LTAFs yet to take off for retail investors

The arrival of the Schroders long-term asset fund on Hargreaves Lansdown’s platform for self-invested personal pension investors two months ago may have given the new semi-liquid structure a big thumbs-up for the retail investor.

But they have not yet taken off as a private markets wealth structure, with only a few of the dozens of LTAFs registered with the Financial Conduct Authority targeting individual investors. Of the 25 sub-funds approved by the FCA, only six — from five managers — are currently targeting wealth investors, whether ‘wealth’ or ‘retail’, according to FT Adviser research.

The five managers are: Schroders, Fidelity, WTW, Partners Group and Arcmont; Aegon may open up to individual investors in time.

The main issue is that LTAFs are very UK focused, and cannot be passported across Europe, although they can act as a feeder fund into a European fund.

There is also a market issue in the UK, where attitudes to private markets are somewhat mixed, and retail investors feel more comfortable with the liquidity of private markets investment trusts.

So as a result, many of the larger private markets managers may choose other structures that can facilitate a broader reach to tap into the wealth market, a sector seen to have huge potential globally.

Phil Bartram, a partner in the financial services and markets department of Travers Smith, says: “If you’re trying to choose from the LTAFs on offer, you might not be getting the top quartile of managers, but if the wealth manager proposes an ELTIF [European long-term investment fund], they can spread the exposure to things that are not on the table”

According to consulting firm Bain & Co, private wealth is forecast to be the biggest segment of investing in private markets by 2034, amounting to $16.5tn, followed by sovereign wealth at $13.3tn — it is currently at $5.2tn.

Projected investment in private markets by sector ($tn)
	2024	2034
Public pension funds	$4.9	$6.7
Corporate / private pension	$3.7	$6.0
SWF	$4.9	$13.3
Endowments and foundations	$1.7	$3.8
Insurance	$3.2	$7.4
Other institutional investors	$3.8	$8.7
Private wealth	$5.2	$16.5

Source: Bain & Co, and others

Alex Davies, founder and chief executive of Wealth Club, which is a private markets platform for sophisticated investors, says the reason is scope. “Lots of companies are looking to [offer private markets wealth products] and they’re nearly all Sicav funds — they view it as a huge market.

“The main reason [they use Sicavs] is because you can sell the Sicav in Europe and you can sell it in Asia, the market is huge, whereas the LTAF is the same thing for the UK market, and is another fund you have to launch, but purely for the UK market.”

James Lowe, director private markets – UK Wealth at Schroders, says that future LTAFs coming to market may well use them as feeder funds into Sicavs, to provide access to wider strategies.

“My expectation is that we will see more LTAF feeder type structures to take advantage of the ability to do that. We’ve been able to launch an LTAF feeder because we have a Part II UCI that’s large and has been around since 2019. To launch an LTAF for a UK market only, you need a lot of scale.”

A Sicav is a legal structure from Luxembourg and is the vehicle in Europe, on which the provider decides which regulatory ‘badge’ to go for, whether an ELTIF, which is an EU-authorised fund, or Part II UCI, which is Luxembourg-authorised fund.

Owen Lysak, funds partner at Simpson Thacher, says: “A Sicav is a type of Luxembourg open-ended investment fund common in Europe. It is a corporate that can issue shares and has variable capital; it’s also an open-ended vehicle, which is what you need for retail investors.

“Both ELTIFs and Part II UCI are alternative investment funds, with the ELTIF regulated under the EU ELTIF rules and the Part II UCI regulated under local Luxembourg UCI requirements. Both are alternative investment funds under the EU alternative investment fund manager directive, and so need an EU-regulated manager. The LTAF is a UK-authorised fund.”

In September Blackstone launched its first ELTIF, the Blackstone Infrastructure Strategies ELTIF, to access the European, APAC and Middle East market, and Apollo, another of the big American private markets players launched three ELTIFs (two private credit) also in September.

Jeff Carlin, global head of wealth at Nuveen, a US-based asset manager with a big presence in private credit, that has a mainly DC LTAF in the UK through subsidiary Arcmont, but which also provides wealth funds, says: “It puts structures and guidelines for what you need to have; how much liquidity you need and how much of the illiquidity the fund can stand.

“There’s a lot more public market players out there than private market players; there’s not that many firms that can build these products.”

Will Normand, head of asset management at Travers Smith, based in the UK, works in this sector and is privy to much of the activity from his clients, and outside the US sees 50 per cent of inflows from APAC, with Switzerland then Europe following behind. The UK is after that.

Exposure of different institutions to private markets, in numbers
	Pension funds	Insurance companies	SWFs	Endowments and foundations	Family offices	Private wealth

2016	2,074	493	58	1,770	651	618
2017	2,297	596	58	1,912	845	623
2018	2,482	717	63	1,999	1,030	779
2019	2,779	756	66	2,058	1,223	820
2020	3,500	809	69	2,206	1,828	966
2021	3,603	837	72	2,432	2,094	1,151
2022	3,826	865	74	2,613	2,482	1,373
2023	3,989	908	82	2,745	2,994	1,595
2024	4,153	977	80	3,172	3,766	2,118
H1 2025	4,279	990	79	3,207	4,067	3,152

Source: Preqin. “Private wealth” = wealth managers only.

There are various market forces at play, chasing the wealth money, Normand says.

“At one end of the spectrum you have the traditional alternatives managers, Blackstone down, and the other end of the spectrum you’ve got the traditional long-only like Schroders and Fidelity — the traditional long-only managers are getting closer to the traditional alts managers, and the traditional alts managers are getting closer to the traditional long-only managers.

“They are going after very different markets. Traditional alts managers are first and foremost interested in global wealth management market; they are after the likes of UBS, Charles Stanley, HSBC, Standard Chartered.

“These managers are designing products specifically for a wealth manager business — what that means is share issuing vehicles, with limited liquidity, 5 per cent exit per quarter and monthly subscriptions.

“None of them are going direct to retail, they are all going through wealth managers.

“That’s different to Fidelity and Schroders who spend all their time going direct. They can sell their LTAF direct to retail investors in the same way they have sold their products for the past 40-50 years,” Normand adds.

The strategies they use are also quite different in that the big alternatives managers, especially the American firms that have hundreds of billions under management, are more likely to do large buyout deals, that take months of due diligence and subtle investigation.

The conventional retail providers, like Schroders, operate in different areas such as doing deals with smaller firms. The Schroders Capital Global Private Equity LTAF, offers liquidity to businesses that might have in other times gone for an IPO.

Benjamin Alt, manager of Schroders global private equity semi-liquid and LTAF, which is a feeder fund into Schroders Capital Semi-Liquid Global Private Equity fund, says: “With global private equity, 80 per cent of the fund will invest in small to mid buyout deals in Europe and 20 per cent in Asia growth — 70 per cent of this will be in India.”

LTAFs were designed four years ago by the productive finance working group, which first convened in 2020 and consisted of HM Treasury, FCA and Bank of England as well as trade bodies, and large players such as Hargreaves Lansdown, Fidelity and BlackRock.

They were intended to provide DC pension funds in the UK, which is seen as being a huge growth market, with a means to invest in illiquid assets, via an authorised structure.

However, they were also considered for the retail sector, as set out in the FCA consultation paper CP21/12.

“Some retail investors seek out non-traditional investments in a search for diversification or higher yield. The LTAF may enable such diversified investment propositions, managed to an appropriately high standard, especially if retail investors can invest with the confidence that they are doing so only alongside sophisticated institutional investors who are well placed to understand the risks.

“On the other hand, retail investors may take excessive comfort from the authorised status of the fund or may not fully understand the illiquid nature and commensurate risks associated with the underlying fund.”

LTAFs, which were made available to the wealth sector two years ago, and other ‘evergreen’ funds essentially provide an extra layer of protection to investors who want to invest in illiquid assets — both private markets funds and direct investing — that they would not otherwise get via a typical private markets fund.

Conventional private equity funds are only typically open to ultra-high-net-worth individuals, lock investors in for nine to 10 years, and the money is not always deployed straight away.

But in addition the funds themselves are not regulated, (although European funds the managers are regulated under AIFMD, and UK managers under AIFM).

Evergreen, or semi-liquid, funds, including LTAFS, impose some restrictions on the fund manager, which are not as onerous as a typical Ucits (or a public markets) fund but the intention is that they provide more protection than a pure private market fund.

So for example, a Ucits fund can only temporarily borrow up to 10 per cent of the value of its fund, and not for the purpose of investment, whereas an LTAF can borrow up to 30 per cent of its NAV, which it can use for investing.

The ELTIF allows borrowing of up to 50 per cent of its NAV and a typical private equity fund can borrow 100 per cent plus of NAV, depending on the strategy.

The LTAF must have at least a 90-day notice period on redemptions and some liquidity management tools in place.

So many providers have instituted a cap of 5 per cent cap on units that can be redeemed at one time; managers are not allowed to rely on suspensions as a means of managing that liquidity.

LTAFs are also able to invest in UCIS, which includes the private equity funds, however, Andrew Massey, a partner in the financial services and asset management group at K&L Gates, says: “The manager of the LTAF has to undertake due diligence on the funds that the LTAF is investing in, if that’s its strategy. It’s not that its underlying funds are directly regulated, but the obligation is on the manager to ensure it’s undertaking due diligence to make the correct or appropriate choice for the LTAF”

There are also restrictions on LTAFs to ensure it is not indirectly investing in itself, and there are requirements about publishing charges and monthly valuations.

But the main prescription is that LTAFs must invest at least 50 per cent of their assets in unlisted securities, whether that be through a direct investment or via an underlying fund, and the funds are classified as high risk, as restricted mass market investments.

In addition, the manager of the LTAF itself has to be a full scope AIFM with the knowledge, skill and experience of managing the appropriate asset classes.

While LTAFs were under development, ELTIFs in Europe were already available, but not in their current form, now known as ‘ELTIF 2.0’. The original ELTIF, as it was at the time, was not considered attractive enough as a wrapper to be adopted in the UK.

John Dooley, a partner at Simmons & Simmons, who was legal counsel on the UK’s productive finance working group says: “When we had Brexit [in 2020] it was ELTIF 1.0, and they were just not as effective — people weren’t interested in launching them and there was no interest from managers.

“It was a closed ended fund. For two years we did retain the ELTIF [then called ‘LTIF’] in law, but we launched the LTAF because it was not being used.”

It is possible that the market might turn and LTAFs for the wealth market may pick up. They are due to be included in Isas from next year, although a big push would be whether they are accessible on retail platforms.

In the UK it is a question of whether the retail market wants it, even if parts of the wealth market is already sold on the evergreen concept, and whether the adviser and retail platforms are set up to deal with illiquid assets.

Neither AJ Bell nor Quilter have seen demand for these products, for them to consider them on their platforms.

Trading platform eToro does not yet allow access to private markets either, other than through investment trusts, but states: “We believe that tokenisation will play a key role in opening up private markets to a broader range of investors, enabling fractional ownership, reducing barriers to entry, and enhancing liquidity.”

Davies of Wealth Club says: “I expect the products will change, they will probably increase the liquidity, and there will be more hybrid products. What we have at the moment is more suitable for HNW and sophisticated investors.

“But there’s a lot of people in the UK with a lot of money. The other way they’re going to get this money is with people putting it in through advisory portfolios [DFMs].

“It is important to note that many of the LTAFs listed are run by managers not known for their private markets expertise. Of those listed on the FCA website, there are very few that would be my first choice if I was looking to invest in private markets.”

Dooley adds: “Although UK HNWIs and other wealthy investors might be able to invest in funds such as Luxembourg Part II UCIs, these are not available to the vast majority of UK investors.

“Whilst LTAFs will not be suitable for everyone in the UK, they do have the potential to significantly widen access to those investors who want to and can invest in private markets if they become more widely available in future (for example through Isas, Sipps or investment platforms).”

Schroders’ Lowe adds that a key part will be to ensure that both clients and advisers understand the liquidity profile, before signing up, not least to ensure they comply with consumer duty.

For the moment, though, many in the UK retail space are approaching with caution.

Melanie Tringham is features editor at FT Adviser

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