The LTAF will start with almost £150m from Aviva in a mix of assets and cash and will have no fixed lifespan. It will invest with a UK bias in Europe and North America across fintech and insurtech, healthtech, science and technology, and climate and sustainability.

Aviva has targeted an overall return of 15% per year on a five-year rolling basis. It will make its venture investments through third-party funds and other evergreen vehicles.

Dame Amanda Blanc, group CEO at Aviva, said: “Aviva is investing more and more in the UK, to support growth and back Britain’s flourishing early-stage companies. This new fund will provide vital finance to some of the UK’s most promising, high-growth businesses, aiming to deliver great returns for our customers.”

This will be the fourth LTAF launched by Aviva, following the Multi-Sector Private Debt LTAF in November.

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Mark Versey, chief executive officer at Aviva Investors, said: “This fund marks another step in our ambition to unlock the benefits of Private Markets for more investors, and to be the go-to provider for the UK’s DC and Wealth markets. We are incredibly pleased to expand our LTAF range further, making it easier for investors to allocate more to these asset classes and to enjoy the returns and diversification they can offer.

“Targeting venture returns, we expect our new fund to help the companies of tomorrow get ready for the future, driving innovation and growth through investments that also have the potential to have a positive societal and environmental impact.”

The Aviva Investors Multi-Sector Private Debt LTAF will invest across the private debt spectrum, including real estate debt, infrastructure debt, structured finance and private corporate debt.

The strategy has received £750m of initial investment from Aviva’s My Future Focus default pensions solution, which invests in a broad range of asset classes on behalf of the firm’s range of auto-enrolment Defined Contribution default strategies.

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It adds to Aviva’s existing Real Estate Active LTAF, which launched in May 2023, and the conversion of its Climate Transition Real Asset fund to sit under the new regime in March.

Daniel McHugh, CIO at Aviva Investors, said: “We are pleased to add a dedicated private debt solution to our suite of Long Term Asset Funds, further positioning Aviva Investors as the largest provider of LTAFs for the UK DC and Wealth market.

“Private debt is a key growth area for us, and we believe our multi-sector approach will best-capture relative value through the market cycle.

“This should give it potential to deliver strong risk-adjusted returns and diversification to pension schemes, whilst also meeting their liquidity needs.”

The fund, named the WS Fulcrum Diversified Private Markets LTAF, will be the second LTAF launched by Fulcrum. It will be offered with a flat-fee structure, and plans to launch 29 November with Waystone as authorised corporate director.

The solution will hold a mix of real estate, infrastructure, natural resources, alternative credit and private equity in an open-ended OEIC structure. Investments will be selected by Fulcrum’s ‘Panel of Illiquid Specialists’, a group of managers sourcing illiquid investment opportunities.

See also: Carne: 82% of UK asset managers considering LTAF launch

Matthew Roberts, head of Fulcrum alternative solutions, said: “We are thrilled to be bringing our LTAF to the broader professional investor marketplace. We’ve taken time to ensure that we are offering investors a carefully designed entry point to private markets.

“Ever since we started the Fulcrum alternative solutions team, our goal has been to solve the challenges that investors have faced when it comes to accessing alternatives and this fund launch represents a significant milestone in that journey.”

Within the UK market specifically, 82% are considering an LTAF launch, while 28% are considering its EU counterpart, the ELTIF. Among US managers, 74% have interest in an LTAF compared to 42% for ELTIFs.

The LTAF and ELTIF structures allow additional flexibility when investing in traditionally illiquid products, such as private markets, which can broaden appeal of the product to those who may need access to funds before the traditional investment period is realised. This can include requiring a certain percentage of liquid assets within the vehicle as well as set exit periods.

See also: Future Growth Capital to boost UK private markets with new LTAFs

While private markets have been an area of interest among pension scheme investors, the creation of the ELTIF vehicle in Europe and the LTAF in the UK has also opened the opportunity to private investors. Now, 88% of UK and European wealth managers expect the investment level in private markets to grow over the next three years, with over a quarter believing growth will be “dramatic”.

Jeremy Soutter, managing director at Carne Group, said: “In the UK alone, DC assets are set to reach £1trn by 2030, with UK schemes looking to increase their allocation to private markets meaningfully in the next few years. This represents a huge market opportunity for the asset managers that can help fulfil this allocation.

“For wealth managers and DC pensions schemes, the LTAF and ELTIF serve as critical routes into illiquid asset classes and will catalyse the growth of private markets. Launching LTAFs or ELTIFs in a time-efficient manner will be critical for asset managers looking to capitalise on the private market opportunity.”

See also: Private markets: Wealth managers face high barriers to entry

Despite the faith in the market from wealth managers, as well as the interest in increasing product from asset managers, under a quarter of wealth managers currently access private markets through an LTAF or ELTIF. One of the limitations of the market is regulation, as managers come to terms with the compliance of the vehicles. Most managers expect to increase spending by 25% to 50% for regulation resources.

“Equally, some asset managers may need to assess if an LTAF or ELTIF is indeed necessary. With a number of DC master trusts now having, or planning to have, their own LTAF in place, asset managers may find they’re able to be appointed as sub-advisers within a schemes’ LTAF umbrella structure,” Soutter said.

“Launching an LTAF can be a complicated, lengthy and costly process – made all the more difficult by the competitive pressure to get to market quickly, a challenging commercial backdrop in which cost-effectiveness is key, and an increasingly complex regulatory agenda both in the UK and EU. Carne is therefore witnessing a significant number of asset managers turn to third party specialists to steer LTAFs through the regulatory process and enable speed to market.”

The vehicles invest in long-term, illiquid assets such as private equity and infrastructure, and until earlier this year, were only accessible to institutional investors.

They became more widely available in July as part of the former chancellor’s Mansion House Compact as a means for pension funds to invest an additional £75bn into UK growth assets they previously struggled to access. Future Growth Capital was set up in response to that.

See also: Schroders rolls out alternatives fund to MPS clients

Its newly approved Schroders Future Growth Capital UK Private Assets LTAF will put money into underinvested UK private assets and venture capital businesses. In doing so, it hopes “to promote the UK’s private markets ecosystem, further enhancing the UK as an attractive destination for international investors,” according to Schroders.

Paul Forshaw, chief executive at Future Growth Capital, said: “This is a significant step forward for our new business and for UK pension capital. It will be the first LTAF entirely aligned with the Mansion House Compact, connecting long-term savings directly to the most attractive private UK companies, supporting these exciting businesses to grow and stay in the UK.”

This new fund will be launched in conjuncture with a global version that follows the same strategy called the Schroders Future Growth Capital Global Private Assets LTAF.

See also: Schroders receives approval for LTAF aimed at UK wealth market

Together, both strategies will invest an initial £1bn into their respective markets, which could increase by between £10-20bn over the next decade.

Forshaw  added: “The Schroders Future Growth Capital Global Private Assets LTAF will provide long-term savers with the benefits of further diversification across the spectrum of international private assets. Importantly, both LTAFs have the potential to deliver better long-term retirement performance.”

These new funds will be the fourth and fifth LTAFs to be launched by Schroders this year, which has been ahead of its peers in releasing these new products to pension clients.

Managed by Schroders Capital’s head of global private equity Portfolios, Benjamin Alt, the fund will focus on global small-mid market buyout and growth investments, with a strong focus on technology and healthcare sectors.

Whereas LTAFs have largely been aimed at DC (defined contribution) investors so far, the Schroders Capital Wealth Solutions LTAF will be available as an OEIC, allowing the UK wealth market to access the product.

See also: AIC: More wealth managers willing to go off buy list for investment trusts

James Lowe, director, private markets at Schroders, said: “This is a significant step forward; we believe that for the UK wealth community LTAFs will provide another access point to private markets and we expect this LTAF to be a complementary tool to existing private markets structures – like investment trusts – offering new flexibility in how UK investors will be able to meet their objectives via private market investments.”

Schroder Capital’s Alt added: “We are now able to bring the best of our expertise in private equity to UK private clients in a UK approved structure. This means access to the most attractive segments of private equity markets globally through a well-established fund with a proven track record.

“Private equity enables investors to access different parts of the economic ecosystem, bringing the potential for robust investment performance and the benefits of diversification.”  

Earlier this month, Schroders Capital unveiled an LTAF dedicated to investing in UK venture capital.

The fund – which first sought approval from the FCA in March – will be seeded with a cornerstone investment of £300m from savings and retirement business Phoenix Group and the UK government’s British Business Bank. Each will make a starting investment of £150m.

This newly-approved LTAF is intended to offer defined contribution (DC) and other institutional investors exposure to early-stage companies in the UK, particularly in the technology and life science industries.

Most of these companies are inaccessible to investors due to their lack of liquidity – Schroders’ head of UK DC Tim Horne said the new fund will open up the diversification benefits of private markets.

See also: Schroders CEO Peter Harrison to retire next year

“Supporting the UK Government’s Mansion House reforms, this fund will help unlock the potential for DC schemes to invest into fast-growing, early-stage companies,” he added. “These investors have so far been underweight private markets, venture capital and UK businesses in particular.”

And with the UK being the largest venture capital market in Europe, Schroders CEO Peter Harrison said gaining access to this challenging asset class is essential for driving long-term returns and boosting UK growth.

“The UK is one of the most innovative countries in the world, punching above its weight in many sectors, including science and technology innovation. This is why it’s critical we increase investment into these sectors to develop the skills and culture that will benefit savers today and in the future,” he said.

“A UK venture and growth LTAF will act as a catalyst to unlock institutional investment, particularly from UK defined contribution pension schemes, and increase the supply of capital to UK technology and science start-ups. This initiative will ultimately strengthen UK economic growth and reinforce the UK’s position as the natural home for fast-growing companies.”

See also: Schroders confirms Richard Oldfield as new CEO

This will be Schroders third LTAF, having launched its first, Schroders Capital Climate+, in April last year. It is dedicated to giving UK pension fund investors exposure to illiquid assets that are supporting the net zero transition.

Its second LTAF, Schroders Greencoat Global Renewables+, was launched in February this year and invests in renewable energy and transition infrastructure.

The LTAF will hold exposure to private equity, private credit, infrastructure, real estate, natural resources, and some public assets to allow for liquidity. Fidelity said the fund may serve as a “complement to a traditional public assets portfolio” and is suited for investors with long-term investment horizons.

See also: Fidelity International brings Bitcoin ETP to the London Stock Exchange

Henk-Jan Rikkerink, global head of solutions and multi asset for Fidelity, said: “Today, a number of clients are already asking to include private assets in their solutions, and we only expect this to grow over the coming years. In a world of challenged returns and reduced diversification from more traditional asset classes, clients are looking for a wider range of options to meet their long-term investment objectives.  

“Our LTAF will aim to provide DC pension schemes with diversified exposure to private assets in a single, convenient vehicle. We believe that investing in private assets broadens the investment opportunity set and will improve the risk-adjusted returns and diversification characteristics of a portfolio over the long term.”

See also: Fidelity’s Marcel Stötzel: What the next steps are for tech innovation

The CG WTW Private Equity Access LTAF (Peal) will be managed by Carne Global Fund Managers.

WTW said the fund has received an initial £450m seed money ahead of its launch. The launch is subject to regulatory approval, expected in the second half of the year.

See also: Should retail investors be given access to LTAFs?

Ben Leach, head of private market solutions in WTW’s investments business, said: “The launch of Peal is hugely exciting for investors and is the culmination of three years of development work.

“Crucially for end savers looking to grow their wealth, they will now be able to access dedicated private equity exposure through a regulated pooled fund structure, the first of its kind in the market.”

The LTAF structure, introduced in 2021 by the FCA, was designed to invest efficiently in long-term illiquid assets.

Back in February, Schroders unveiled an energy transition infrastructure LTAF. BlackRock and Aviva Investors have also announced products under the LTAF structure over the last 12 months.

See also: Will economic green shoots entice investors back to the UK market?

Schroders Greencoat, the renewables and energy transition infrastructure manager of Schroders Capital, has launched a long-term asset fund (LTAF) dedicated to renewable energy and energy transition infrastructure.

The Schroders Greencoat Global Renewables+ LTAF is designed to allow UK pension savers to invest in this asset class while benefiting from “stable, diversifying and inflation-linked investment returns”. It will be managed by Schroders Greencoat alongside its Luxembourg-domiciled sister fund, the Schroders Capital Semi-Liquid Energy Transition fund, launched in January.

The fund will target infrastructure supporting the energy transition across the UK, US and Europe, providing access to long-term investments in private markets. It will deploy capital across wind and solar assets, as well as a range of energy transition assets including hydrogen, heating and storage.

Duncan Hale, portfolio manager at Schroders Greencoat, said: “We are pleased to be introducing this ground breaking LTAF, which will offer investors a powerful combination of strong returns potential with a unique risk profile, while directing essential capital towards decarbonising and electrifying our energy sources. 

“Alongside wind and solar, a dedicated portion of this portfolio also taps into newer technologies associated with energy-transition-related infrastructure, like hydrogen and district heating, which have the potential to generate superior returns across a longer period.”

According to Schroders, LTAFs are particularly suitable for the UK defined contribution and UK charities markets, providing savers with access to a previously untapped opportunity, as well as through defined benefit pension schemes. 

This article was first published in our sister publication, ESG Clarity

At a time of market uncertainty and disappointing returns, retail investors are looking to expand their investment landscape and venture into new territories.

In a bid to help this diversification process, the Financial Conduct Authority (FCA) recently set out new rules to give retail investors access to long-term asset funds (LTAF).

The LTAF is an open-ended fund that offers long-term investors access to a wide range of assets including private market investments.

So, will expanding the reach of LTAFs to retail investors be a good thing for the market?

Diversification of portfolio

Expanding LTAFs to retail investors can offer individuals the opportunity to diversify their portfolios with more non-traditional assets that would have previously only been available to a handful of investors.

James Wilson, IFA at Fairstone, said: “LTAFs are a high-risk investment product that can provide retail investors with greater diversification within their investment portfolios, the opportunity for greater returns and the potential for better retirement outcomes.”

Not only can LTAFs provide diversification to a retail investor’s portfolio, they can also produce higher returns than listed assets and save the investor from having to invest in multiple funds at one time.

Nicholas Hyett, investment manager at Wealth Club, added: “Rather than having to invest in private equity funds from a dozen managers across various vintages, probably requiring millions of pounds, an investor can (in theory) pick a single well-diversified LTAF that already pools investments into all those funds.”

This makes LTAFs far more accessible than a traditional fund with lower minimum investments.

Volatility and risk

While there is an argument for allowing retail investors access to LTAFs, there are some areas of concern as they are more complex than traditional open-ended funds and their illiquid nature will come with its own risks.

John Somerville, head of financial services at the London Institute of Banking & Finance (LIBF), said: “The very nature of these assets mean that investors will experience greater potential volatility with no access over the short to medium term and are only suitable for those prepared to put the time into the market for their money to reach its full potential.”

The illiquidity of LTAFs can be a positive for those who wish to invest their money for a long period of time, but those looking for a short-term gain from their investments may not benefit from these types of funds.

Arash Nasri, senior vice-president at Redington’s global asset team, added: “Investors often like knowing that their investment can be liquidated at very short notice , moving to something like a once-a-year liquidity points is something that will take retail investors a lot of getting used to.”

Therefore, it is crucial for retail investors to understand what they’re getting into at the point of investment to make sure that it fits their lifestyle and financial needs.

Yazmin Boden, partner at GSB Capital, said: “For those close to retirement or with an upcoming withdrawal requirement, allocation to LTAFs are unlikely to be suitable due to the potential liquidity issue.”

Receiving financial advice

Investing in an LTAF can give retail investors access to a broader range of investment options that can provide them with good long-term returns. However, it is important to assess whether the individual has the knowledge and experience to do it on their own.

John Westwood, chairman at Blacktower, said: “Retail investors who lack expertise in this area may benefit from consulting a qualified financial adviser who can provide guidance, asses their investment objectives and ensure that the investment aligns with their overall financial plan.”

Jock Glover, strategic relationships director at Square Mile Investment Consulting and Research, added: “The asset managers of these LTAFs will have to provide risk warnings and summaries of the strategy as well as conducting appropriateness assessments and making sure they have adhered to the Consumer Duty, acting to deliver good customer outcomes.”

GSB’s Boden pointed out that small errors can compound throughout the years therefore seeking help from a financial adviser can help a retail investor to select those funds that best fit their needs and objectives.

Steven Cameron, pensions director at Aegon UK, said: “As more LTAFs are launched, there will also be a key role for advisers in understanding and recommending the most appropriate for their client’s attitudes towards risk.”

This story originated on our sister title, International Adviser.

It added that, while some fund management firms appear to be maintaining a “good” standard of liquidity risk management, there was a “wide disparity” among companies in terms of compliance with regulatory standards, and that some firms in the review were found to have “inadequate” frameworks to mitigate risk.

For instance, the FCA said the basic tools required combat liquidity crises were largely in place, but that the full processes “lacked coherence” and were “not always embedded into daily activities”. It added there was often “insufficient challenge and escalation” when it came to vehicles’ liquidity, as many companies chose not to prioritise liquidity risk management as part of their corporate governance.

See also: “Calastone: Equity funds suffer one of worst months for outflows“

The regulatory body also said arrangements were typically put in place by firms to meet “large one-off redemptions”, but firms lacked the correct arrangements to combat market-wide or cumulative redemptions.

Camille Blackburn, director of wholesale buy-side at the FCA, said: “This review should serve as a warning to all asset managers that they need to get this right. We expect boards to discuss our findings and assure themselves that their firms are not among the minority with serious gaps in managing liquidity risk.

“It is vital the outliers take quick action. They risk regulatory intervention if they don’t take this opportunity to address weaknesses.”  

Compatible with the launch of LTAFs?

Laith Khalaf, head of investment analysis at AJ Bell, said it is worth noting that while the FCA is urging fund managers to improve their liquidity management, the regulator is also in the process of launching Long Term Asset Funds (LTAFs) as a means for retail investors to buy into “highly illiquid assets”.

“The initial impetus for Long Term Asset funds came from none other than Rishi Sunak, in his former role as Chancellor,” he explained. “The not-so-subtle goal is to tap up the large amount of money sat in pension funds for investment in UK infrastructure and start-ups, to help boost economic growth and fund the transition to greener energy.

Khalaf added: “If it’s going to continue going down this route, the government needs to make absolutely sure it’s not opening retail investors up to extra liquidity risks simply so it can meet its own economic targets.”