“You can also stretch out things like the redemption terms, so the notice period that you need to give to be able to then access that liquidity. This can be really beneficial from a portfolio management perspective…you have sufficient notice in order to be able to deliver the amount of liquidity per window.”
Leach continues: “You need to hold a minimum portion of private assets in the vehicle, but you don't have to hold 100 per cent. So another feature of the [LTAF] structure that we see managers innovating around is, what else do they hold alongside the truly private part of the portfolio, perhaps in order to facilitate some of that liquidity?”
WTW is also launching, subject to regulatory approval, an LTAF focused on private equity available to institutional investors and individual professional investors.
Approval is anticipated in the second half of 2024, marking the culmination of three years of development work.
“The major ticket items were trying to resolve liquidity in an illiquid asset class,” Leach says of the development process. “Owning private companies is about as illiquid as you can get.
“The second was around valuation; so how you come up with a process and a mechanism that allows you to value illiquid asset classes at the right frequency, and with the right robustness, to be able to deliver a net asset value at the fund that everyone can have comfort around.”
Meanwhile at Aviva Investors, the asset manager launched to the UK institutional and wealth market its second LTAF in March, by converting its Climate Transition Real Asset Fund to sit under the LTAF regime.
This comes after the launch of its Real Estate Active LTAF in May 2023.
“As part of developing our first LTAF, that process involved spending a lot of time considering the challenges that pension funds face, and how the fund would need to fit around those factors,” says Mark Meiklejon, head of real asset investment specialists at Aviva Investors.
“It meant spending time looking at things such as how to manage cash holdings, valuation and dealing frequency, and managing money in and money out.
“We also needed to think about how to go about covering drawdown profiles, the liquidity management required as part of that, as well as the types of assets being invested in, so the fund can offer diversification, performance, but also efficient drawdowns.
“For younger DC schemes especially, those things also need to be thought about alongside the desire to capture an illiquidity premium and how to do that while still catering to liquidity requirements.”
