Mark Meiklejon, head of real asset investment specialists at the firm, says the FCA rules around LTAFs require the bulk of the capital to be invested directly in the asset, for example into a physical property rather than the shares of a company owning physical property, and he says that owning and managing a physical property is a good way to approach this.
Supply and demand
Jason Hollands, managing director of corporate affairs at Evelyn Partners, says: “It is early days for LTAFs, and we are closely watching developments in this space.
"In my view the creation of fund structures designed to accommodate illiquid asset classes with longer lock up periods is a broadly welcome development, but these are not going to be suitable for most retail investors. It is right that these should be aimed at investors who are taking professional advice, given the risks and suitability considerations.”
As mentioned above, clients can get exposure to the same asset classes as are present in LTAFs by owning investment trusts, but Hollands says there are limits to the effectiveness of this as well.
He says: “Currently we use investment companies to access underlying asset classes that are illiquid in nature and suitable for opened funds with daily dealing. This includes areas like operational infrastructure, physical property and private companies.
"A closed end structure is well suited for this, and listed investment company shares can be sold on the secondary market if an investor needs to sell. But of course, there will be periods when investment company discounts widen, and share price performance can become divergent from underlying portfolio returns.”
Discounts widening is usually caused by negativity towards equities as an asset class, because equities are listed on a stock exchange.
The problem for a client here is that they may wish to own private equity, debt, property or infrastructure as a diversifier away from equities, but owning a fund that is listed on the stock exchange may mean one is taking equity risk anyway.
Oli Creasey, property analyst at Quilter Cheviot, says he is watching property LTAFs with interest, but says his enthusiasm is “tempered” by both the lack of choice right now but also the lack of track record of such funds in times when the property market performs poorly.
David Thorpe is investment editor of FT Adviser
