Key Takeaways
- Long-term asset funds offer access to illiquid private assets.
- Access to potentially high returns is one of the main attractions of LTAFs.
- Investors need to be realistic about returns and understand liquidity, transparency, and fund expertise.
- Advisors can play a pivotal role in educating private wealth clients and retail investors.
The LTAF market is still relatively immature and currently includes over 20 strategies for sale in the UK; we expect it to continue growing.
Based on numbers Morningstar collected, the assets under management of LTAFs approved by the Financial Conduct Authority currently account for a total of around £5 billion, while there is about £3 billion of committed capital that has not been called.
On top of that, some asset managers reported assets under management of around £2 billion in master funds.
For now, the LTAF market is dominated by large-scale asset managers such as Schroders, Aviva, BlackRock, Fidelity, and Fulcrum.
Key Features of LTAFs
- They are open-end funds and were introduced in 2021.
- From April 2026, LTAFs can be included in stocks and shares ISAs.
- An LTAF must invest at least 50% of its assets in unlisted securities.
- LTAFs can suspend redemptions.
Why LTAFs Can Bring Portfolio Diversification for ISA Investors
Chancellor Rachel Reeves announced that from April 2026 onward, LTAFs will be allowed to be included in stocks and shares individual savings accounts. This step could unlock access to the retail market and could be a catalyst for long-term structural growth in AUM of LTAFs.
Access to semiliquid strategies results in diversification benefits for defined-contribution pension schemes, wealth clients, and retail investors. A range of illiquid investment strategies, such as private equity, private debt, infrastructure, or venture capital, can prove to add portfolio diversification in an era of significant performance concentration in equity markets.
Another benefit of LTAFs is that investors will now be able to invest in a wide range of local private UK businesses and contribute to growth across different sectors, such as infrastructure, real estate, renewable energy, biotechnology, or artificial intelligence. Additionally, private assets have historically provided very high absolute returns, which are now available to more investors through LTAFs.
LTAFs could provide diversification benefits and higher returns to wealth clients and retail investors. However, there are a number of factors that investors have to carefully assess given the complex and opaque nature of LTAFs.
Important Factors Investors Need to Assess When Evaluating LTAFs
- What are the liquidity management tools of the fund?
- LTAFs also hold liquid assets, including cash, which means returns are diluted.
- Besides the management fee paid, some LTAFs could charge carried interest and indirect fees.
- Valuation: Private assets are not traded, and there is no publicly available data.
- Transparency: Given the complexity of LTAFs, investors should be comfortable with the amount of information they receive.
- Expertise: LTAFs need a large investment team with significant experience and an established track record in allocating to private assets.
Advisors can play a pivotal role in educating private wealth clients and retail investors and assisting them in their due diligence process. Another challenge is platform availability of LTAFs. We need to see some progress here so that investors can choose from a wide-ranging menu of different LTAFs. This is likely to happen now as these investment vehicles will become available via stocks and shares ISAs.
This is an abridged version of the report Public/Private Convergence, written by Evangelia Gkeka.
