Question to the HM Treasury:

To ask His Majesty's Government what assessment they have made of the suitability of (1) closed-ended and (2) open-ended investment companies for holding illiquid long-term real assets.

The Long-Term Asset Fund (LTAF) was devised to bridge the gap between closed-ended funds and fully open-ended daily-dealing funds and fulfil the need for investment products that can provide funding for long-term projects while offering investors potential for higher returns in exchange for limited liquidity.

The FCA have designed robust governance requirements for the LTAF, so investors who understand the risks of investing in long‑term less liquid assets are able to invest with confidence. Where a firm markets an LTAF to a retail investor, the firm must provide appropriate risk warnings and conduct an appropriateness assessment.

The international Financial Stability Board (FSB) recognises that open-ended funds that invest in less liquid or illiquid assets while allowing investors quick and frequent access to their money, risk being unable to sell investments quickly enough to meet large investor redemptions. In 2023 the FSB published recommendations to address these vulnerabilities in open-ended funds. The FSB’s recommendations include assessing the appropriateness of redemption terms for open-ended funds holding less liquid and illiquid assets, which was a key consideration in the design of the LTAF.

The Government is supportive of the FSB’s work on open-ended funds and the regulators are considering the implementation of the recommendations.