The Financial Conduct Authority (FCA) has proposed a new ‘patient capital’ class of authorised unit-linked investment funds permitted to hold up to 50% of assets in illiquid, long-term holdings.
Subject to enhanced risk warnings, the new class would enable more investors a mainstream entry point into assets committing long-term capital to major infrastructure projects and other illiquid opportunities, and in particular would attempt to tap more pension savings.
The proposals, and an accompanying discussion paper on risk management and fund duration, will now be put out for consultation until the end of February.
FCA executive director of strategy and competition Christopher Woolard said: ‘We are proposing changes to allow retail investors greater access to long-term investment opportunities.
‘We are also seeking views to help us identify any unnecessary barriers to investment in patient capital through authorised funds.’
The proposals stem from the government’s Patient Capital Review, launched by chancellor Philip Hammond to explore ways to increase long-term investment in the UK economy.
Earlier FCA work on portfolio liquidity following the post-Brexit closure of a series of open-ended UK property funds had judged that these risks were generally well handled by managers of unit-linked products.
It noted that the proportion of unit-linked assets invested in illiquid holdings was low, however, at just £27 billion of the overall pool of £914 billion in funds.
‘The Patient Capital Taskforce has also been concerned that the rules as they stand may present regulatory barriers to illiquid patient capital investments,’ the FCA consultation noted.
‘[The changes would] benefit consumers by allowing funds to choose investment opportunities that match the investment needs of consumers more effectively… [and] enable a broader range of long-term investment through unit-linked funds, particularly in defined contribution pension funds where members invest via unit linked funds.’