Majority of DC schemes expecting uptick in LTAF and ELTIF usage to access private markets

UK and European defined contribution (DC) schemes are expecting the DC sector’s use of Long-Term Asset Funds (LTAF) and European Long-Term Investment Funds (ELTIF) to access private markets to grow over the next three years.

Research from Carne Group found that 78 per cent of UK and European DC pension schemes predict that usage of LTAFs and ELTIFs as a means of accessing private markets to increase during that period.

Furthermore, 31 per cent of schemes surveyed expected the increase in their usage to be “dramatic”.

Carne Group has been active in the LTAF space, having submitted an approval application for a private equity-focused LTAF with WTW to the Financial Conduct Authority (FCA) in April.

It also received regulatory approval from the FCA for a private debt-focused LTAF, which will be launched by Arcmont Asset Management, in June.

These developments in the LTAF space come on year on from the Mansion House Compact, with Carne Group director for business development, Ben van den Tol, describing the compact as an “important moment for the democratisation of private markets” for UK pension savers.

“While pension schemes have allocated to private markets for some time, the compact has catalysed these initiatives,” he continued.

“Our latest research shows that UK and European DC schemes are planning to increase their allocations to private equity, private credit, infrastructure and other private market strategies meaningfully over the next five years.

“With DC schemes looking to increase their allocations to private markets considerably, investment managers are taking note and actively expanding their proposition in private markets across the European continent.

“For the UK, this has been further enabled by the introduction of the LTAF structure. Since its introduction two years ago, we have seen a significant rise in fund managers launching these types of funds.”

Van den Tol noted that while the regulatory landscape is evolving and supportive of the democratisation of private markets, managing liquidity, asset valuation, ESG scrutiny and novel fund structuring remained key challenges for investment managers looking to scale private market propositions in Europe.

“Moreover, many of the global asset managers we surveyed expect regulatory scrutiny in the UK and Europe to become more complex over the coming years,” he said.

“As a result, we’re seeing a significant rise in asset managers turning to third-party specialists who can support them in navigating and complying with the private market regulatory regime.

“For managers to remain competitive in this space, we need to ensure that the industry is working together to achieve the correct balance of investor protections and a streamlined process for asset managers to invest in the UK.”

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