UK Regulator Consults on a New Authorised Fund Regime for Investing in Long Term Assets

The U.K. Financial Conduct Authority has opened a consultation on proposals to establish a regulatory framework for a new type of authorized open-ended fund called the long-term asset fund. The aim is to establish a fund that would facilitate authorized funds to be set up to invest efficiently in long-term, illiquid assets, such as venture capital, private equity, private debt, real estate and infrastructure. The consultation closes on June 25, 2021.

The consultation paper sets out the details of the proposed framework, including increased governance requirements, clear disclosure rules and discusses the proposals on rules on the purpose of an LTAF, borrowing levels, valuation, redemption and subscription, due diligence and reporting. The FCA is proposing to restrict distribution of LTAFs to professional investors and sophisticated retail investors. However, the consultation asks for feedback on whether, and how, future wider retail access to such funds could be safely supported. LTAFs will be an alternative investment fund. As the LTAFs would invest in potentially complex and risky assets, the FCA proposes that only a firm authorized as a full-scope U.K. alternative investment fund manager could manage an LTAF. This will ensure that LTAFs have appropriate resources as well as good systems and controls.

Furthermore, the FCA proposes that LTAFs would be permitted to invest in a range of long-term illiquid assets, with few restrictions on eligible investments. It also proposes that the types of investment held within an LTAF could have diverse risk characteristics and return profiles. Therefore, the FCA would require additional disclosures to help investors and potential investors understand how the fund will be managed, and to explain key elements.

The FCA is aiming to publish its response to the consultation and final rules later in 2021. The FCA will also consider the work of the Productive Finance Working Group, the government's proposals on reforms to the U.K. funds regime as well as the feedback to its consultation on liquidity mismatch in authorized open-ended property funds.

View the FCA's consultation paper (CP21/12).

View details of HM Treasury's consultation on reforms to the U.K. funds regime.

View details of the FCA's feedback statement to the consultation on Liquidity Mismatch in Authorized Open-Ended Property Funds.

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