The FT have delivered an early warning on the liquidity of LTAFs in the wealth management, in the summer it delivered a clear warning that direct investment beats fund of funds but that only multi-billion pools can access private markets directly.
RBC Wealth Management, Evelyn Partners, and Quilter Cheviot are among the wealth managers aiming to offer greater access to private markets to wealthy clients.
DIY investment site Hargreaves Lansdown earlier this month said it would offer access to LTAFs through personal pension wrappers.
Traditional fund groups such as Schroders have launched their own LTAFs, while other European players such as Carmignac have formed partnerships with alternative asset specialists.
Here we have Long Term Asset Funds providing a wrapper for fund of funds, we have “evergreen funds” recycling privately quoted shares that couldn’t find a buyer at the right price and we have a market of buyers and sellers with much money and limited sense.
Pensions UK (PLSA when published in 2021) issued the document I learned LTAFs I learned from. It is clear that LTAFs are for DC pension schemes as a halfway house between the member (taking the risk) and the private equity funds (taking the money).
Buffet made it clear that for the vast majority of us, it is better to to stick to properly priced indices where the return you get it based on consensus. The market for private shares is hugely exciting (think the investment in British Technology) but as Toby Nangle showed officers of LGPS this June(my version) the difference between accessing private equity and credit through fund of funds and directly amounts to 2-3% pa in charges. The FT Alphaville article on which mine is based is here
Chris Sier (who is not well) has shown that the value LGPS can get from private markets depends on controlling the costs and knowing what others don’t. Chris’ Clearglass has promoted best practice, some LGPS pools (Border to Coast) and to ensure that people found out how to get ripped off. This service is available where advice can be paid for as a tiny fraction of the money being invested. This is simply not available to “high net worth” individuals using third party funds , fund of funds and LTAFs as a means to protect them.
Emma Dunkley and Alexander Head are not afraid to the weakness of LTAF (introduced in 2023) in providing liquidity. Nor to the concerns associated with Evergreen Funds that sit within these fund wrappers.
Mara Dobrescu, senior principal for fixed-income strategy ratings at research firm Morningstar, warned these funds “come with limited withdrawal opportunities, and they have not yet been tested in a severe risk-off environment”. She added that “several quarters of withdrawals in a row” could force managers to halt withdrawals from the fund and this “could be difficult for retail investors to stomach”.
Here is the importance of mutuality between investors, something you can get within large occupational investors where investment is collective on behalf of members and between a limited number of responsible pools. That can work in wealth management but to a lesser extent and often not at all. We remember Woodford not because Woodford was a rogue but because he had no control demand for liquidity.
There are advisers, platforms and wrappers between the investment and the investor and that seems to me dangerous. Let’s be careful before we give all these layers a green light for our needs. Few of us really have the capacity to lock money away in what is meant by “long-term assets”.
