Schroders (SDR) has received regulatory approval from the Financial Conduct Authority (FCA) to launch the first long-term asset fund (LTAF).

LTAFs are open-ended vehicles designed to give broader access to illiquid and private assets.

The FCA finalised the regulatory regime for the LTAF in November 2021, but the fund structure had failed to attract applications from asset managers until now.

The new fund will be run by Schroders Capital, the asset manager’s alternatives division, which has $91bn (£76.5bn) in assets under management.

David Seex, head of private asset solutions at Schroders Capital, said the new fund would allow pension savers to invest in private assets.

‘It is important for investors and their advisers to be clear as to the long-term nature of private investments and when and how they will be able to access their funds,’ he added.

‘Key considerations should be the liquidity profile of their investment and how this fits with their investment horizon.’

Sarah Pritchard, the FCA’s executive director of supervision, policy and competition for markets, said it was ‘good to see this product innovation now taking place’.

The LTAF fund structure was introduced to minimise risks associated with holding illiquid assets in open-ended funds, which typically promise ready liquidity and regular dealing for their investors. 

The vehicle is currently open only to sophisticated investors. However, last year, the FCA ran a consultation on whether it should be broadened to retail investors.

First of three to be approved

The FCA told Citywire it had received applications for three funds from three different groups. Schroders’ fund is the first of these to be approved.

The regulator said it has a six-month period in which to approve an LTAF application and that it is actively working on the applications it has received.

Previously, alternative investment firm Partners Group told Citywire it was working on launching an LTAF, but the group declined to say whether it was among the three applications made.

Last year Rainer Ender, head of private equity at Schroders Capital, spoke on The Wealth Show podcast about how the firm would be in the first wave of managers using the LTAF fund.

Mixed industry reaction

The reaction to the launch of the new structure has been mixed. Some wealth managers previously told Citywire they did not see the point of investing in an LTAF when closed-end investment trusts already do the job.

Ben Conway, head of fund management at Hawksmoor, questioned whether LTAFs, which can impose constraints on dealing for up to six months, would be able to address the liquidity mismatch.

Following today’s news, Dzmitry Lipski, head of funds research at Interactive Investor, also questioned the need for LTAFs when investment trusts are available in this space.

‘For illiquid assets at least, investment trusts have the most appropriate structure. But we also accept that investment trusts can have issues of their own, as we have seen with widening discounts in the alternative assets trust space,’ he said.

‘LTAFs should, in theory, shield investors where there is a “run” on the fund, when large numbers of investors head for the emergency exit at the same time. But this is an untested model and we still struggle to see how the structure will solve the liquidity issue.’