such as blockchain, instant and immutable; settlement cycles shortening to zero. Soon, we might even see corporate actions calling for decisions to be taken yesterday.
Markets are breakneck, thrilling and can be devastatingly unpredictable as we have witnessed through recent macroeconomic swings that have sliced off portfolio performance like a sharpened pendulum. What vehicles can a patient, conservative investor turn to for peace of mind?
Enter the Long-Term Asset Fund (LTAF)
These UK-regulated vehicles are, by design, illiquid, enduring and evergreen with open-ended structures and long redemption cycles that offer a stable growth trajectory for investors seeking reliable returns from private assets – and who are content to wait. Traditionally, private asset classes aren’t easily accessible to retail investors and pension savers; an LTAF must derive 50% of its value from illiquid, long-term investments.
The democratisation of private assets is proving hugely transformative, as our research showed that 109 out of 124 fund managers surveyed offer, or will offer, some form of hybrid fund.
Since their inception in 2023, there are more than 10 umbrella and 22 sub-funds categorised as LTAFs in the UK public domain and, perhaps in recognition of the growing popularity, the FCA has shortened its authorisation process to as little as three months. LTAFs will be a key component of the UK investment landscape, and something CACEIS is well-equipped to support.
The explosion of the LTAF’s older cousin, European Long-Term Investment Fund (ELTIF) indicates the size of the opportunity. At CACEIS, our support of clients with ELTIFs in Luxembourg through our centre of excellence for Hybrid funds gives us experience on which to draw.
Approximately 70 ELTIFs were launched offshore in Luxembourg in the last five years alone. In the UK, based on the analysis, that puts the UK’s LTAFs growth at a similar level to 2022 for ELTIFs in Luxembourg.
Source: Preqin
As the LTAF market grows, we know the challenge for custodians is distilling their inherent complexity:
- Specialised expertise to understand the nuances of private assets, i.e., ownership deeds for real estate, bespoke legal instruments and their atypical valuations.
- Operational models that accommodate long, irregular and unpredictable periods of underlying capital calls and distributions.
- Strong partnership to steward the fund through strict risk management protocols, investor protection and multifaceted regulatory reporting requirements.
With longer-term goals comes longer-term vision - something we share at CACEIS. The nature of LTAFs allows investors to finance investments that match their philosophies: climate correction, infrastructure restoration, and more. Schroders, Blackrock and Aviva are some of the significant names who have entered a burgeoning market.
It’s critical to investors as evidenced in the response by investment managers that sustainability is paramount, but does the slower, illiquid nature of LTAFs match the urgency of climate change or carbon-zero goals? Promising and emerging advancements that address a deepening crisis could require rapid investment; that’s not aligned with LTAFs extended redemption periods for capital reallocation.
Nevertheless, LTAFs are a welcome solution that addresses a key need in unlocking – and thereby funding – the assets of the private world.
Good things and potentially good returns come to those who wait.
