Let’s not pretend that as retail investors , we know what we’re doing when we’re playing with unicorns!

We want to hand the job of investing in “unicorn”stocks not yet on our public markets to specialists. Meanwhile we want to be benefiting from the kind of returns that have been achieved from the privately quoted assets that investment trusts and ETF/LTAFs

The only problem is that some young unicorns fail to progress. As Steve Johnson points out in this Easter’s Financial Times

Among the successes have been Baillie Gifford’s investments in SpaceX, Anthropic and ByteDance. There have been failures, though, such as a holding in Northvolt, which was written down to zero when the Swedish battery maker went bankrupt last year.

It is the investment trusts , such as those run by Baillie Gifford that have been playing
Several currently hold SpaceX stock at a valuation of $800bn — less than half the $1.75tn the company is believed to be targeting for a putative June flotation, although there is no guarantee this will be achieved.

LTAFs have been chosen by the Government for retail investors while investment trusts have been restricted  from competing in workplace pensions ( a fight that Altmann, Bowles and co have been waging in the House of Lords  so that workplace pensions can use investment companies/trusts).

Here’s Hargreaves’ take on LTAFs

For a long time, private investments like private equity, private debt, infrastructure, and real estate, were mostly reserved for big players like pension funds and large institutions.

But in 2021 this changed when the UK’s financial regulator, the Financial Conduct Authority (FCA), introduced a new type of fund – the Long-Term Asset Fund (LTAF).

Steve Johnson asks whether there is appetite for the losses created by unicorns going wrong. We still remember what went wrong with Neil Woodford’s funds. There are now problems with Exchange Traded Funds (ETF’s) in the United States (Blue Owl being the obvious example).

Since investment trusts are closed-ended, analysts  say they are reasonably well suited to holding typically illiquid private assets, which can be difficult to sell in a hurry.

Although in theory Europe’s Ucits mutual and exchange traded funds can hold up to 10 per cent of their portfolio in private companies, very few do because daily dealing creates valuation and liquidity problems if redemptions surge.

For me the answer to the question posed in this question is that retail investors and even those investing through workplace pension pots  are not going to get involved with unicorns.

The need for liquidity makes retail investors unsuited for the kind of investments Morningstar’s Global Unicorn Index tracks. But the investment horizons of collective pensions are different, they do not need the same liquidity and can tough out failures such Northvolt or (closer to home) Thames Water.

If Pension Funds are run on an  institutional basis by investment managers like Baillie Gifford and Aberdeen , I am comfortable. But if the format is the LTAF aimed at retail investors, I don’t want my pension fund invested in them.

Being a simple fellow, I want to have my pension invested for the long-term in assets which will grow best over time. I am happy to invest in unicorns but in a way that protects me.