ISA Inclusion Provides Potential Advantages for LTAFs, Yet Exercises Caution Advised
Investing in Long-Term Asset Funds (LTAFs) in the UK: A Guide for Investors
Long-Term Asset Funds (LTAFs), launched in the UK in 2021, offer investors a unique opportunity to access illiquid private assets such as unlisted securities, infrastructure, and property. However, these funds come with their own set of considerations that every investor should be aware of.
Liquidity
Given the nature of LTAFs' underlying assets, they are not instantly tradable. Investors should be prepared for limited liquidity and understand that there will be set notice periods before they can withdraw money. The open-ended structure allows access but with restrictions to manage the liquidity mismatch between investor redemptions and asset sales.
Fees
Investing in LTAFs typically involves higher fees than traditional listed funds due to the complexity of managing private and illiquid assets. Actual fee details should be carefully reviewed by investors.
Valuation
Valuation in LTAFs is less transparent and more complex than for publicly traded assets. Fund managers employ specific valuation methodologies to regularly value these assets, but investors must understand that valuations may be less frequent, more subjective, and can involve more estimation and judgement compared to listed markets.
Other Considerations
Investors should have realistic expectations about potential returns and the risks of investing in niche areas that may offer diversification benefits but also carry specialized risks. Education is key to navigating the LTAF market effectively. LTAFs require a high level of due diligence, particularly around redemption, liquidity, fees, valuation, risk/return expectations, transparency, and the investment teams' capabilities.
As the LTAF universe grows, with over 20 strategies available for sale in the UK, professional advice and thorough research are crucial for investors looking to incorporate LTAFs into their portfolios. Transparent and frequent marking of assets, along with confidence in the investment teams' experience and capabilities, are important factors for LTAF investors.
Accessibility and Growth
From April 2026, LTAFs will be eligible for inclusion in Stocks and Shares ISAs, enhancing tax efficiency for investors. This change is expected to serve as a catalyst for assets under management growth in LTAFs via the retail channel. The UK government has confirmed this development, making LTAFs more accessible to a wider range of investors.
The LTAF market remains relatively immature, but it is expected to grow as the product structure beds in and distribution opens up. UK and US asset managers are already eyeing launches of LTAFs, making this an exciting time for investors interested in this asset class.
In conclusion, while LTAFs offer the promise of diversification and access to higher returns, they require a high level of due diligence. Investors should approach these funds with a clear understanding of their liquidity, fees, valuation, and risk/return expectations. Advisers play a crucial role in guiding investors through the complexities of LTAFs, and education is essential for effective navigation of the LTAF market.
- When considering Long-Term Asset Funds (LTAFs) investments, it's essential to remember that, due to their underlying real-estate assets, these funds might involve higher fees compared to traditional listed funds.
- As part of their due diligence, investors should also be aware that the valuation process for LTAFs is less transparent and more complex than that of publicly traded real-estate assets.
