Productive Finance Working Group publishes recommendations on long-term, illiquid investments

Written by Zhuan Faraj

On 27 September 2021, the Productive Finance Working Group (the ‘Group’) published a report entitled ‘A Roadmap for Increasing Productive Finance Investment’.

The Group was formed in November 2020 to develop practical solutions to the barriers to investment in long-term, less liquid assets, with one of its early deliverables being the rollout of the Long-Term Asset Fund (‘LTAF’) structure.

The report considers the key barriers to investment in such long-term assets, looking at four key areas: shifting the focus to long-term value, building scale, developing industry guidance on good practices for liquidity management, and widening investment in less liquid assets, including to retail investors.

Among other things, the report recommends:

• Good practice guidance on liquidity management to be produced by industry participants and trade bodies, in the context of the FCA and Bank of England’s broader work on liquidity classification for open-ended funds.
• Asset managers to develop products based on this guidance, including LTAFs, to increase confidence in less liquid assets.
• The FCA to review the 35% investment cap on illiquid assets for all permitted links, where the underlying investor is not self-selecting their investments.
• The FCA to review the Financial Promotion rules as applied to the LTAF, including the classification of the LTAF as a non-mainstream pooled investment (NMPI) once LTAFs are established, as well as as part of its review of the potential safe distribution to retail investors more broadly.

 For further information the full report can be found here.