“We are particularly mystified about why wealthy investors warrant special treatment,” Dzmitry Lipski, head of fund research at interactive investor, said.
The omission of retail investors from those eligible to invest in the new long-term asset fund structure has been questioned by industry commentators, who ask why wealthy investors have been afforded “special treatment”.
Dzmitry Lipski, head of fund research at interactive investor, noted that while the LTAF was "initially intended for ‘pension funds' or ‘sophisticated' or ‘wealthy' private investors in the first instance", this does not explain why such a decision has been made.
"We are particularly mystified about why wealthy investors warrant special treatment," he said.
LTAF will require minimum 90-day notice period and lays groundwork for property fund overhaul
While Lipski added he was "alarmed" at plans to consult on wider retail distribution as early as next year, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, welcomed the decision.
"The question of widening the scope of LTAFs to other retail investors was also highlighted and we welcome the FCA's decision to review this in 2022 - it is important to take the time to get this right," Morrissey said.
"We believe there would be significant interest among certain individual investors but again it is important they understand exactly what it is they are buying and the role it plays in their overall investment planning."
Jonathan Lipkin, director of policy, strategy and research at the Investment Association, also welcomed the commitment to expanding the eligibility of the LTAF to a broader range of retail investors provided there were "appropriate safeguards".
The 90-day notice period also raised eyebrows, with commentators uncertain about both the duration and the technical requirements this would entail.
Kyle Caldwell, collectives specialist at interactive investor, described the three month notice period as "no time at all in a liquidity crisis" and suggested this would be unlikely to help match the illiquidity of these investments with the required liquidity of an open-ended fund.
'Reservations' around illiquid weightings in 'untested' LTAF model
Lora Froud, investment management group partner at Macfarlanes, described the imposition of notice periods as a "key concern" of the new regime.
"The LTAF is targeted at DC schemes whose underlying investors typically access their investments through platforms," she said.
"We believe that platforms will not be operationally ready to accommodate notice periods in the short term. This could have a significant impact on the immediate success of the LTAF given the intended investor universe."
Lipski also questioned the suitability of the fund structure: "Wealthy or not, open ended funds are not the best structure for illiquid assets, and it isn't rocket science to work out why - we have seen the fall-out from open ended funds investing in illiquid assets time and again."
