FCA Expands LTAF Access for Retail Investors and Pension Schemes

The Financial Conduct Authority (FCA) has amended investment rules to broaden access to Long-Term Asset Funds (LTAFs), opening new opportunities for retail investors and pension schemes while maintaining safeguards. The changes, effective December 20, 2024, remove barriers that previously limited Non-UCITS Retail Schemes (NURS) from investing in LTAFs.

Key amendments include exempting LTAFs from the 15% limit on investments in other collective investment schemes for NURS. This simplification allows NURS to invest in LTAFs without restrictions, potentially increasing retail investor exposure to long-term, illiquid assets such as venture capital, private equity, and infrastructure.

Despite easing restrictions, the FCA has retained the 20% cap on a NURS's portfolio exposure to LTAFs. This limit applies globally across holdings in LTAFs, qualified investor schemes, unregulated schemes, and unapproved securities, ensuring diversification and risk management.

The changes also introduce new provisions to ensure NURS managers investing in LTAFs can meet redemption obligations, addressing liquidity risks associated with long-term illiquid assets. Sarah Pritchard, Executive Director of Markets at the FCA, emphasized that these rules allow retail investors and pension funds to invest in productive finance while recognizing the risks of long-term investments.

For defined contribution pension schemes, the amendments offer greater flexibility to allocate funds into LTAFs, broadening their investment options. The FCA has also aligned third-party valuation requirements for LTAFs with the standards for NURS, streamlining operational processes.

These regulatory updates reflect the FCA's commitment to balancing innovation in investment products with robust investor protection. The regulator will continue to monitor the impact of these changes and consider feedback on additional adjustments, such as registration requirements for depositaries and broader access to private market assets.

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