FCA approves open-end fund structures for illiquid investing

The U.K. Financial Conduct Authority approved new open-end fund structures that allow defined contribution plans, retail investors and high-net-worth individuals to access illiquid investments.

The financial services watchdog said Monday it is taking its proposal issued in May forward so investors can utilize the new long-term asset funds to invest in venture capital, private equity, private debt, real estate and infrastructure.

The FCA said because liquidity risk stops investors from making significant allocations to illiquids and investors want an option to redeem investments at net asset value, the long-term asset funds will have longer redemption periods, high levels of disclosure, and specific liquidity management and governance features to help investors manage the risk.

The FCA said that these rules will provide sufficient investor protection.

"If this innovative fund structure, created by our rules, is taken up by the asset management industry, it may provide alternative routes to returns for investors, while supporting economic growth and the transition to a low-carbon economy," FCA CEO Nikhil Rathi said in a news release Monday.

Commenting on the FCA decision, Jonathan Lipkin, director of policy, strategy and research at the Investment Association, which represents the money management industry in the U.K., said via email: "Investing in illiquid assets is a way for savers to diversify their portfolios and at the same time provide capital for companies and infrastructure, which boost the economy. The Long-Term Asset Fund will offer DC pension schemes and certain sophisticated retail investors a new way to access illiquid investments through a fund structure designed specifically for such investments, with notice periods that are consistent with the time it takes to sell the underlying asset."

"We look forward to working with policy makers, investment managers, distributors and other organizations to make the LTAF a success," Mr. Lipkin added.