The U.K. Financial Conduct Authority is seeking industry input on its proposal to launch new fund structures that would allow defined contribution plans and retail investors to invest in illiquid assets.
The financial services watchdog said Friday it is proposing that the new open-end funds, known as long-term asset funds, would invest in venture capital, private equity, private debt, real estate and infrastructure to help businesses with access to long-term capital.
Because liquidity risk stops investors from making significant allocations to illiquids and investors want an option to redeem investments at net asset value, the FCA proposed that LTAF funds have longer redemption periods, high levels of disclosure, and specific liquidity management and governance features to help investors manage the risk, it said.
"This new type of fund may ... be more attractive to DC pension schemes that have long investment horizons and who, under current fund structures, find it difficult to invest in these types of assets," said Nikhil Rathi, CEO of the FCA, in a news release Friday. "Nevertheless, it is important that the LTAF commands the confidence of target investor groups and can meet their needs. We therefore propose rules to secure an appropriate level of consumer protection and to address specific risks related to investments in illiquid assets."
The consultation runs until June 25.