US and UK asset managers with a presence in Europe are responding to a growing interest in private markets, with 78% considering an LTAF (long term asset fund) launch, according to Carne Group.
Within the UK market specifically, 82% are considering an LTAF launch, while 28% are considering its EU counterpart, the ELTIF. Among US managers, 74% have interest in an LTAF compared to 42% for ELTIFs.
The LTAF and ELTIF structures allow additional flexibility when investing in traditionally illiquid products, such as private markets, which can broaden appeal of the product to those who may need access to funds before the traditional investment period is realised. This can include requiring a certain percentage of liquid assets within the vehicle as well as set exit periods.
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While private markets have been an area of interest among pension scheme investors, the creation of the ELTIF vehicle in Europe and the LTAF in the UK has also opened the opportunity to private investors. Now, 88% of UK and European wealth managers expect the investment level in private markets to grow over the next three years, with over a quarter believing growth will be “dramatic”.
Jeremy Soutter, managing director at Carne Group, said: “In the UK alone, DC assets are set to reach £1trn by 2030, with UK schemes looking to increase their allocation to private markets meaningfully in the next few years. This represents a huge market opportunity for the asset managers that can help fulfil this allocation.
“For wealth managers and DC pensions schemes, the LTAF and ELTIF serve as critical routes into illiquid asset classes and will catalyse the growth of private markets. Launching LTAFs or ELTIFs in a time-efficient manner will be critical for asset managers looking to capitalise on the private market opportunity.”
See also: Private markets: Wealth managers face high barriers to entry
Despite the faith in the market from wealth managers, as well as the interest in increasing product from asset managers, under a quarter of wealth managers currently access private markets through an LTAF or ELTIF. One of the limitations of the market is regulation, as managers come to terms with the compliance of the vehicles. Most managers expect to increase spending by 25% to 50% for regulation resources.
“Equally, some asset managers may need to assess if an LTAF or ELTIF is indeed necessary. With a number of DC master trusts now having, or planning to have, their own LTAF in place, asset managers may find they’re able to be appointed as sub-advisers within a schemes’ LTAF umbrella structure,” Soutter said.
“Launching an LTAF can be a complicated, lengthy and costly process – made all the more difficult by the competitive pressure to get to market quickly, a challenging commercial backdrop in which cost-effectiveness is key, and an increasingly complex regulatory agenda both in the UK and EU. Carne is therefore witnessing a significant number of asset managers turn to third party specialists to steer LTAFs through the regulatory process and enable speed to market.”
