Long-Term Asset Funds promise access to private equity, infrastructure and property alongside liquidity — but there are compromises to accept, and their structure may expose private investors to hidden risks, writes Claire Madden.
What are LTAFs?
Long-Term Asset Funds (LTAFs) were introduced by the then-Chancellor, Rishi Sunak in 2020 as open-ended vehicles designed to give investors access to illiquid asset classes such as private equity, private debt, infrastructure, and real estate. Unlike daily-dealing funds, they impose redemption notice periods of 90 days or more, and deal only monthly or quarterly. The regulatory framework for LTAFs was then developed by the Financial Conduct Authority (FCA) in October 20211 and the first LTAF was authorised by them in March 20232.
The FCA considers that LTAFs can channel “patient capital” into long-term projects that support economic growth. Although they allow periodic redemptions, investors should still view them as long-term commitments.
There has been significant hype around LTAFs as a way to gain exposure to private equity while retaining the option of liquidity. However, they are not designed as short-term investments. As with all private market vehicles, long term commitment remains the key factor in generating returns.
Why are pension schemes early adopters?
More than 90% of assets raised so far have come from institutional investors, particularly pension schemes3. Their long-term liabilities align naturally with the illiquidity of LTAFs, making them well-suited to the structure. They may also benefit from preferential governance rights and stronger relationships with fund managers.
For individual investors, however, horizons are often shorter, liquidity needs higher and less predictable, and bargaining power lower. They buy in on standardised terms, with limited visibility on the underlying portfolio — raising clear questions about suitability.
How do LTAFs compare with closed-ended private equity funds?
Closed-ended private equity funds call capital gradually over several years, allowing managers to pace investments across market cycles. By contrast, LTAFs are “evergreen”: capital arrives upfront and must be deployed quickly, creating pressure to invest even when conditions are unfavourable.
Another key distinction is performance. Closed-ended buyout funds typically target net returns of 12–15%4, reflecting leverage and the illiquidity premium. By comparison, LTAFs — which must maintain liquidity buffers and offer more flexible redemption features — are generally expected to target high single-digit returns5. Investors should understand that liquidity access can come at the expense of performance potential.
Do LTAFs really offer liquidity?
To meet redemption requests, LTAFs must hold cash or liquid assets in reserve, which causes a drag on return. Inflows and outflows also tend to be correlated: money enters in buoyant markets but exits rapidly during volatility.
The UK has already seen how damaging this dynamic can be. After the Brexit referendum in 2016, nearly £18bn was trapped in suspended property funds . More recently, the Woodford Equity Income Fund collapsed under redemption pressure, with the FCA citing “sustained and serious failures” in liquidity management7.
Are valuations reliable?
Closed-ended funds typically charge fees on committed capital, with carried interest crystallising only after realisations — aligning incentives with exit values. LTAFs, however, are priced on net asset value (NAV). When fees are tied to NAV, there is always a risk of inflated valuations. The FCA’s 2023 review on private asset valuations flagged inconsistent and sometimes overly optimistic practices8.
Do LTAFs lack investment discipline?
Closed-ended funds have a fixed life, usually around 10 years, which forces managers to realise investments within a defined period. This discipline ensures assets are sold when value is maximised.
Evergreen LTAFs lack this endpoint. Managers may prefer to hold assets longer than is optimal, since fees continue while assets remain on the books. Compounding this, LTAFs have no track record yet as they are so new. While their managers may have experience in private markets, the structure itself has not been tested through a full cycle — a genuine concern for investors.
Are private investors at a disadvantage?
The government plans to make LTAFs ISA-eligible from 20269. Yet private investors face clear disadvantages compared with institutions. In a listed private equity trust, shares can be traded daily on the stock exchange with transparency and price discovery. By contrast, LTAF pricing is set by the manager, and redemption terms are tightly controlled.
Institutions also enjoy stronger governance relationships with fund managers. Private investors, by contrast, invest on standardised terms and have little influence. In times of market stress, it is often smaller investors left waiting at the exit while larger institutional investors, managed to get out.
Are LTAFs really democratising access?
Supporters argue that LTAFs “democratise” access to private markets. But investment trusts, including Venture Capital Trusts (VCTs), have already provided private investors with exposure to private equity, infrastructure and property for decades — with proven liquidity through multiple market crises. Against this backdrop, LTAFs remain untested10.
The higher potential for returns that the private equity asset class has historically demonstrated — often outperforming public markets over the short, medium and long term11 — are compensation for illiquidity and locked-up capital. Structures engineered to provide liquidity are unlikely to deliver the same outcomes.
You can register with Connection Capital here to access closed-ended private equity buyout funds targeting superior returns to LTAFs, as well as other private market opportunities.
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Important note
Investments in private markets are high risk and speculative which means there is no guarantee of returns and investors should not invest unless they are prepared to lose all of their money. Past performance is not a reliable indicator of future performance. Investments in private markets are medium to long term and illiquid so can’t be readily accessed until the exit point. The investor is unlikely to be protected if something goes wrong. More information is given on our risk warnings page here.
Sources
- FCA (2021). Policy Statement PS21/14: A new authorised fund regime for investing in long-term assets.
- FCA (2023). FCA authorises first Long-Term Asset Fund.
- FCA (2022). LTAF Market Data.
- Pregin (2022). Private Equity & Venture Capital Report.
- Early LTAF prospectuses (e.g. Schroders UK LTAF).
- BBC (2016). Property funds freeze £18bn after Brexit vote.
- FCA (2023). Final Notice: Woodford Equity Income Fund.
- FCA (2023). Review of Valuation Practices in Private Markets.
- HM Treasury (2023). Future of Retail Investments Review.
- Association of Investment Companies (2023). Statement on LTAFs vs investment trusts.
- BVCA (2023). Performance Measurement Survey.