WTW are the latest firm to announce the creation of an LTAF, initially regulated for DC pensions but with the intention to launch in the advised space in time.
Ben Leach, head of private market solutions at WTW, says his view is that private equity “is the asset class with the longest-term time horizon”, and so suits funds that do not offer daily dealing.
He says an exposure to private equity can significantly enhance the returns of clients in DC pensions, and says the time horizon works because the average age of a client with a DC pension pot is currently 43.
WTW’s LTAF invests directly in the shares of companies, rather than in private equity funds; usually the LTAF is investing in the same deals as the private equity funds that other parts of WTW are invested in.
Leach acknowledges that higher interest rates have created challenges for private equity funds, at the same time as many such funds have an excess of capital to deploy, with the former creating the potential to devalue existing holdings, and also to keep valuations high, and make it difficult to find good investment ideas.
He says WTW’s approach is to own slightly smaller companies that might be the case for other private equity funds, as he believes valuations are better there.
Leach adds that he regards many of the issues around debt as being short term in nature, but adds that “some managers of private equity funds do use [debt] and it has to be factored into the business case when choosing a fund or choosing to invest alongside a fund”.
He says the typical level of investment from the LTAF into any one company will be somewhere around £30mn, and they would not invest more than £50mn into any one company.
The WTW fund will retain a portion of the capital in liquid assets in order to comply with the FCA requirement that withdrawals be capped at a level that does not require assets to be sold to meet redemptions.
Aviva Investors has so far brought two LTAFs to market, which are focused on property and the climate transition theme.
