FCA consults on Long-Term Asset Fund regime

Borrowing limits and investment build-out

In Consultation Paper CP21/12, the FCA proposed capping fund-level borrowing for Long-Term Asset Funds at 30%, as part of a wider package of changes to investment and borrowing powers. The consultation also set out a now-abandoned proposal for a 24‑month period during which limits on investments would not apply, which the FCA has removed in the final rules in PS21/14.

Manager eligibility and governance expectations

CP21/12 proposed restricting management of Long-Term Asset Funds to firms that can demonstrate relevant experience and are categorised as full-scope UK alternative investment fund managers. The consultation also outlined a suite of disclosure and governance requirements for Long-Term Asset Funds, covering fees, portfolio changes, valuation, due diligence, subscription and redemption policy, and liquidity management.

Pension access and permitted links changes

The FCA has confirmed in PS21/14 that the Long-Term Asset Fund rules are intended to provide sufficient investor protection to enable defined contribution pension scheme investment in the structure. CP21/12 proposed amendments to the permitted links and conditional permitted links rules in COBS 21.3, and related provisions, to allow defined contribution pension arrangements to invest in Long-Term Asset Funds.

Adjustments from consultation to final rules

Alongside removing the proposed 24‑month investment limits waiver, the FCA has made the rules on the types of permitted loan for Long-Term Asset Funds less prescriptive in the final policy statement. PS21/14 also drops the earlier proposal that a second scheme investing in a Long-Term Asset Fund must itself have a prudent spread of risk.

Development process and future retail access

The Long-Term Asset Fund regime has been developed with input from the Productive Finance Working Group, which brings together the FCA, the Bank of England, HM Treasury and industry participants. The FCA has said it plans to consult in the first half of 2022 on whether to enable a broader range of consumers to invest in Long-Term Asset Funds in a controlled way, extending beyond the initial focus on defined contribution pensions.

The next key decision point will be the FCA’s planned consultation on widening consumer access, which will determine how far the Long-Term Asset Fund structure moves beyond institutional and pension scheme investors.

Sources: aref.org.uk · fca.org.uk