The Financial Conduct Authority (FCA ) has authorized the United Kingdom’s first Long Term Asset Fund (LTAF). The financial markets regulator described LTAF as “a new category of open-ended authorized fund designed to invest efficiently in long-term assets.”

The approval of the fund follows the finalization of rules for a new regulatory regime for LTAF by the FCA in October 2021. The history of the new fund dates back to May 2021 when the regulator first opened a consultation on creating a regime to promote investment in long-term illiquid assets. The consultation was later closed in October of that year.

“We made these rules to create an environment where investors that wish to invest in productive finance assets can more easily do so. It was for market participants to make this a reality and it is good to see this product innovation now taking place,” Sarah Pritchard, the Executive Director of Supervision, Policy and Competitions Markets, at FCA explained in a statement released on Thursday.

FCA Seeks Positive Investor Sentiment for Long-Term Assets

Defending the decision to change its rules, the FCA previously explained that some investors are unable or unwilling to invest in long-term assets even though these assets have the potential to meet their investment objectives. The regulator further noted that investment in long-term illiquid assets is not only important in yielding “good long-term outcomes for investors," but also contributes to economic growth and job creation.

“Our new rules embed longer redemption periods, high levels of disclosure, and strong liquidity management and governance features. This will provide sufficient investor protection and enable defined contribution pension scheme investment into the LTAF,” the FCA explained.

Between August and October last year, the UK regulator consulted with asset managers, consumer groups, investment advisers, private wealth managers and other categories of stakeholders on proposed rules to expand access to the LTAFs to a wider group of retail investors and pension schemes.

Speaking further on its industry collaboration, the FCA disclosed that it worked with the Productive Finance Working Group, a group it convened in partnership with the Bank of England and the HM Treasury in November 2020, to break down some of the barriers against long-term asset investment.

FCA Works on New Asset Management Regime

Meanwhile, the launch of the first LTAF comes weeks after the FCA started consulting with industry stakeholders on how to improve and update the regulation of the country’s asset management industry. The regulator expects to stop receiving public input on this on May 22, 2023.

The UK’s asset management industry is the second biggest in the world after the United States as asset managers in the UK manage over £11 trillion in assets. The country’s asset management industry grew in 2021 by £600 billion (or 5%), bringing 37% of all European assets under UK management.