Is Hargreaves Lansdown’s LTAF move really a ‘watershed moment’?

With Hargreaves Lansdown (HL) announcing that it would include two Schroders LTAFs (long term asset funds) on its mega retail funds platform later this month, some industry pundits are calling this a major turning point for the semi-liquid fund structure. 

‘It’s an update that sounds small, but it isn’t,’ senior Morningstar research analyst Kenneth Lamont told Citywire. ‘This feels like a watershed moment. The growth barrier to LTAFs has been platforms.’

There had been several complaints from those in the wealth management space that lack of platform availability was the primary reason preventing them from investing in semi-liquid funds. 

Such ‘evergreen’ funds offer investors the chance to get their money out multiple times a year, such as at three- or six-monthly intervals, subject to the capacity to raise cash. That contrasts with classic private equity-style funds, where institutional investors may have to lock up their money for a decade. 

For retail investors, well established are private equity, infrastructure and property investment trusts, where investors can sell their shares at any time, although face other issues such as discounts. 

In the wake of the HL and Schroders announcement, the Association of Investment Companies trade body was among those in the industry at pains to contrast ‘tried and tested’ investment trusts with novel structure like the LTAF. 

Lamont was also somewhat skeptical regarding the actual demand for these products from retail investors. 

‘Most of the demand is not coming from retail investors. The pressure is coming from asset managers, and it’s been tough out there for them,’ he said. ‘LTAFs will only be suitable for a small number of investors. The higher fees on these products will have to be justified, and there should be quite a high bar for investment.’ 

He added that some of the stated advantages of investing in private markets may start to dissipate when they are distributed to a retail audience, particularly the ‘illiquidity premium’ feature which assumes private assets will outperform public market equivalents over the long term. 

‘That happened with ETFs when they offered exposure to commodities, the beta goes up when access increases,’ he said. 

Lamont (pictured above) also suggested that HL might run into administrative headaches as it adds more LTAFs to its platform. 

‘It’s easy enough when you only have one provider, but it becomes difficult when you have several providers on a platform – the features of the different LTAFs are quite varied,’ he said. 

HL head of investment, Tom Nall, told Citywire that the firm hadn’t had any major issues in adding LTAFs to its platform, despite the funds having ‘wildly different characteristics’ to other products available on HL.

Nall said that HL clients were displaying interest in private markets investment and that the firm was running several webinars on this topic for clients. 

Although subscriptions to these products are likely to be modest, especially with a minimum £10,000 investment, Nall said that Sipp inclusion could see clients move over some of their existing pension assets to LTAFs. 

Democratisation argument falls flat

Lamont highlighted that asset managers in the LTAF space regularly suggest that these semi-liquid structures ‘democratise’ access to private markets. However, he noted that private assets had already been available within investment trusts ‘for a long time’, which nullified that argument.

The Association for Investment Companies (AIC) also, unsurprisingly, questioned the merit of LTAFs.

Richard Stone, chief executive of the AIC, said: ‘The investment trust structure has been tried and tested through challenging market conditions, and allows investors to buy and sell easily by trading shares on the stock market. In contrast, LTAFs limit redemptions, with minimum notice periods of 90 days and restrictions on how much can be redeemed.

‘Clearly, different structures have their strengths and weaknesses, but to ignore investment trusts as a way of accessing private markets is plainly wrong. We have seen before how investing in hard-to-sell assets within structures which promise investors redemption without a realistic timeframe can lead to those promises being unmet.’