The Financial Conduct Authority has confirmed long term asset funds will be covered by the Financial Services Compensation Scheme.
It comes four months after access to LTAFs was widened by the FCA to include retail investors, such as those in defined contribution pension schemes.
The LTAF fund structure was launched in October 2021 to give sophisticated investors and defined contribution pension schemes access to illiquid or long-term assets, such as infrastructure, private equity and real estate.
In response to the expansion of who could access LTAFs, the FCA set about consulting on whether the protections of the FSCS should be available for these products.
The regulator asked four questions on the topic and received a total of 17 responses from: three private individuals, three firms, seven trade bodies, one law firm, two FCA panels, and the FSCS.
All but one of the respondents expressed "significant concerns" about the removal of compensation protections from the open-ended funds.
The FCA concluded: "We have considered the position carefully and reflected on the feedback received.
"In light of this, we have decided not to take forward the option to exclude FSCS cover for regulated activities relating to LTAFs.
"We now propose to consider any changes to the scope of FSCS protection for retail investments in the round, rather than excluding activities relating to certain investment products in isolation."
Key themes
In a policy statement, published today (October 30), the FCA set out that respondents suggested focusing solely on FSCS cover for LTAFs could undermine the work of developing LTAFs for retail, their potential success, and could impact consumer confidence, "which is at odds with the aims of broadening access to retail customers".
The FCA stated: "Respondents suggested that removing only LTAFs from the scope of the FSCS would only add another material barrier to the distribution of LTAFs that may make take up unattractive."
The implication of singling out LTAF as a ‘risky’ product was seen by stakeholders as wrong.
They said that while there are specific liquidity and valuation considerations, the respondents consider it likely to have much greater diversification and lower volatility than other products covered by the FSCS.
Respondents also suggested that considering FSCS protection on a product-by-product basis "risks creating confusion and inconsistency".
Schroders launched the UK's first LTAF in March - the Schroders Capital Climate+ LTAF, a diversified multi-private assets fund which aims to support the transition towards net zero economies through its investments.
The only two months later, the firm received approval by the FCA to launch an LTAF dedicated to renewable energy and the energy transition.
The only other company to have launched an LTAF so far has been Aviva, which announced the launch of the Aviva Investors Real Estate Active LTAF.
tara.o'connor@ft.com
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