LONDON, Oct 25 (Reuters) – Britain’s financial watchdog set out new rules for funds that invest over the longer term to help tackle climate change and economic recovery from COVID-19, ruling out redemptions to investors more frequently than monthly.
The new Long-Term Asset Fund (LTAF) regime creates a category of authorised open-ended fund for investing in long-term, illiquid assets such as venture capital, private equity, private debt, real estate and infrastructure.
“We want investment in long-term, illiquid assets, including productive finance, to be a viable option for investors… who are seeking the potential for higher long-term returns in return for less or no immediate liquidity,” the Financial Conduct Authority said in a statement.
In a consultation paper last year, the FCA proposed a notice period for redemptions of between 90 and 180 days.
“So we have set a minimum notice period of 90 days and a requirement that LTAF cannot offer redemptions more frequently than monthly,” the FCA said on Monday.
Funds that invested in illiquid property and offered daily redemptions had to be suspended last year when markets suffered extreme volatility as economies entered lockdowns to fight the pandemic.
It prompted regulators to seek a type of fund for which the frequency of redemptions better matches the time needed to sell assets to avoid lengthy suspension or destabilising firesales.
The FCA said there are no caps on fees an LTAF can charge, and there are no specific sustainability disclosures on investments in such funds.
They are aimed at sophisticated investors and pension funds, but the FCA said it will consult next year on whether certain retail investors should also have access.
“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,” FCA CEO Nikhil Rathi said.
Last month a government-backed report proposed that a cap on how much pension fund can invest in less liquid assets should be scrapped to encourage longer term investing.
Photo – EPA/TAL COHEN
