Demand for private assets is not a new trend. The search for uncorrelated investments and enhanced returns has been a quest for many investors who had their hands burned during the global financial crisis of 2008.
More than 15 years later and exposure has risen steadily, as has the investable universe available to investors. Gone are the days when private assets consisted solely of private equity and real assets, with areas like infrastructure and private debt coming to the fore.
Importantly, the investor base has also evolved. Complex structures and liquidity concerns meant for many years this was solely the realm of the institutional investor. But challenges around volatility, low rates and periods of significant correlation between equities and bonds (on the downside) brought private assets onto the radar for high net worth and mass affluent investors.
Barriers to the retail investor have been clear. The most obvious of these is the ‘liquidity mismatch’ between these types of assets and the need for shorter time horizons and greater liquidity from retail investors. This has been highlighted in the property market in recent years – with forced sales of real estate assets resulting in a significant loss in value. Fee structures, regulation and general transparency have also been hurdles in what has been dubbed ‘the democratisation of private assets’.
Moves have been made to overcome these challenges. Backed by the UK government, Long-Term Asset Funds (LTAFs) are regulated open-ended investment vehicles designed to enable a broader range of investors, with longer term horizons, to invest efficiently in illiquid and private assets.
July 2025 may well be the tipping point for these products to go mainstream. The most significant news was the announcement that, from next year, LTAFs will be eligible for inclusion within an ISA. The idea behind LTAFs is they are also semi-liquid. They allow investment into the likes of infrastructure, private equity, private debt, venture capital and real estate – while blending with more liquid investments or cash to give you added liquidity within the fund.
The case for investment trusts still trumps LTAFs
I can see the logic from a performance perspective. Figures from Preqin show that over the past 20 years, private equity has significantly outperformed when the S&P 500’s trailing four-year return was below 10%, with an excess return averaging about 1,000 basis points (bps). In higher-return environments for public equities, this outperformance narrows to around 400bps.
However, my argument would be that in the shape of investment trusts, we already have a closed-ended product which delivers on many of these needs with daily liquidity. LTAFs don’t offer daily dealing, so it’s hard to see what problem they’re solving for the end investor – especially in an already crowded and complex ISA market. Given the cost and operational complexity of offering LTAFs, it’s also unlikely that most retail platforms will adopt them, especially without long-term demand.
More broadly, retail interest in private equity has been limited. It would be far more beneficial – both for investors and the wider market – to improve education around the long-term benefits of traditional assets like equities and bonds, rather than promoting complex structures for which there is little demand.
Private equity has enjoyed a golden run over the past two decades, with institutional investors making it a core allocation. But the outlook is less certain. Despite public markets sitting at all-time highs, the IPO window remains largely shut, exits are scarce and many portfolio companies are yet to face the reality of refinancing in a higher-rate environment.
At the same time, some institutional investors are nearing their allocation limits on PE exposure – prompting private equity managers to seek their next source of capital. That may help explain the push for products like LTAFs, but it doesn’t necessarily serve the best interests of end investors.
There is some support for LTAFs
Supporters would point to some benefits to LTAFs when you compare them to investment trusts. For example, LTAFs, by trading at NAV, are not susceptible to discounts moving against investors at the wrong time. While this comes at the cost of the level of liquidity investment trusts can offer – and the tactical trading opportunities - it offers private market exposure that acts in a different way in a portfolio. Discounts can be large and volatile for investment trusts where the underlying assets are illiquid in times of stress (making it challenging for those buying private assets as a diversifier).
There is also an argument that the ability of investment trusts to raise new capital can be hampered by persistent discounts. As a research note from Schroders points out: “The ability to raise capital in line with investor requirements means LTAFs are more easily ‘scalable’. Larger wealth managers, for example, who can struggle with risk limits on smaller investment trusts, could factor the use of LTAFs into more client portfolios than might be the case for investment trusts.”
The same note says investment trust launches can be expensive, reducing day one NAVs for founder investors. By contrast, LTAF launches are typically lower cost to investors.
More often than not we can overcomplicate things for retail investors. The trifecta of daily liquidity, discount opportunities and the long-term track record of some of these private assets -within an investment trust structure - outguns the benefits of an LTAF structure over the long term.
Investors who might want access to these specialist investment trusts may want to consider using a multi-asset fund – allowing fund managers to select and blend various structures. Examples include the VT Momentum Diversified Income fund – which has 42% in specialist assets. Others with exposure to the likes of private equity and infrastructure include the ISFL Wise Multi-Asset Growth fund and the SVS RM Defensive Capital fund, the latter being a multi-asset absolute return fund.
Darius McDermott is managing director at FundCalibre. The views expressed above should not be taken as investment advice.