What Is a LTAF Fund? (With Fund Examples)

The Long-Term Asset Fund is the UK's purpose-built vehicle for bringing private markets into defined contribution pension schemes and, increasingly, the wider wealth market. Regulated by the FCA, structured to be honest about illiquidity, and now gaining traction, with more than 25 LTAFs on the market and counting.

The LTAF was born from a specific problem. UK open-ended funds that held illiquid assets - property, infrastructure, private credit - but offered daily dealing created a fundamental mismatch. When investors rushed for the exits, managers were forced to sell illiquid assets at a discount or gate the fund entirely.

The LTAF's dealings are permitted no more frequently than monthly. Investors must give at least 90 days' notice before redeeming and the FCA has been clear that for highly illiquid strategies, even longer notice periods may be appropriate.

For investors who understand and accept this - principally pension schemes with long time horizons, but increasingly wealth clients too - the trade-off is access to asset classes that were previously impractical within a UK-regulated, open-ended fund.

The LTAF's investor base has expanded in stages. When it launched in November 2021, it was classified as a Non-Mass Market Investment, effectively limiting it to professional investors and certain sophisticated or high-net-worth individuals. In June 2023, the FCA reclassified it as a Restricted Mass Market Investment (RMMI), opening the door to a significantly broader audience.

Today, eligible investors include professional investors, self-select defined contribution pension scheme members, SIPP holders, certified and self-certified sophisticated investors. Retail investors can access LTAFs through platforms, but firms must provide prominent risk warnings and conduct appropriateness assessments.

The practical driver has been the UK's defined contribution pension market. The Mansion House Compact of July 2023, in which the UK's largest DC providers committed to allocating at least 5% of default funds to unlisted equities by 2030, created a direct demand signal for LTAF structures. The subsequent Mansion House Accord reinforced this trajectory.

The fund's investment strategy must be to invest mainly in long-term illiquid assets. The FCA expects at least 50% of the portfolio to be allocated to unlisted securities and other long-term assets - real estate, infrastructure, private equity, private credit, commodities. The remaining allocation provides room for a liquid sleeve to support redemptions and manage portfolio construction.

Borrowing is capped at 30% of net asset value. The FCA does not impose limits on leverage at the level of underlying investments, but the manager must ensure that borrowing is consistent with the fund's liquidity profile and redemption policy. LTAFs may also make loans directly, under certain conditions.

The LTAF can be structured as a unit trust, an open-ended investment company (OEIC) or an authorised contractual scheme (ACS). The ACS format is particularly popular for pension schemes because of its potential for tax transparency.

The LTAF is a UK-only product. There is no EU passport - post-Brexit, the LTAF cannot be marketed across the EEA without navigating individual national private placement regimes. For managers with European ambitions, the LTAF serves the UK market while a separate EU vehicle (often an ELTIF) handles continental distribution.

The 90-day notice period, while structurally sound, creates practical challenges on certain platforms and pension administration systems that were built for daily-dealing funds. The FCA acknowledged this from the outset, and the industry has been gradually building the operational infrastructure to accommodate notice periods. But investors and advisors should understand that redeeming from an LTAF is a slower, more deliberate process than selling a listed fund.

Units in an LTAF are not currently eligible for stocks and shares ISAs, given the notice period requirements. They are eligible for SIPPs, but treated as non-standard assets - which means the SIPP provider must hold additional capital, potentially affecting willingness to offer them on platform.

For wealth managers evaluating LTAFs for clients, the core questions are: does the notice period fit the client's planning horizon? Are the fees - which for DC-focused LTAFs must respect the 0.75% charge cap on default arrangements - clearly structured and competitive?