Understanding liquidity in an LTAF
Long-term asset funds (LTAFs) are a type of fund designed to open access to private market investment opportunities, such as private equity or infrastructure, to a wider range of experienced investors.
Given the illiquid nature of the assets these funds invest in, liquidity is different to the public market funds investors may be more familiar with. Understanding this and how and when you can get your money out is therefore a key consideration before investing.
Being regulated funds, there are clear rules designed to help protect retail investors and set expectations. Here is how it works.
Important information - This page isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. Long-Term Asset Funds are considered high-risk investments for experienced investors. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
1. How does liquidity work in an LTAF?
LTAFs offer set access points for new investors to invest (typically monthly), and similarly regular windows in which money can be redeemed (typically quarterly). Investors must also give notice (at least 90 days) when they intend to redeem assets. Each LTAF will list its specific access information in its Key Investor Document (KID) and/or prospectus.
You can get periodic access to the money invested in an LTAF but you won’t be able to withdraw it quickly at short notice if your circumstances change. This level of liquidity is better than traditional private market funds, which generally lock up capital for many years at a time, but access in an LTAF is still more restrictive than for public market funds.
Investors should be comfortable leaving their money invested for at least five years, which aligns with the long-term nature of the private assets in which these funds invest.
2. How do LTAFs manage liquidity?
LTAFs use a combination of measures to manage liquidity. These include maintaining a pool of liquid assets, setting limits on the amount that can be withdrawn during each period, and, in exceptional circumstances, temporarily suspending new subscriptions or withdrawals. Each of these tools plays a role in helping LTAFs respond to redemption requests fairly and efficiently.
LTAF managers keep a portion of their assets in liquid investments, including cash, with the aim of ensuring there is money available to meet redemption requests. Managers can also sell other, illiquid portfolio assets to generate additional capital for redemptions should this be necessary – the redemption notice period gives them time to do so.
In addition, there are caps on the total amount of redemptions that can be made in any one window (for example, 5% of assets in a quarterly period). This means you might only receive part of what you’ve asked for, with the rest paid at the next withdrawal date. This helps protect all investors by avoiding the need to sell fund assets too quickly at poor prices.
Finally, LTAFs may temporarily suspend withdrawals, and in some cases new subscriptions. This aims to protect all investors during periods of sudden market stress if too many people try to take money out at once. Again, this is designed to avoid having to sell assets quickly, which can affect pricing, and is explained clearly when you invest.
3. Can the way a fund invests affect how and when I can get my money out?
Yes, it can. Funds that spread investments across different types of assets, regions or sectors may find it easier to meet withdrawal requests, because they have more options to sell. The more diversified the fund, the more likely it is that withdrawal requests can be handled smoothly, because the manager has a wider range of options to sell assets as and when needed to meet redemption requests.
4. How does an LTAF work?
When you can withdraw:
Withdrawals are only allowed at set times, usually no more often than quarterly, and with plenty of notice
Notice period:
You must let the fund manager know at least 90 days before you want to take money out
Some funds might need even more notice
Consistency with investments:
The time it takes to get money back matches how quickly investments can be sold or turned into cash
Prevents issues if lots of investors want to withdraw at once
Mix of investments:
The fund spreads money across different types of investments and regions, and keeps enough cash to pay withdrawals
Helps reduce risk and ensures there is money available to meet redemptions
Tools the manager uses:
Includes setting limits on how much can be taken out, keeping some assets easy to sell, and sometimes early lock-ins
For example - letting only 5% of the fund value be withdrawn per quarter
Limits on withdrawals:
There’s a cap on the amount all investors can withdraw during each set period
Why? It is to prevent too many people selling at once and harming the fund
Handling requests:
If more people want to withdraw than the cap, withdrawals are split fairly and the remaining amount is delayed
Investors may get some of their money now, the rest later
Selling investments:
The fund can sell some assets more quickly on certain markets to raise cash
Some assets, like shares, are easier to sell fast
Initial lock-in:
When a fund is new, you might have to wait a few years before you can withdraw
For example - Some funds have a 3-year wait after launch
Cash management:
Fund managers watch how much cash is available to meet withdrawals, based on how many requests are coming in and going out
Ensures there’s usually enough money to pay investors on time
Regulator's role:
Rules are in place to protect investors' interests and make sure the fund manager acts fairly
The FCA oversees these rules, only allowing pauses if really needed
Where it fits:
Provides more flexibility than traditional private funds, but less than funds you can trade every day
Harder to withdraw from public market funds or shares, but easier than from a traditional private markets fund.
5. Pros and cons of LTAFs
Pros:
Opens access to private market opportunities
Potential for higher growth and income
Can dampen volatility during periods of market stress due to diversification on offer
Diversification beyond stocks and bonds – less tied to daily market moves
Cons:
Newer structure with more limited track record
More complex structure and higher fees
Higher redemptions could introduce additional liquidity risks during challenging markets
Money invested is less accessible compared to public market funds