The UK government, financial regulator and wealth industry are pushing for greater retail investment into private markets but some intermediaries are still cautious about offering the products.
The initiative to encourage individual investment into long-term, illiquid assets has been spearheaded by two vehicles – the UK’s Long-Term Asset Fund (LTAF) structure and its EU counterpart, European Long-Term Investment Funds (ELTIFs).
Hargreaves Lansdown, one of the biggest investment platforms in the UK, launched two LTAFs managed by Schroders in September, and the firm’s chief investment strategist Emma Wall said the firm has seen “strong demand” for the LTAFs since then.
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Aegon has also just hit a £1bn milestone in its LTAFs.
Federico Vettore, head of European private markets for wealth at Morgan Stanley Investment Management, added: “We continue to see strong demand from investors for access to the enhanced risk-adjusted returns that private markets can offer.”
It comes after 17 of the biggest pension providers in the UK signed an agreement, the Mansion House Accord, pledging to invest at least 10 per cent of their defined contribution assets into private markets by 2030, signalling a significant shift towards greater private markets investment.
Yet, many UK wealth managers and investment platforms are still holding back from launching their own private markets offerings, while others have confirmed that they have no intention to get involved.
When Alternative Credit Investor asked three wealth managers, on condition of anonymity, whether they were planning to launch LTAFs or any new private markets funds, all confirmed they had no plans for a launch in the near future.
Investment platform AJ Bell also confirmed it does not intend to sell private assets through LTAFs, claiming that demand has been “insufficient” to warrant offering the product, while wealth manager Quilter agreed that it has not seen enough demand to consider offering them.
Nick Davison, investment director at Quilter, told ACI: “The LTAF is still in its early days and there are not currently many available on the market, and demand is not at a place yet where these funds could be considered mainstream.
“As such, it may take some time, and further product innovation from asset managers, before we begin to see these assets feature more prominently in portfolios.”
He said a concern among wealth managers is that private markets “need to be interrogated in a far greater way” than public markets and that significant due diligence is required.
“Concerns around performance reporting and valuations have been flagged, and as such the due diligence required is significant,” he said.
Jason Hollands, director at wealth manager Evelyn Partners, agreed that there is not enough demand to justify launching new private markets funds or LTAFs.
“We are certainly starting to see a steady stream of LTAFs being launched in this space, but wealth managers need to be mindful of the importance of liquidity to clients and the ability to shift weightings to different asset classes, so the jury is out on whether new product supply and demand are balanced,” he said.
However, Davison said the Mansion House Accord and wider industry push could see more asset managers decide to develop products that invest in private markets over the next few years.
“This change in approach to asset allocation is likely to generate a little more interest in private assets, and that momentum should help stimulate competition within the market,” he added.
